Title Company Raided / Federal investigators allege kickback scheme with attorneys

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

estate closings.

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

affidavit.

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

said.

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.