Guaranty Title debacle lingers two years later

Wally Schrock said he's probably angrier today than he was two years ago when Guaranty Title Co. went under without warning.

Shortly after the Nixa-based title agency permanently closed its doors June 19, 2007, Schrock found himself among a growing pool of contractors whose construction disbursement checks from Guaranty Title were bouncing. Without access to loan money in escrow, Schrock was forced to dip into his personal bank account to cover $10,000 in home-building expenses. Another $4,000 was diverted from his business, Grand Slam Homes Inc., to pay subcontractors and related bills, he said.

"If I ever become rich and famous, one of these days I'd like to sue their pants off," Schrock said.

Auditors with Virginia-based underwriter LandAmerica Financial Group Inc. eventually found at least $5.1 million missing from Guaranty Title's various escrow accounts at area banks and confronted co-owner Kathy Stanton, who admitted her involvement in an alleged check-kiting scheme designed to "mask shortages," according to court records.

Stanton - also known as Kathy Allen - co-owned Guaranty Title with Rick Burton, of Nixa, and Stephanie Gray, of Sarcoxie. The trio share the burden of several civil lawsuits filed after their company collapsed, and all three were stripped of their state-issued insurance producer licenses last year.

But that's not enough for Schrock and others clipped by the title company's closing. Even after two years without a single arrest or criminal charge filed, this cynical bunch still craves justice.

FBI Supervisory Special Agent Josh Nixon said the bureau's investigation into Guaranty Title remains active and that federal prosecutors would ultimately decide whether to file charges and, if so, against whom.

"The FBI and (Internal Revenue Service) have invested some significant man-hours on the case, and we've made some real progress," Nixon said, though he was unable to provide a timeline as to when results might surface.

Some civil suits settled

LandAmerica was the first to file a lawsuit against Guaranty Title after the agency shuttered nine regional offices - primarily concentrated in Greene, Christian and Taney counties - and laid off some 45 employees.

But the litigation quickly became a free-for-all as banks, builders and developers - as well as real estate buyers and sellers - intervened and argued that the underwriter was liable for its agent's actions. LandAmerica, which filed for Chapter 11 bankruptcy protection in November and sold most of its subsidiaries to Fidelity National Financial Inc. the following month, settled with some of the intervening parties.

Springfield attorney Rodney Nichols said the underwriter settled suits with two of his clients - Branson Hills Development Co. and Promenade Development Co. - in March. Guaranty Title's Branson office closed numerous real estate transactions for both companies, which were unable to access escrowed down payments from buyers after the agency shut down.

Other parties mired in the litigation, which has all but ground to a halt, are apparently still eying Guaranty Title's remaining funds - previously estimated by the court to be no more than $693,000 - which were frozen in local bank accounts in 2007 by a Christian County judge.

"My off-the-cuff opinion is that people who are relying upon that money to satisfy their claims are probably at the end of the day only going to receive pennies on the dollar," said Nichols, with Cantwell, Evans, Cantwell & Brown PC.

Nichols said he continues to receive inquiries from people who lost money when Guaranty Title went belly up, but he said smaller claimants - such as Schrock - are faced with the law of diminishing returns.

Schrock knows this all too well. He tried to organize a small group of contractors who would share the costs of a civil suit against Guaranty Title, but the effort fell short. And going it alone isn't financially feasible, he added.

"It was going to be a long, drawn-out, tough battle; that's hard on a small guy," Schrock said. "I just don't have thousands of dollars laying around to hire an attorney to fight a five-year case."

Poor business practices?

Attorneys representing the former owners of Guaranty Title have consistently declined to comment, but a Nixa businessman said he recently spoke with Stanton, who lives in Sarcoxie.

Bob Massengale, owner of Heartland Realty Co., said he established a solid business relationship with Guaranty Title when the agency opened its doors in 1989. Heartland Realty routinely used Guaranty Title to close real estate transactions and handle 1031 exchanges, which allow buyers and sellers to defer capital gains taxes on investment properties. Massengale, who's president of a not-for-profit sewer district corporation that lost $5,800 Guaranty Title was holding in escrow, said he was equally stunned when the company failed and allegations of financial fraud surfaced.

"Never once did I have any problem with them," he said.

Massengale said he last talked to Stanton about a month ago.

"She's just wanting to get it over with," he said. "She admitted the wrongdoing. She told me that she did not take that money personally, that she transferred it around trying to keep operating. ... She told me she couldn't stand the thought of going broke."

Massengale said he's inclined to believe that poor business practices led to Guaranty Title's meltdown, which taught him some important lessons about the title business.

"It opened my eyes," he said. "It felt like a check from the title company was just as good as one from the bank. That is not the case. It's no better than a personal check."

Stephen Babbit, owner of Branson-based Tri-Lakes Title & Escrow Co., said the Guaranty Title debacle has led to better policing of agents by underwriters and state insurance investigators. Underwriters are now performing annual escrow and insurance audits instead of every couple years, he said, adding that title agents have responded with policies that emphasize transparency in line with a new state law.

"When you come into a title company now, we have an obligation to tell you we can't even accept your escrow money unless we intend to issue a title insurance product and a closing protection letter," Babbit said. "I think it's forced us to advise people more of what they're getting into, because the trust isn't there. ... We have to justify our existence now."[[In-content Ad]]