State Judge Overturns New Title Insurance Marketing Regulations

John Jordan | July 10, 2018

The public building of New York State Supreme Court located in the Civic Center neighborhood of Lower Manhattan in New York City

NEW YORK—Representatives of the title insurance and closing industries hailed a recent ruling by New York State Supreme Court Judge Eileen A. Rakower that turned aside recently enacted state regulations aimed at curtailing what the state termed as excessive marketing costs and other unscrupulous activity in the title industry.

The ruling handed down on July 5 in Manhattan State Supreme Court by Judge Rakower overturned Regulation 208 enacted earlier this year by the State Department of Financial Services that eliminated title company marketing expenditures, substantially reduced ancillary fees handed out in connection with the production and processing of title applications and also barred pick-up fees and other gratuities given to Title Closers. The State Department of Financial Services said it plans to file an appeal.

The New York State Department of Financial Services announced last October that it would impose the new regulations to reform the title insurance industry after a DFS investigation revealed that title insurance companies and agents “have spent millions of dollars on inducements that the industry has charged back to consumers as ‘marketing costs.’”

The judge’s ruling stems from an Article 78 proceeding filed earlier this year by the New York State Land Title Association, Inc., the Great American Title Agency Inc. of White Plains and Venture Title Agency, Inc. The affected industries sought to overturn the regulations and argued that the regulations were arbitrary and capricious and would have resulted in devastating economic impacts and the closure of some businesses.

Judicial Title Agency in a blog on its website noted that some of the expenditures the new regulations would prohibit include continuing legal education credits, marketing and promotional items, company-hosted networking events and luncheons, sporting events, sponsorship of Bar or Rotary functions, as well as gratuities and pick-up fees to the closer.

In her ruling, Judge Rakower at times characterized the state’s arguments in defense of the new regulations as “absurd” and at other times said that certain sections of the regulations “contravenes the will of the Legislature” and are “inconsistent with the statutory language and the state’s underlying purpose to prohibit kickbacks.”

“To construe (Section 6409 (d)) in this manner is to hold that the Legislature intended to prohibit title insurance corporations from marketing themselves for business—an absurd proposition,” the judge stated.

Representatives of the title insurance and closing industries praised Judge Rakower’s ruling.

“The court’s thorough decision was very clear: these sweeping regulations exceeded the scope of DFS’s statutory authority and should never have been adopted,” Mylan Denerstein, a partner at the New York City-based law firm Gibson & Dunn who represented the title insurance groups in the Article 78 proceeding, said in a statement.

John J. Hughes, president of The Great American Title Agency, told Real Estate In-Depth, “The (judge’s) decision I think reflects our position which was that the Department of Financial Services did not take the time to study the industry and learn about its profitability and the time and expense involved in providing title reports as well as the necessary consulting services.”

“We are pleased with the court’s decision and thankful that title closers can now return to a situation where their means of making a living is not in jeopardy,” said Eric Horowitz, an attorney with Zane and Rudofsky who filed an amicus brief on behalf of title closers in March.

Superintendent of the New York State Department of Financial Services Maria Vullo said the state will appeal the ruling. “DFS remains steadfast in our belief that Regulation 208 is a necessary supervisory tool to ensure appropriate market conduct and to protect New York consumers. We remain certain of our legal opinion and are confident we will prevail on appeal,” Vullo said.

When the state first announced it would adopt the regulations, Superintendent Vullo said, “These regulations end the widespread practice of using meals and entertainment as inducement for title insurance business. New Yorkers can now rest assured that they will know exactly what they are paying for during the closing process and that they will pay only their fair closing costs.”

John Jordan
Editor, Real Estate In-Depth