Red flags at title agency date back to last year

LandAmerica Financial Group audited the Nixa-based title insurance agency in February 2006, insurance department spokeswoman Emily Kampeter confirmed to Springfield Business Journal. Six months later, a complaint about the company’s business practices prompted the department to open an investigation, she said.

Shortly thereafter, LandAmerica shared the results of its audit with the state: Guaranty Title’s escrow accounts were short $500,000, and the company had failed to report 5,323 policies totaling some $400,000 in premiums, Kampeter confirmed. Springfield Business Journal was made aware of the February 2006 audit by an anonymous letter.

Guaranty Title, which had at least nine offices in southwest Missouri, abruptly closed June 19, leaving a mix of banks, builders and developers scrambling to disburse construction loans and close pending real estate transactions. Much of the mess is now being sorted out in court, where lawsuits against Guaranty Title are piling up.

LandAmerica has filed suit against the defunct title agency in Christian County Circuit Court, where Judge Mark Orr has granted the underwriter’s request to freeze Guaranty Title’s accounts and prohibit owners Kathy Allen, Rick Burton and Stephanie Gray from interfering with an ongoing audit.

The probe already has discovered at least $4.5 million missing from numerous escrow accounts maintained by the title company at about 20 area banks, according to court records.

Barry Schwartz of Branson Hills Development Co., one of Guaranty Title’s customers now suing the agency for nonpayment and alleged fraud, said he would liked to have known about the red flags last year. His company started using Guaranty Title about a year ago to handle a high volume of closings.

“You’d think they have some sort of responsibility to the consumer to let them know there’s a problem,” he said.

Kampeter said the insurance department did not take action against Guaranty Title last year because LandAmerica officials indicated they were working with the company to achieve solvency by replenishing its accounts.

“We were aware of the shortages in the audit … and we were monitoring the actions of the underwriter to ensure the problems were fixed (so) that there wouldn’t be any interruption of services provided to Missouri consumers,” she said. “They had detailed procedures in place that they were going to do to ensure those accounts would be back in balance.”

In reality, though, Guaranty Title was headed for financial ruin, and Kampeter said state officials who had been in contact with LandAmerica about rectifying the accounting problems were puzzled when the company went under.

“We were not informed of the significance of the problems that we are finding now in the audit,” she said.

State officials are now trying to determine if LandAmerica misled them or if Guaranty Title may have been deceiving its underwriter throughout the process.

In an e-mail to SBJ, LandAmerica spokesman Peter Habenicht stated that internal audit findings aren’t publicly available.

“A discrepancy in an agent’s level of escrow funds may occur for a variety of reasons and can be extremely complex,” Habenicht wrote. “It is important to investigate potential issues, and we do so on a regular basis. We conduct regular reviews of our agents and work with them to identify potential areas where they can strengthen their internal controls.”

Pam Hart, executive director of the Missouri Land Title Association, said different underwriters employ different standards and policies. Hart was aware of the Guaranty Title investigation, but she was reluctant to specifically comment on the case.

Kampeter said the state’s investigation into Guaranty Title also would determine whether LandAmerica was forthright with information in the months before the agency closed.

“If we find they weren’t letting us understand the full extent of the problem, we will be looking into that,” she said. “We will know at a later date whether or not all the information that the underwriters were giving us was completely accurate.”

Kampeter said a title insurance bill recently signed into law by Gov. Matt Blunt requires underwriters to conduct annual audits of their agencies, which would allow the state to more closely monitor and respond to concerns. The law also makes underwriters more accountable, she added.

“It’s important to remember that the underwriter is ultimately responsible for all these issues,” Kampeter said. “We are going to make sure that we hold the underwriter accountable for everything it did in the past and is doing right now to rectify the problems that were created by (Guaranty Title).”

Hart said the Missouri Land Title Association supports the continuing education provisions in the law, which requires licensed title insurance agents to attend eight hours of training every two years.

“The Missouri Land Title Association is aware that there are companies that may not be in compliance with the standard practices or the current legislation,” she said. “We will continue to work with the (state insurance department) in hopes that all of our agents are in compliance.”[[In-content Ad]]