United States: New York Takes Aim At Title Insurance Marketing Practices

New title insurance regulations in New York restrict the marketing practices of title insurance agencies and affect the operation of affiliated businesses.

The New York Department of Financial Services ("DFS") issued two final regulations on October 17, 2017 that follow a DFS investigation into the marketing practices and fees charged by title insurance industry members. The DFS stated that the investigation revealed that members of the title industry spend millions each year in "marketing costs" provided to attorneys, real estate professionals, and mortgage lenders in the form of meals, gifts, entertainment, and vacations and then include those expenses in the calculation of future title insurance rates. The DFS had already implemented emergency regulations to address those practices. The recent final regulations represent permanent guidelines on certain behavior the DFS deems prohibited and permissible under the state's title insurance statutes.

1. Inducements to Title Insurance and Limits on Ancillary Fees

DFS Insurance Regulation 208 identifies a non-exhaustive list of prohibited inducements and permissible marketing expenses. Section 228.2 of the regulation essentially repeats the anti-inducement provision found in Section 6409(d) of New York's title insurance laws, prohibiting a title insurance corporation or title insurance agent from "pay[ing] or giv[ing] any consideration or valuable thing . . . as an inducement for, or as compensation for, any title insurance business, including future title insurance business, and maintaining existing title insurance business, regardless of whether provided as a quid pro quo for specific business." To the extent the "valuable thing" is directed to any person or entity that acts as an agent, representative, attorney, or employee of the owner or mortgagee of real property, the regulation specifically prohibits a title insurance agency or title insurance company from providing any payment, expense, compensation or benefit associated with the following:

  • Meals and beverages
  • Entertainment, including tickets to shows or sporting events
  • Gifts, including cash or gift cards
  • Outings, such as vacations, golf trips, shopping trips or trips to country clubs
  • Parties and open houses
  • Providing assistance with business expenses of another person
  • Use of premises, unless for a fair rental fee
  • Paying fees or charges of any professional representing an insured in a transaction
  • Providing free non-title services

The regulation does not, however, eliminate all marketing opportunities for title agencies. It lists expenses that the DFS deems permissible, and not a prohibited inducement, as long as the expenses are reasonable and customary, not lavish or excessive, paid without regard to insured status, not conditioned on the referral of title business, and offered with no expectation to purchase insurance:

  • Advertising or marketing in any publication or media at market rates
  • Advertising and promotional items of a de minimis value that include a predominantly affixed logo of a title agent or title corporation
  • Promotional or marketing events, including complementary food and beverages, that are open to and attended by the general public
  • Continuing legal education events, including complementary food and beverages, that are open to any attorney
  • Complementary attendance at an event hosted by a title agency or title company, including food and beverages, as long as title insurance business is discussed, such events do not occur regularly, and at least 25 diverse individuals from unaffiliated, different organizations were invited to attend in person
  • Charitable contributions made by check to the organization in the name of the title agency or company
  • Political contributions

The New York regulations align with the recent trend among states to explicitly identify those activities regulators deem to constitute prohibited inducements to title insurance. Several states, including California, Colorado, and Florida, have implemented fairly stringent title insurance regulations with the stated aim of protecting consumers from perceived excessive or unfair fees. For instance, California law permits title agencies to provide branded promotional items but limits the cost of such items to $10 or less. Colorado regulations prohibit marketing services agreements, and Florida prohibits a title agency from paying for food, beverages, or room rentals at events for referral sources. In addition, in March 2017, Minnesota regulators took action against a title insurance agency and a real estate agent based on numerous free meals, hotel accommodations, and other perks provided by the title agency to the real estate agent in return for title insurance referrals. Just as title insurance companies and agencies in those states have had to adjust how they promote their businesses to comply with regulatory standards and in response to enforcement actions, companies in New York now have explicit parameters to ensure any marketing and promotional activities do not constitute impermissible inducements.

In addition to guidance on prohibited inducements, Section 228.5 of the new regulation establishes maximum charges for patriot, bankruptcy, municipal, or departmental searches, as well as flat fees for other services, including survey inspection and escrow services. Importantly, the regulations do not force title insurance companies and agencies to charge consumers only the out-of-pocket charges for many of those searches and services. For instance, for both a patriot search and a bankruptcy search, a title insurance corporation or agent may charge no more than 200% of the out-of-pocket cost paid for the search, or 200% of the fair market value of the search as charged by a non-affiliated third party. For a recording fee, a title insurance corporation or agent may not charge more than $25 per document plus the out-of-pocket cost charged by the governmental office. However, for overnight mail charges, fees are limited to out-of-pocket costs, and for escrow services, a title insurance corporation or title insurance agent may not charge more than $50 per escrow.

2. Affiliated Business Arrangements

DFS Insurance Regulation 206 focuses on title insurance agents, affiliated relationships, and required disclosures. In addition to reiterating the prohibition on inducements to title insurance business in affiliate relationships, new Section 35.4 of Regulation 206 imposes specific restrictions on title agencies and title companies with affiliates that refer business to title entities. Specifically, the regulations prohibit a title insurance agent or company from requiring an affiliated person to refer a specified amount of title business to the title entity. In addition, a title insurance agency or company that accepts business from an affiliated person must do the following:

  • Function separately and independently from the affiliated person, including being staffed by its own employees
  • Engage in all or substantially all of the core title services with respect to the affiliated business. ("Core title services" include evaluating the insurability of title based on the title search; collecting, remitting, or disbursing title insurance premiums, escrows, or other related funds; preparing, amending, marking up, and delivering a title commitment and title insurance policy; and clearing title exceptions)
  • Make a good faith effort to obtain, and be open for, title insurance business from all sources and not only business from affiliated persons, including actively competing in the marketplace.

Those requirements are substantially similar to policy statement guidance issued in the 1990s by the U.S. Department of Housing and Urban Development under the Real Estate Settlement Procedures Act ("RESPA"). However, federal regulators have never incorporated the policy statement's standards into RESPA's regulations, and one federal circuit court has deemed the standards to be unconstitutionally vague. Regulation 206 makes the standards actual requirements for operating affiliated title businesses in New York, rather than mere factors for consideration when measuring an affiliated business's compliance with federal law.

Similar to requirements under federal law, Section 35.5 of the final regulations requires "an affiliated person that directly or indirectly refers an applicant for title insurance to a title insurance agent or title insurance corporation" to, "at the time of making the referral," provide certain disclosures pursuant to New York Insurance Law Section 2113(d) "in a separate writing to the applicant" and obtain "written acknowledgement of receipt from the applicant." The disclosures include, but are not limited to:

  • Whether the affiliated person has a financial or other beneficial interest in the title insurance agent or corporation and is likely to receive a financial or other benefit as a result of the referral
  • That the applicant is not required to use the services of the title insurance agent or corporation to which the applicant is referred and that the applicant may shop around to determine whether the applicant is receiving the best services and the best rate for those services
  • That any compensation or other thing of value paid by the title insurance agent or corporation to the affiliated person is based on that person's financial or other beneficial interest in the title insurance agent or corporation, is not related to the amount of title insurance business that person refers to the title insurance agent or corporation, and the payment of such money or other thing of value does not violate New York insurance laws or RESPA
  • The amount or value of any compensation or other things of value that the affiliated person expects to receive in connection with the services to be provided by the title insurance agent or corporation to which the applicant is being referred
  • Whether the title insurance agent or corporation generates non-affiliated business from more than one source

Certain of those disclosures match required elements of the federal affiliated business disclosure form under RESPA. However, the New York disclosures go beyond what RESPA requires. Both RESPA and the New York regulation require separate affiliated business disclosures, although it is not clear whether the DFS would permit the New York disclosures to be combined with the RESPA affiliated business disclosure form. It also is not clear whether federal regulators would take issue with the New York-required disclosures being added to the federal RESPA form. Thus, if an affiliated person seeks to combine the federal and New York disclosures, it should evaluate whether a combined form would be acceptable under both sets of requirements.

While title insurance agencies and title insurance companies in New York may be used to the DFS's expansive historical interpretation of the anti-inducement statute in Section 6409(d) of New York Insurance Law, those entities may still find themselves adjusting their business practices to comply with the DFS's explicit guidance on inducements. Moreover, as affiliated business arrangements remain a popular business venture between real estate brokers, mortgage lenders, and title entities, the final regulations are a reminder that affiliated businesses must be structured carefully to ensure compliance with New York law.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2017. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions