State Proposes New Regs to Combat Kickbacks, Improper Expenses in Title Insurance Industry
John Jordan | May 2015
ALBANY—Gov. Andrew M. Cuomo announced on April 29 new regulations to crack down on what the state termed are kickbacks and other improper expenditures (such as excessive meal and entertainment expenses) in the title insurance industry. The move comes after a Department of Financial Services’ investigation uncovered the kickbacks and improper expenditures are significantly inflating title insurance premiums for consumers. These new regulations, together with broader reform measures, are expected to reduce title insurance closing costs by up to 20% for new home purchases and up to 60% for refinancing transactions.
“New Yorkers should not have to foot the bill for outrageous or improper expenses made by title companies just to refinance or close on their home,” Gov. Cuomo said. “Our administration will not stand for that kind of abuse in the title insurance industry, and these new regulations will help ensure that New Yorkers are protected from unfair charges and get the most bang for their buck.”
Benjamin M. Lawsky, Superintendent of Financial Services, said, “Our investigation uncovered that title insurance companies paid for lavish meals and entertainment on the dime of consumers, which inflated premiums. These new reforms will help significantly reduce costs for homeowners by trimming the fat and making sure that New Yorkers get what they pay for in the title insurance industry.”
The regulation outlines categories of expenditures that, when provided as an inducement for title insurance business, are improper and violative of the New York Insurance Law, state officials said. These expenditures include meals, entertainment, vacations and gifts that are provided to attorneys, real estate professionals, and others, who represent consumers and order title insurance on their behalf.
The investigation revealed that these types of expenditures are routinely made by title insurance corporations and agents in an effort to secure title insurance business. These improper expenditures have been included in the calculation of title insurance rates and have saddled New York consumers with excessive title insurance premiums for years. The regulation mandates that these improper expenditures, which violate the anti-inducement provision of the Insurance Law, be eliminated from the rates, thereby resulting in lower title insurance premiums.
“These new reforms will help significantly reduce costs for homeowners by trimming the fat and making sure that New Yorkers get what they pay for in the title insurance industry.” —Benjamin M. Lawsky, NYS Superintendent of Financial Services
The regulation also imposes caps on ancillary charges, which are fees for additional searches and services that are provided in connection with the issuance of a title insurance policy, but not included in the title insurance premium. The investigation further revealed that some title insurers and title insurance agents mark up these searches three and four times their cost and otherwise charge consumers additional excessive fees. The regulation also precludes the payment of gratuities and pick-up fees to closers of real estate transactions, which add hundreds of dollar to consumers’ final closing bills.
In order to ensure continued compliance, the regulation mandates that at least once every three years a filing be made demonstrating that title insurance rates comply with the Insurance Law, and are not excessive, inadequate or discriminatory. The review of these filings is expected to help ensure that title insurance reforms result in lower premiums.
The proposed regulations are part of a series of actions the Department of Financial Services is taking to lower premiums and improve accountability in the title insurance industry. The 2014-15 Enacted Budget provided the Department of Financial Services with the authority to issue licenses to title insurance agents for the first time, just as it licenses all other insurance agents and brokers. Licensing requires agents to meet qualification standards and undergo regular training. The Department of Financial Services will also have the authority to monitor abuse by agents and to revoke licenses accordingly, as well as help root out conflicts of interest that drive up costs for homeowners.
The American Land Title Association released a statement in response to the proposed regulations. “We’ve seen reports that the New York State Department of Financial Services found that kickbacks have occurred in the real estate industry,” said Michelle Korsmo, ALTA’s chief executive officer. “Those participating individuals should be held accountable to the full extent of the law for the sake of consumers and the real estate industry professionals who work to remain compliant with state and federal regulations.”
Korsmo continued, “In communities throughout New York State, the title insurance industry involves more than 9,600 professionals and pays $283 million annually in wages. These individuals range from administrative professionals to title examiners to real estate attorneys. The land title insurance industry assists New York municipalities to collect nearly $1.7 billion in property tax transfers each year. Nationally, the land title insurance industry helps collect more than $4.8 billion in back income taxes and recovers more than $325 million in unpaid child support each year. We look forward to learning more about the Department’s proposed regulations and we encourage all members of the land title insurance industry to submit public comment.”
The American Land Title Association is the national trade association representing more than 5,400 title insurance companies, title and settlement agents, independent abstracters, title searchers, and real estate attorneys.