Federal officials have launched an investigation of a
Plainview-based title abstract company as part of a probe into an alleged
kickback scheme devised by the company which could have benefitted more than
100 Long Island attorneys.
About 20 investigators from the U.S. Department of Housing and Urban
Development and the U.S. Postal Inspectors yesterday morning raided the offices
of Titleserv Inc., seizing boxes of company records and files. In an affidavit
in support of a search warrant, investigators cited confidential informants
who said the company gave up to $600 in illegal payments to the attorneys in
exchange for the company getting hired to do title work on residential real
Ronald J. Rosenberg, a Garden City-based attorney for Titleserv, defended
the company's actions. He said that while Titleserv paid fees to attorneys, the
fees were legal since the attorneys earned them performing real services under
a new program. "We are following the same types of programs as in other parts
of the state which are considered legal," Rosenberg said.
The search warrant said attorneys were offered between $195 to $600 per
customer they steered to Titleserv through the Review & Counsel Closing
program. No one has been arrested, and no individual lawyers were named in the
Miguel Collazo, a special agent with HUD, said in the affidavit that
Titleserv has been violating the Real Estate Settlement Procedures Act, known
as RESPA, a law that prohibits attorneys and other real estate professionals
from collecting "unearned fees," or kickbacks, relating to settlement services.
Titleserv, according to the search warrant, pays attorneys for reviewing
title documents on behalf of Titleserv as part of the abstract service.
But closing attorneys, including the secret witnesses in the search
warrant, say that the services to be rendered by the closing attorneys were for
the most part expected of an attorney anyway - and that the program was set up
specifically so a referral fee could be paid. Rosenberg, who represents
Titleserv, disputes this claim.
Joseph Laface, a Garden City real estate lawyer, said he had been
approached by Titleserv through several mailings but turned down the offer.
"There were a number of attorneys approached, including me, but I did not take
part in it," Laface said.
Laface said he felt there might be a potential ethical conflict of interest
from representing both the buyer and the title company.
Attorneys typically select the title companies on behalf of clients, who
pay $1,000 to $2,000 for title insurance.
Steven Schlesinger, a former chairman of the Nassau Bar's Professional
Ethics Committee, whose Garden City firm does real estate work, said under the
RESPA law, "accepting practically anything other than a pencil with the title
company's name on it became illegal."
One Long Island real estate attorney familiar with the case, who spoke to
Newsday on condition of anonymity, said that Titleserv claimed it had more than
100 Long Island lawyers receiving referral fees.
Marvin Bagwell, president of the New York Land Title Association, a
Manhattan-based trade organization, said "this is the first RESPA enforcement
action I have ever seen in New York State of this magnitude." Bagwell, while
not commenting on this case, said that kickbacks "are more common than we would
like to see" although "I would not call them universal."
Titleserv primarily conducts abstract searches, which ensures lenders that
the homebuyers are buying a home that is free of liens or judgments.
Furthermore, Titleserv will provide title insurance for the buyer, in case any
claims against the property are made. Titleserv has approximately 100 employees
and did $16.5 million of business last year.
The enforcement of RESPA rules are good for both the abstract industry and
consumers, experts say. "It makes it very difficult for the company trying to
live honestly to compete with a company that is abusing the system," Bagwell
But consumers, too, pay the price of kickbacks in many ways, experts say.
While New York State regulates the amount paid for title insurance, abstract
companies are able to load up on ancillary fees, such as searching a
certificate of occupancy and conducting "visual inspections," which are not
regulated by law. Some of these fees are jacked up to cover kickbacks, said
Brian Madden, with Liberty Title Agency LLC in Garden City.
Staff writer Robin Topping contributed to this story.