Compass’s title firm runs into trouble in Washington

Title and escrow company Modus allegedly violated kickback law

The state of Washington is set to revoke the license of Modus, a title and escrow service software company owned by Compass, effective April 1.

The complaint, filed in early 2020, comes from two rival firms that claimed Modus committed various co-branding and social media violations. The rivals were also aggrieved at the way Modus used its products to lure customers away from the other firms.

Although the claims were made prior to Compass’s acquisition of Modus, Compass officials said the brokerage was aware of the investigation when it acquired Modus in October 2020 for approximately $50 million.

The Insurance Commissioner for the state of Washington apparently concluded that Modus offered real estate agents and their clients a “thing of value,” such as free home warranties, other closing-related services, in exchange for switching their escrow and title services to Modus. Specifically, the state said that Modus used its partnership with “Staging Boost,” a platform that works with third-party vendor ZingFix to offer cleaning, landscaping, staging and listing preparation renovation with a deferred payment.

The insurance commissioner says such a practice constitutes a direct violation of state law, which states that a title insurer or insurance agent may not directly give “any fee, kickback, or other things of value to any person as an inducement, payment, or reward for placing business, referring business, or causing title insurance business to be given to either the title insurer, or title insurance agent, or both.”

Inman News first reported the planned license revocation.

The complaint points to six separate instances where Modus gave or offered to give non title-related services without charging or receiving a fee equal in value to the services provided.

This could be a major setback for Compass, which announced new virtual real estate tools in April 2020 as a way to adapt to the changes COVID-19 made on the industry. Modus was the third software acquisition Compass made in the past two years, joining CRM platform Contactually and the team behind artificial intelligence/machine learning company Detectica in its portfolio. In January, Compass acquired Lila Delman Real Estate, a Newport, Rhode Island-based brokerage that has been around since 1964 specializing in the grand mansions that dot the state’s seashore.

Compass lost $270 million in 2020, even with a revenue number of $3.7 billion. It has lost money each of the past three years, including a $388 million net loss in 2019. In all, Compass has lost $1.1 billion as of Dec. 31, 2020.

Modus, which raised over $14 million from investors since its launch in 2018, released a statement saying it plans to appeal.

“We look forward to working with [the Office of the Insurance Commissioner] to quickly clarify any misconceptions around our business practices,” read the statement. “Modus will remain operational throughout the appeal process while this matter is being resolved.”

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