Most homebuyers purchase title insurance – sometimes for thousands of dollars – to make sure that there are no liens on the property and that they’ll have clear claim to the title once they plunk down their cash. Many buyers rely on a real-estate agent, mortgage broker, or attorney to recommend a title insurer. To get the business, according to state investigators, title insurers entertain lavishly – in the form of golf outings, sporting event tickets, Madison Square garden suites, and other gifts – and then pass those costs on to unwitting homebuyers in the form of fees.
Gov. Andrew Cuomo and the state’s Department of Financial Services have proposed tighter regulations to crack down on such “unscrupulous practices” that they say have resulted in millions of dollars of “marketing costs” being charged to consumers, the Wall Street Journal reports.
“For far too long, meals and entertainment have been used as inducement for title-insurance business,” says Maria Vullo, superintendent of the Department of Financial Services. “Many New Yorkers who buy or refinance a home have been footing the bill without explanation for excessive fees that contribute to high closing costs.”
“While more action is needed to remove all of the excesses from title insurance pricing, this is an important first step to protect title insurance consumers,” adds Robert Hunter, director of insurance at the Consumer Federation of America.
The proposed regulations have grown out of 2013 hearings by the Department of Financial Services to determine if title insurers were improperly passing entertainment costs on to homebuyers. One of the proposed regulations will clarify that meals, entertainment, gifts and other such expenditures don’t count as appropriate marketing expenses but are in conflict with a statute aimed at elimination of improper inducements for doing business. The overall proposal is subject to a 45-day comment period before becoming effective.
In one notorious case, a federal lawsuit filed in Baltimore claimed that real-estate brokers had received more than $1 million in kickbacks from title insurers.
A spokesman for the American Land Title Association said the industry trade group would not have a comment until it had a chance to review the proposed regulations in their entirety.
Co-op and condo board business broken down into bite-sized bits - 2 stories each week. Read now on all digital devices.
A free digital resource for co-op/condo board directors. Published twice a month. Read now on all digital devices.