Attorneys flood courtroom chasing Guaranty Title funds

The outlook is grim for banks, construction contractors and property owners hoping to wring money from the remnants of Guaranty Title Co., which was shut down by its underwriter in June after evidence of an alleged check-kiting scheme surfaced.

The pot of money frozen in local bank accounts after the Nixa-based title agency collapsed may be significantly less than originally thought, and banks are aggressively pursuing what’s left of the funds.

During a Nov. 13 hearing, the Christian County judge presiding over a lawsuit filed by Virginia-based underwriter LandAmerica Financial Group against Guaranty Title said he isn’t sure how to proceed with the case, which already has about two-dozen parties.

And none of those parties has seen the results of LandAmerica’s audit, which was completed in late August and forwarded to the Missouri Department of Insurance. Attorneys are counting on the audit to prove that their clients are entitled to some or all of the money left behind by Guaranty Title, which is estimated to be $693,000 at best. The funds are mainly in accounts at Great Southern and Metropolitan National banks – waiting to be divided among the parties.

But attorney Brian Asberry, who’s representing Metropolitan National, told Judge Mark Orr that LandAmerica’s auditors have mistakenly reported that his client is holding $347,000 at the bank.

Metropolitan National is actually about $73,000 in the hole, Asberry said, making the bank another in a long list of businesses victimized by Guaranty Title.

Auditors found between $4.5 million and $4.7 million missing from the title agency’s accounts in June, and co-owner Kathy Allen has 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 the lead auditor.

No charges have been filed against Allen, who co-owned Guaranty Title with Rick Burton and Stephanie Gray, and no arrests have been made in connection with the alleged fraud. In July, judgments were issued in Virginia against Burton and Allen for $334,000, plus 11 percent interest, to LandAmerica.

Guaranty Title employed about 45 people at several southwest Missouri offices, primarily in Greene and Christian counties.

Victims go on offensive

Meanwhile, the number of parties entering the legal fray to recoup their financial losses is only expected to increase.

“It’s going to grow and grow and grow,” Springfield attorney Jack Hoke said after leaving the Christian County courtroom. “It’s a mess.”

Hoke represents Carl Davis, a Springfield man who used Guaranty Title in early May to close two tax-deferred real-estate transactions known as 1031 exchanges. Hoke said Midwestern Land Group, a third-party intermediary affiliated with Guaranty Title, failed to escrow some $80,000 in seller’s proceeds that Davis planned to use for future land purchases.

Guaranty Title co-owner Rick Burton formed Midwestern Land Group Inc. in May 2003 to “perform all types of 1031 exchanges,” according to records on file with the secretary of state’s office.

The company’s 2007 annual report lists Burton’s wife, Carol, as president and Kathy Allen’s husband, James, as secretary.

In early September, Hoke received a letter from LandAmerica subsidiary Commonwealth Land and Title denying Davis’ claim. The company stated in the letter that it has no ownership in Midwestern Land Group and did not receive – or have access to – proceeds from the sale of Davis’ Mansfield properties.

But that hasn’t deterred Hoke, who thinks a class-action lawsuit against the underwriter may be imminent.

If that happens, Ellen Bradford would likely be a plaintiff.

Bradford also used Guaranty Title for a 1031 exchange involving Springfield property she sold in April before moving to Indiana. She said her closing documents indicate Midwestern Land Group was supposed to escrow $104,000 from the sale in an account at Great Southern. LandAmerica also denied her claim.

“I just want them to pay me because that’s the honest thing to do,” she said.

Underwriter under fire

In July, Springfield Business Journal reported that LandAmerica had knowledge of problems at Guaranty Title well before it shut down the agency.

The underwriter audited the title company in February 2006, and six months later shared its findings with the state Department of Insurance. The audit revealed 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.

Bryan Wade, an attorney representing area home builder Elegant Homes and Designs of the Ozarks, said LandAmerica is negligent for failing to shut down Guaranty Title earlier and should be held liable for the actions of its agent. Elegant Homes has alleged that Guaranty Title issued more than $85,000 in checks to its subcontractors that were returned for insufficient funds.

William Sauerwein, a St. Louis attorney representing LandAmerica, acknowledged that the underwriter has become a scapegoat.

“I’m not so naïve to think we’re not going to get sued in this,” he told Orr during the recent hearing. “We’re the last one standing. … Frankly, we’re a perfect target.”

Motion for master denied

On Nov. 13, Orr heard arguments on LandAmerica’s motion to appoint a “master” who would oversee claims made by former Guaranty Title customers who weren’t insured by the underwriter.

Sauerwein told Orr that his client has paid out $2.5 million to title insurance policyholders who filed legitimate claims after Guaranty Title closed its doors.

Sauerwein said LandAmerica also has rejected numerous claims from contractors like Elegant Homes and individuals like Davis and Bradford who never received money from real estate transactions closed by Guaranty Title.

“These people lost their money, but it didn’t trigger policy liability,” he said.

Orr denied Sauerwein’s motion to appoint a master – Springfield attorney Warren Harris – after Hoke and other attorneys expressed concern that a master’s salary – $175 per hour – would further diminish the balance of Guaranty Title’s frozen accounts.

“I don’t mind saying that I don’t know where to go from here,” the judge said. “I still am somewhat concerned about the little guy who doesn’t have a lawyer in the room.”

The next hearing date on the case docket is a Nov. 30 motion to intervene filed by attorney Karl Blanchard Jr.[[In-content Ad]]