report of the commissioner to study - Maryland Insurance ...

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As part of its Insurer Survey, the MIA requested information on title insuranceproducer defalcations during the approximately two-year period from December 1, 2009through December 31, 2011 (“survey period”). The 17 Insurer Survey respondentsreported writing 9,739,317 title insurance policies nationally, of which 212,451 were inMaryland. Twelve of the 17 respondents, representing 88.6% of the national market,reported that they experienced a combined total of 154 defalcations, worth a total of$120,362,708 nationally, during the survey period. Of that amount, these insurersreported that they paid a total of $83,164,601 in claims. In connection with 36 (23.4%)of these defalcations, the underwriter filed a claim against the surety bond of the personor entity responsible for the defalcation, and in five instances (3.3%) the underwritermade a claim against its own insurance policy.For the same period, the 17 underwriters, representing 95.8% of the Marylandmarket, reported that 16 of the 154 defalcations occurred in Maryland, for which theinsurers paid a total of $14,311,744. In eight of these 16 cases (50%), the insurer filed aclaim against the surety bond of the title insurance producer or the person or entityresponsible. In two instances (12.5%), the insurer filed a claim against its own insurancepolicy.B. Title Insurance Producer Defalcations Discovered as a Result of aComplaint Received by the MIAFrom January 1, 2008 through December 31, 2011, the MIA received 89complaints from underwriters, title producers, consumers, DLLR, MREC and theMortgage Fraud Task Force 14 involving a title insurance producer’s alleged theft,14 The Mortgage Fraud Task Force is a joint state/federal effort that brings together the agencies thatregulate the mortgage industry and investigate mortgage fraud to coordinate enforcement actions againstthose who perpetrate mortgage fraud.10
misappropriation, or misuse of escrow funds. The amount of these defalcations rangedfrom several thousand dollars to millions of dollars of potential losses. To date, the MIAhas completed its investigation of 69 of these 89 complaints. All 69 of those closed casesresulted in the revocation of the title insurance producer’s or producer agency’s licensebecause of defalcations totaling approximately $17 million. The remaining 20complaints are open investigations.C. Effectiveness of Underwriter On-Site Reviews of Title InsuranceProducersIn Maryland, real estate settlement protection practices include an underwriter’sannual on-site review of the underwriting, claims, and escrow practices of each titleinsurance producer appointed by the insurer as a principal agent. 15If the title insuranceproducer does not maintain a separate bank or trust account for each underwriter itrepresents, the underwriter must verify that the underwriter’s own escrow funds held bythe producer are reasonably ascertainable from the producer’s books of account andrecords. The purpose of the annual on-site review is to provide an underwriter with theopportunity to detect lax business practices by title insurance producers and therebyprevent or detect and mitigate defalcations. Of the 17 underwriters responding to theInsurer Survey, 15 reported that they have written policies and procedures in place forconducting the annual on-site review of their appointed title insurance producers.Section 10-121(k) requires the underwriter to prepare a written report of each onsitereview. If the underwriter has reasonable cause to believe that the title insuranceproducer has engaged in prohibited activities set forth in § 10-126, such asmisappropriating, converting, or unlawfully withholding funds or committing fraudulent15 See § 10-121(k); see also 85 OP. ATT’Y GEN. 306 (2000) (Insurance Article requires an underwriter toperform an on-site review of each settlement company it has authorized to conduct real estate settlements).11
Page 2 and 3: Report of the Study ofClosing or Se
Page 4 and 5: TABLE OF CONTENTSI. EXECUTIVE SUMMA
Page 6 and 7: Although in a minority of states an
Page 8 and 9: or misuse of closing or settlement
Page 10 and 11: (4) Division of Consumer Protection
Page 12 and 13: title insurance producer or agency
Page 16 and 17: or dishonest practices, the underwr
Page 18 and 19: eported having a least one escrow a
Page 20 and 21: ond also may be purchased by an und
Page 22 and 23: 4. Other Protection Available to Un
Page 24 and 25: 1. Preventive MeasuresProducer Lice
Page 26 and 27: lender’s funds or documents. The
Page 28 and 29: In the event of the insolvency of a
Page 30 and 31: insurance task force. The informati
Page 32 and 33: in excess of 20 cents in claims on
Page 34 and 35: create an environment vulnerable to
Page 36 and 37: Appendix 1MARTIN O'MALLEY, Governor
Page 44 and 45: AppendixAppendix22MARTIN O’MALLEY
Page 46 and 47: Appendix 2c. If you answered “No
Page 48 and 49: Appendix 2Certification of Informat
Page 50 and 51: Appendix 2QUESTION #3Schedule BStat
Page 52 and 53: Appendix 3
Page 54 and 55: Appendix 3SURVEYTitle Insurance - C
Page 56 and 57: Appendix 3a. Does your title insura
Page 58 and 59: Appendix 3QUESTION # 2Schedule ADor
Page 60: Appendix 3QUESTION # 10Schedule CMi

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