Federal agency orders South Bend title company to repay customers $1.2 million

South Bend Tribune (IN)

Sept. 29--SOUTH BEND -- Federal regulators have fined a South Bend-based real estate title company more than $1.2 million on charges that it broke the law by receiving extra money for referring homebuyers to a title insurance company owned by several of the title company's executives without disclosing the companies' relationship.

Under a consent order it reached with the Consumer Financial Protection Bureau, Meridian Title Corp. has agreed to pay about 7,000 consumers who bought title insurance in 2014, 2015 and 2016 underwritten by Carmel, Ind.-based Arsenal Insurance Corp.

Title insurance, required by lenders in most real estate transactions, protects the buyer and lender from prior liens against the title or any unpaid taxes. Meridian is an agent for Arsenal, and all three of Arsenal's owners are Meridian executives who co-own Meridian.

Andrew R. Drake is president of Arsenal and senior counsel-vice president of Meridian. Debra A. Collins is vice president and director of sales at Meridian and is Arsenal's vice president. Mark Myers is president and CEO of Meridian and has an ownership interest in both companies.

Federal law requires a title insurance agent to disclose such relationships in forms given to parties of a real estate transaction, according to the CFPB. The agency has alleged that Meridian received payments for these business referrals from Arsenal that went beyond standard commissions that an agent earns in such transactions, a violation of the Real Estate Settlement Procedures Act's "Prohibition Against Kickbacks and Unearned Fees."

"Meridian Title illegally steered consumers into purchasing a product from an affiliated company to add to its bottom line," CFPB Director Richard Cordray said in a statement. "We're ordering it to halt this practice and pay up to $1.25 million to consumers who were harmed."

When it comes to buying or refinancing property, consumers typically know very little about the title settlement and insurance process, so they usually rely on the advice of real estate or mortgage professionals, the CFPB states in the consent order.

"So while consumers pay for the title policy, they often do not know from whom the policy is being purchased or how to 'shop around' to determine the best price or best terms of the title policy they purchased," the order states.

Meridian must form a compliance oversight board to ensure that it's following the law, meeting at least bimonthly and maintaining minutes of its meetings, for five years.

It was unclear from the consent order how Meridian will distribute the $1.25 million among the 7,000 consumers. The order gives Meridian 60 days to submit a plan for repaying the money.

Myers, the Meridian CEO, said the company will soon notify people who will receive money. But he maintained that it has done nothing illegal.

"We have all along denied any wrongdoing," Myers said. "We were directed by another (state) regulatory body that the disclosure was not required."

Myers declined to identify the state agency.

"If I could tell the whole story, which I can't, you'd understand why," he said. "There was never a consumer harmed. (The CFPB) contends they should have had the ability to opt out or opt in to the relationship instead of us making that choice for them."

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