Guaranty Title underwriter assesses claims, details audit

“I anticipate that we are going to end up paying out substantial sums of money to people that have been wronged by the actions of Guaranty (Title), but I honestly can’t estimate what that exposure is right now,” said Ted Bush, senior vice president for LandAmerica’s Midwest region.

A senior auditor for Land-America has found at least $4.5 million missing from the Nixa-based title company’s escrow accounts, according to a lawsuit filed June 27 by his employer in Christian County Circuit Court. Guaranty Title had about 50 accounts at about 20 area banks, with as many as 15 accounts at Great Southern alone, court records show.

In the suit, LandAmerica subsidiary Commonwealth Land Title Insurance Co. asked Judge Mark Orr for a temporary restraining order as well as preliminary and permanent injunctions to freeze accounts belonging to Guaranty Title or its sister companies. Orr granted the request June 28 and issued an order prohibiting the company and its owners – Rick Burton, Kathy Allen and Stephanie Gray – from tampering with or disposing of files.

Allen has allegedly admitted to a “scheme of commingling and transferring funds between and among different banks and multiple accounts to replenish shortages and to also mask shortages,” according to an affidavit filed by senior auditor Kevin Hickey.

“Essentially what precipitated this was … a call from Kathy Allen on or about June 18, in which she disclosed that there were some serious problems there. … She said there were shortages in the escrow account,” Bush said from his Cleveland office during a July 5 interview, noting that his company immediately shut down Guaranty Title’s nine offices in southwest Missouri.

So far, LandAmerica’s audit has uncovered escrow shortages, checks written without sufficient funds to cover payments and insufficient funds to operate the business resulting from “dubious accounting practices,” court records show.

“The main concern is what happens to the consumer in this situation,” Bush said. “From a time standpoint, that’s priority No. 1 right now.”

‘Swamped with phone calls’

As the audit proceeds, LandAmerica has been “swamped with phone calls” from Guaranty Title’s former customers left in the lurch when the company was abruptly shut down June 19, Bush said.

Claims fielded by the underwriter primarily involve seller’s proceeds checks that have bounced and a sudden halt in the disbursement of construction loan money, Bush said. He added that LandAmerica’s claims center in Dallas has been doing “file triage,” attempting to determine which customers have legitimate claims.

“Our liability would basically be triggered by a couple of different documents: a title insurance commitment or title insurance policy or something called a closing protection letter,” Bush explained. “Then we’ll step into their shoes with their claims of interest against Guaranty Title, so we’ll be seeking to recover losses against Guaranty.”

Two civil lawsuits filed in Christian County and another in Greene County give some insight into the Guaranty Title fallout.

Branson-based Promenade Development Co. LLC – the limited liability company behind the Hilton Promenade boutique hotel at Branson Landing – filed suit against Guaranty Title for nonpayment of proceeds from a March real estate transaction and alleged fraud.

According to the suit, Promenade Development executed a warranty deed to the buyer, who paid $367,908 to Guaranty Title, but the money was not applied toward the plaintiff’s development loan as agreed.

A similar suit by Branson Hills Development Co. LLC alleged that checks issued to the company or its lender have been returned due to insufficient funds totaling $478,750. The development company also had other real estate transactions pending with Guaranty Title “where buyers had tendered substantial down payments, and in two instances, the entire purchase price … to be held in escrow.”

Springfield attorney Rod Nichols with Carnahan, Evans, Cantwell & Brown PC is representing both development companies, which are affiliated with Branson-based HCW Development Co. LLC.

A third suit filed by Liberty Bank in Greene County Circuit Court involved “conflicting claims” to $367,066 the bank is holding for Briarwood Condominiums, a development owned by David and Carrie Hover that’s under construction in Branson. The suit was filed by Springfield attorney J. Michael Bridges with Blackwell Sanders Peper Martin LLP.

Liberty Bank has asked a judge to require the Hovers and other interested parties to plead their claims in court because the dilemma has exposed the bank to multiple liabilities, according to court records.

What’s next?

Calls to various law enforcement agencies indicate that no arrests have been made or charges filed in conjunction with the alleged scheme at Guaranty Title.

Once the audit is complete, Bush said LandAmerica officials will review their findings with the Missouri Department of Insurance, which is also investigating the now-defunct title company for possible disciplinary or legal action.

Bush said evidence will then be forwarded to the proper prosecuting authorities for possible charges. Christian County Prosecutor Ron Cleek said he’s waiting for Judge Orr to appoint a receiver for Guaranty Title’s assets before taking any action against the company.

Court records show that Guaranty Title allegedly failed to report more than 500 policies issued and did not remit more than $400,000 in premiums associated with those policies.

Bush said the title company’s owners have been cooperative, but he acknowledged that LandAmerica’s auditors are taking the necessary steps to detect evidence that may have been concealed.

“It’s possible that it could be difficult to get a complete picture,” he conceded. “If somebody’s determined to hide something, there’s a lot of uncovering you need to do.”

While LandAmerica has dealt with similar situations at other agencies issuing policies it underwrites, Bush said the $4.5 million void at Guaranty Title is one of the largest shortfalls his company has encountered.

Claim Issues?

Former Guaranty Title Co. customers who think they may have a legitimate claim should contact the title company’s underwriter, LandAmerica Financial Group, at (800) 925-0965, ext. 7293. [[In-content Ad]]