Attorney General Brian Schwalb might want to start sleeping with one eye open. Just two weeks after filing a lawsuit against one of the city’s biggest (and most well-connected) contractors, he secured a settlement from an influential developer as part of an alleged title insurance kickback scheme.
Schwalb announced Thursday that Universal Title will pay a $500,000 settlement after illegally conspiring with a group of local real estate agents at Keller Williams Capital Properties. The real estate agents would steer clients to the title insurance company, according to Schwalb’s case, which in turn shared some of its profits with those agents. According to a settlement agreement, Universal Title even offered ownership interests at discounted prices to the agents, who are managed by the prominent local development firm the Menkiti Group.
“Universal’s secretive conduct prevented District residents from making fully informed decisions about how to spend their hard-earned money when making one of the most significant investments they’ll ever make—buying a home,” Schwalb writes in a statement to Loose Lips. “Universal’s business plan violated core free market principles—limiting customers’ choices and putting law-abiding competitors at a disadvantage.”
The attorney general’s office previously secured $3.2 million in settlements from four other title insurance companies in August over similar claims, as the industry as a whole faces scrutiny. But this investigation is unique due to the involvement of Bo and Kymber Menkiti, who have emerged as some of the biggest players in the local real estate scene over the past decade. The Menkitis have deep ties in Ward 5, where they’ve taken on several major projects and built a strong relationship with At-Large Councilmember Kenyan McDuffie (who used to represent Ward 5), and their firm helmed a major city-backed project in Anacostia under Mayor Muriel Bowser’s administration.
The Menkiti Group did not respond to LL’s request for comment on the settlement. But Universal Title, which is partly controlled by the Menkiti Group by virtue of the alleged kickback scheme, wrote a lengthy statement to “emphatically deny” any wrongdoing.
“The [attorney general’s office] has cast a very large net, but its allegations have been applied to a categorically different set of facts and circumstances at Universal Title,” the company wrote. “The prohibitive costs and time considerations that come with defending ourselves have driven us to settle.”
Essentially, Schwalb’s office argues that the real estate agents would steer their clients to Universal Title any time they would sell houses in the city. Mortgage lenders typically require homebuyers to purchase this type of insurance to protect against unexpected issues that could arise as they try to secure clear title to the home. If, for instance, they discover an unexpected lien against the home or some sort of inheritance dispute, they can make a claim against their title insurance to cover the costs of resolving these legal issues. Agents can make recommendations about which companies buyers should use, but under D.C. law, they can’t receive compensation for doing so.
The Office of the Attorney General claims that Universal Title did just that, sending Menkiti’s agents a percentage of the profits of any transaction that came as a result of their referral. The company also gave the agents “the exclusive opportunity to purchase a discounted ownership interest” in Universal Title, according to the settlement agreement. Schwalb’s attorneys claim that several Menkiti agents combined to pay $52,500 for a 50 percent ownership stake in the company. (This arrangement is decidedly less spicy than the perks Schwalb described other agents receiving in his last round of settlements, which included Chesapeake Bay yacht parties for agents with many successful referrals.)
Universal Title calls those claims “untrue” in its statement, arguing that “the investing partners collectively raised $235,000 in an initial round of capitalization for a minority share of 25 percent ownership.” It also argued that the AG overstated the agents’ success in steering business to the company.
“Almost a third of our investors never referred a single title or closing order to the operation, and the capture rate of their business was merely 13 percent,” the company wrote. “Universal Title has always been and remains committed to transparency. Our business is a valuable part of the real estate process, and our primary function is to protect the consumer from fraud and needless litigation while ensuring their secure transaction.”
Not everyone agrees with the latter part of that statement. Some experts have increasingly come to believe that these companies add unnecessary up-front costs for homebuyers, and argue that basic liability insurance from title search companies could guard against unexpected issues at closing. President Joe Biden’s administration has even begun piloting programs allowing buyers to waive the insurance in certain circumstances.
Universal Title claims in its statement that Schwalb’s “allegations that receiving a distribution of profits from a legitimate business are in violation of the law run counter to the legislative intent and subsequent interpretation by the D.C. Department of Insurance, Securities and Banking.” The other companies that agreed to settlements in August made similar claims.
With this national pressure in the background, and Schwalb’s newfound emphasis on enforcing D.C. law in this area, it’s not hard for LL to imagine some sort of litigation from the title insurance companies—or perhaps lobbying efforts to urge a change in the law entirely.