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California Insurance Commissioner John Garamendi said he is "actively investigating" title insurers RE/MAX International, Fidelity National Financial Inc. and LandAmerica Financial Group Inc. Other states are involved with the developing investigation. The title insurance scam is described below. This will have no direct impact on home buyers, but may create legal liabilities for certain Title Insurance Companies and developers.

How the alleged title insurance scams work

• When individuals buy new homes, a home builder steers the buyer to a certain title insurance company. The same can be true for refinancings and previously owned home sales, with brokers and Realtors steering clients to certain title insurers.

• Beforehand, the home builder, lender, broker or Realtor cuts a deal with the title insurer: In exchange for large volumes of business, the title firm uses a "shell" reinsurance company. Reinsurance is legal - and protects title insurers from outsized claims. But these shell reinsurance firms are owned by the home builder, Realtor, lender or broker.

• The title insurer pays the reinsurer a hefty sum, and the reinsurer then feeds 50 percent of its fee back to its owners. These reinsurance firms don't pay a penny in claims.

• For example, if title insurance costs $1,000, the insurer keeps a $350 processing fee, then passes $650 to the reinsurer. The reinsurer then kicks back $325 to the home builder, lender, Realtor or broker and keeps $325.

• The extra fees are folded into costs borne by home buyers.