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Source of Title Blog

Who Knew What When?
by Robert Franco | 2007/07/31 |

Defalcations aren't nearly as rare as they should be, especially in Missouri. On June 19, Nixa, Missouri based Guaranty Title Co suddenly closed its doors, apparently with no notice to its clients. A spokesperson from the Missouri Department of Insurance said that an investigation had been launched.

“We are charged with regulating insurance companies, and it’s also important that we ensure that consumers are protected in this situation,” a DOI spokesperson said in a statement. “We will be reviewing their financial records and accounts.”

But who knew what when? This wasn't the first the DOI had heard about trouble at Guaranty Title. The first week of July, the DOI acknowledged that it had received two complaints about the defunct title company last year. The DOI said that they could not release specifics about the complaints because they were still under investigation. However, he did comment that complaints about a title company could involve issues such as delays in paying premiums or filing paperwork.

Then, yesterday, an article in The Springfield Business Journal shed some additional light on the nature of the problems at Guaranty. LandAmerica, Guaranty's underwriter, audited the company in February 2006 and shared the results with the DOI about six months later when a complaint prompted an investigation. Guaranty's escrow accounts were short $500,000 and it failed to report over 5,000 policies totalling approximately $400,000 in premiums.

Source of Title Blog ::

Kampeter [a DOI spokeswoman] 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.

Well, obviously, the DOI wasn't "monitoring the actions" too closely. The shortfall in Guaranty's escrow account grew by about $4 MILLION over the next year or so. But, where was LandAmerica?? How does an underwriter discover that its agent has a $500,000 shortfall in its escrow accounts and owes over $400,000 in premiums, and NOT cancel them? If, for some reason, it chose not to cancel the agent - they should have had an auditor buried so far up their backside the boss would be brushing 64 teeth every morning.

Seriously, doesn't the underwriter owe some duty to the public and the customers of an agent that it knows has a huge money management problem?

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.

In an e-mail to The Springfield Business Journal LandAmerica said:
“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.”

Guaranty Title Co. was founded in 2001. Five years later, they were missing a half million dollars. About a year and half later, it was $4 million. And, just four days before the company shut its doors, it withdrew $30,000 from one of its many bank accounts. I would expect that an underwriter would keep closer tabs on its newer agents. Yes, discrepancies can occur "for a variety of reasons" and they can be "very complex." But, LandAmerica knew there was trouble and under the watchful eye of the company's auditors, the problem grew to jaw dropping proportions.

State officials are now looking into whether LandAmerica was deceiving them or if LandAmerica was deceived by Guaranty. I'd say that they were all pretty easily fooled. I hope someone at LandAmerica is sending out resumes after that fiasco.

Robert A. Franco


Categories: Defalcations, Title Industry

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Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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