Modus CEO Alexander Day; co-founder Jai Sim; and Abbas Guvenilir. (Modus Photo)

Seattle startup Modus is facing a cease-and-desist order from the Washington state insurance commissioner for allegedly violating real estate regulations.

Modus digitizes and automates the title and escrow phase of closing on a home. The company was recently acquired by Compass, the New York-based real estate giant that filed for an IPO earlier this month.

The insurance commissioner opened an investigation into Modus early last year after receiving complaints from two title companies operating in Washington state.

According to the order, filed Wednesday (read in full below), the state concluded that Modus offered real estate agents and their clients a “thing of value” (free home warranties, other closing-related services) in exchange for switching their escrow and title services to Modus. Such agreements violate the state’s insurance laws:

RCW 48.29.210: “A title insurer, title insurance agent, or employee, agent, or other representative of a title insurer or title insurance agent shall not, directly or indirectly, give any fee, kickback, or other thing 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.”

In a statement, a Modus spokesperson said the company plans to appeal.

“Modus is appealing the decision of the Office of the Insurance Commissioner and we look forward to working with them to quickly clarify any misconceptions around our business practices,” the spokesperson said in a statement. “Modus will remain operational throughout the appeal process while this matter is being resolved.”

The acquisition by Compass was announced in October; the deal has since closed. Compass was aware of the state’s investigation prior to the acquisition.

Modus is led by CEO Alex Day and Chairman Jai Sim, who previously worked together at Seattle lunch delivery startup Peach. The company’s other co-founder, Abbas Guvenilir, spent nearly six years at ServiceNow before teaming up with Day and Sim to launch Modus in 2018.

Modus raised $14 million from investors including NFX; Felicis Ventures; Liquid 2 Ventures; Mucker Capital; Hustle Fund; 500 Startups; Rambleside; and Cascadia Ventures.

See the full order below.