WITH SUBPOENAS ISSUED TO SOME of the state's leading home builders in hand, California insurance commissioner John Garamendi on April 4 held a hearing to investigate whether the builders have received illegal kickbacks in exchange for referring home buyers to title insurance companies. The opening of the investigation in California follows actions taken by the state of Colorado, which recently reached a settlement with First American Title Insurance Co. requiring it to repay consumers $24 million in extra charges.

Companies served subpoenas include William Lyon Homes, KB Home, Re/Max, United Home Mortgage Corp., Shea Financial Services, and Wells Fargo Home Mortgage. Under the allegedly illegal arrangements, builders received compensation through subsidiaries for providing reinsurance policies back to the title insurance companies. Those policies are intended to cover a portion of potential losses; however, the reinsurance companies have yet to pay out any claims, raising the question of whether it is a legitimate business arrangement.

While the April 4 hearing was closed, Garamendi's subsequent comments were strong. Linking the alleged kickbacks—and their cost being passed on to home buyers—with the affordability problem in California, Garamendi stated, “By whatever means necessary, I intend to get to the bottom of this scandal and ensure that the title insurance industry operates legally and fairly.”

With the investigation continuing and more subpoenas possibly forthcoming, the commissioner's office could give no timeline on its conclusion. “It's very difficult to say when we'll take action because the investigation is ongoing,” said spokesman Norman Williams, adding that it's difficult to say whether other builders will be named “until the investigation plays out.”