Tag Archives: title agent

Secrets of The Title Insurance Industry

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The New York State Department of Financial Services has proposed two new regulations for the title insurance industry. Premiums for title insurance in New York State are set by regulators, so title insurance companies cannot compete on price. Instead, they compete on service.  “Service” has been interpreted widely to include all sorts of gifts — fancy meals, hard-to-get tickets, even vacations. The real customers of title companies are the industry’s repeat players — often lawyers and lenders who recommend the title company — and they get these goodies.  The people paying for title insurance — owners and borrowers — ultimately pay for these “marketing” costs without getting the benefit of them.

The first regulation is intended to get rid of these marketing costs (or kickbacks, if you prefer). This proposed regulation makes explicit that those costs cannot be passed on to the party ultimately paying for the title insurance. The proposed regulation reads, in part,

(a) As used in this section:

(1) Compensation means any fee, commission or thing of value.

(2) Licensee means an insurance agent, title insurance agent, insurance broker, insurance consultant, or life settlement broker.

(b) Insurance Law section 2119 authorizes a licensee to receive compensation provided that the licensee has obtained a written memorandum signed by the party to be charged, in accordance with such section.

(c) A licensee shall not charge or collect compensation without such a memorandum, nor shall any such licensee charge or receive compensation except as provided in Insurance Law section 2119.

(d) The memorandum shall include the terms and date of the agreement, and the amount of the compensation. Where compensation is permitted, to the extent practical, the licensee shall obtain the written memorandum prior to rendering the services. The licensee shall not stipulate, charge or accept any compensation if the licensee has not fully disclosed the amount or nature of the compensation or the basis for determining the amount of the compensation prior to the service being rendered. (5-6)

The second regulation is intended to ensure that title insurance affiliates function independently from each other.

While these proposed regulations are a step in the right direction, I wonder how effective they will be, given that title companies cannot compete on price. Maybe it would be better to let them do just that, as some other states do . . .

These are mighty technical proposed regulations, but they will have a big impact on consumers. Have no doubt that industry insiders will comment on these regs. Those concerned with the interests of consumers should do so as well.

The Department of Financial Services is accepting comments on these two proposed regulations through June 19th, 2017.

Shaking up the Title Industry

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Deeds

The United States Court of Appeals for the 9th Circuit issued an opinion in Edwards v. The First American Corporation et al., No. 13-555542 (Aug. 24, 2015) that may shake up how the title insurance industry works. As the court notes,

The national title insurance industry is highly concentrated, with most states dominated by two or three large title insurance companies. See U.S. Gov’t Accountability Office, Title Insurance: Actions Needed to Improve Oversight of the Title Industry and Better Protect Consumers 3 (Apr. 2007). A “factor that raises questions about the existence of price competition is that title agents market to those from whom they get consumer referrals, and not to consumers themselves, creating potential conflicts of interest where the referrals could be made in the best interest of the referrer and not the consumer.” Id. Kickbacks paid by the title insurance companies to those making referrals lead to higher costs of real estate settlement services, which are passed on to consumers without any corresponding benefits. (9)

The Real Estate Settlement Procedures Act (RESPA) is intended to eliminate illegal kickbacks in the real estate industry. In this case, the 9th Circuit has reversed the District Court’s denial of class certification in a case in which home buyers alleged that First American engaged in a scheme of paying title agencies for referring title insurance business to First American in violation of RESPA. The reversal does not get to the merits of the underlying claims, but it does open up a can of worms for title companies.

The title industry is not only highly concentrated but it is also highly profitable. In some jurisdictions like NY its prices are set by regulation at rates that greatly exceed the actuarial risks they face. Regulators like the NYS Department of Financial Services have begun to pay more attention to the title insurance industry. This is a welcome development, given that title insurance is one of the most expensive closing costs a homeowner faces when buying a home or refinancing a mortgage.