Commercial Real Estate Blog by Madison

Let’s Go CFPB!

At the time of this writing, the Green Bay Packers are heading to the NFL playoffs with a record of 10-6.  I happen to be a Packers fan for a few reasons. For starters, my favorite NFL player is Sam Shields – great name for a great player! Additionally, the city of Green Bay is commonly referred to as “Titletown” – great name for a great city! While many think this name is a nod to the many title championships of the Packers, I am rather certain the name is a tribute to Green Bay resident and title insurance legend, Florence K. Cornelisen. She founded Green Bay Abstract Company in 1935.

While the team’s record is reason for most Packer fans to rejoice, certainly there are some fans with more on their mind. Specifically, members of the Orlando-based fan club, the Central Florida Packer Backers (CFPB).

By way of background and according to their website, the CFPB gathers together on game-day to cheer on their Green Bay Packers. Membership is a mere $20/season and their motto is “Your $20 will get you plenty”. The leadership of the club donates their time to make every season “as fun as we can”. To their credit, I see that some of their gatherings over the year involve raising funds for charity. For that alone, I say “Go CFPB!”

How KEL Title Insurance Group’s Failure Is Costing Every Real Estate Purchaser in Florida

But for those members of the CFPB purchasing a home in Florida, “fun” is hardly the word that comes to mind these days. Since September 2, 2014, home purchasing members of the CFPB, along with all other Florida home purchasers, have been subject to an additional title charge of $3.28. Why? It is to pay for the multimillion-dollar collapse of an Orlando title company.

Back in 2007, a Florida law firm formed a title company by the name of KEL Title Insurance Group (KEL) headquartered in Orlando – much like the CFPB. The company had written in excess of 10,000 title insurance policies. However, in October 2012, KEL was ordered into receivership for purposes of rehabilitation by the Courts. The partners of the law firm have denied any wrongdoing, blaming KEL Title’s problems on a fraud scheme by an unidentified rogue agent in South Florida who allegedly fabricated sales and stole escrow money. While KEL is no longer writing new or renewal insurance coverage, the company’s existing policies are not cancelled by the rehabilitation order and will continue in the ordinary course of business.

The result. Just months after the takeover by the state, KEL policy claims are skyrocketing and its cash is nearly gone Claims soared as homeowners discovered flawed sales closings and bogus title insurance sales. When the state took over in 2012, KEL had claim liabilities of $12.8 million and cash of $2.7 million, according to state records.

The solution? Pass those costs on to consumers and businesses when they buy title insurance. Therefore, every title insurance policy issued in Florida by any agent, law firm, or corporate office will have an added assessment/surcharge of $3.28. These funds will be aggregated for the payment of claims and administration. This charge is being mandated by the Florida Office of Insurance Regulation, not the underwriters. The assessment fee is charged to the party contractually responsible for paying the premium for the policy.

The Assessment is shown on a blank line in the 1100 block of the Closing Statement with the title underwriter as the payee. Thankfully, there is not a second charge for a simultaneous mortgagee policy.

Who Should Pay for KEL’s Losses?

The obvious question: why should the public have KEL to pay?! Critics question why the public should bail out the failed insurer. The court-appointed receiver has asked for “the authority to continue to request assessments on an annual basis, until no more policies of the title insurer are in force or the potential future liability has been satisfied,” the state said in a court filing earlier this year.

Florida officials are still investigating to find out what happened. If investigators determine the problems were caused by impropriety, the state could sue the owners or other parties for damages, regulators say.

For now, CFPB members are paying $3.28 for their closings. That’s money that could be better spent on a Cheesehead hat or a cold one on game day. Let’s see where the investigation leads.

To summarize, who better to turn to than the most famous of all Packers, the legendary Vince Lombardi.   On one hand, the Florida regulators can quote Lombardi who said “To achieve success, whatever the job we have, we must pay a price.”    But to that, the CFPB members can respond with another of his quotes, “In great attempts, it is glorious even to fail.” 

Who knows? Maybe this will be a matter for the newly established Consumer Financial Protection Bureau.
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