Judge OKs subpoena of Guaranty Title audits

A Branson development company suing a Nixa-based title agency that suddenly ceased operations in June will soon have access to internal documents subpoenaed from the agency’s underwriter.

On Jan. 9, Christian County Circuit Judge Mark Orr heard from attorneys representing Branson Hills Development Co. and LandAmerica Financial Group (NYSE: LFG), the Virginia-based company that underwrote title policies issued by Guaranty Title Co.

LandAmerica pulled the plug on its agent after evidence of an alleged check-kiting scheme surfaced and immediately initiated an audit that found at least $5.1 million missing from Guaranty Title’s escrow accounts at area banks.

The money belonged to developers, banks and builders as well as homebuyers and sellers who found themselves out of luck when Guaranty Title was shut down. The agency – co-owned by Rick Burton, Kathy Allen and Stephanie Gray – had at least nine regional offices that employed some 45 people.

According to court records, 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,” although no arrests have been made or charges filed in connection to the alleged fraud.

Guaranty Title was handling numerous transactions involving real estate in Branson Hills, a mixed-use development on 1,200 acres north of Branson that boasts 600 new condominiums and the $20 million Payne Stewart Tribute golf course.

Branson Hills Development sold property to buyers who made down payments to Guaranty Title that were supposed to be held in escrow. But the money has been inaccessible since the agency closed, and the development company sued in hopes of recovering its losses.

Springfield attorney Rodney Nichols, who is representing Branson Hills, has subpoenaed internal documents from LandAmerica subsidiaries Commonwealth Land Title and Transnation Title and Escrow involving Guaranty Title, including four audit reports dating back to April 2005. Nichols said he learned of the audits from a Missouri Department of Insurance investigative report he received in the mail from an anonymous sender. The department launched an independent investigation after Guaranty Title closed its doors.

“The contents of the report are quite devastating to Commonweatlh’s position in this case,” Nichols told Orr last week.

Nichols, with Carnahan, Evans, Cantwell & Brown PC, has asserted in court pleadings that LandAmerica should be held responsible for the actions of Guaranty Title based on its agency agreement with the now-defunct title company.

Nichols said the audit reports prove that LandAmerica knew that approximately $600,000 was missing from Guaranty Title’s escrow accounts in April 2006. The DOI report also indicates that, in November of that year, Guaranty Title signed a $380,000 promissory note paid to LandAmerica over two years, Nichols said, suggesting the underwriter had a motive to keep the agency in business.

St. Louis attorney Brandon Rothkopf argued that LandAmerica’s business relationship with Guaranty Title was limited to title policies and premiums, but did not cover escrow services. Rothkopf, with Sauerwein, Simon & Blanchard PC, also reiterated that LandAmerica has paid more than $2 million in claims to policyholders pinched by Guaranty Title.

Through its agreement with Guaranty Title, he added, LandAmerica had the authority to conduct snapshot audits of the agency’s financial standing but not forensic audits designed to detect fraud.

Orr overruled objections from Rothkopf and DOI attorney Tamara Kopp that were filed in response to Nichols’ subpoena for documents pertaining to Guaranty Title’s escrow shortages and subsequent collapse. The judge did, however, grant a protective order that would keep the requested documents out of the court file and, thus, the public eye.

On a related note, a formal complaint filed by DOI against Guaranty Title’s owners last month is scheduled to go before the Administrative Hearing Commission in June in Jefferson City.

The complaint alleges that the owners, who stand to lose their insurance producer licenses, failed to uphold their fiduciary responsibility to LandAmerica, disbursed money from escrow accounts without corresponding deposits, and improperly withheld premiums paid by Missouri consumers.[[In-content Ad]]