Real Estate Law Blog

New Department of Financial Services Regulations and Their Effect on Title Insurance Operations in New York State

The New York State Department of Financial Services ("DFS") has recently promulgated new regulations that impose material constraints on all title insurance corporations and all licensed agents (collectively, the "Title Company") that will materially affect the way your Title Company operates and the way in which you interact with them. The purpose of this memo is to discuss the changes contained in New York Insurance Regulation 208, which is effective December 18, 2017.

There are three (3) material areas changed as a result of the promulgation of Section 208 that affect the Title Company operation and their interaction with their clients:

Section 228.2 Prohibition on Inducements for Future Title Insurance Business.

As I am sure you know, New York State Insurance Law Section 6409(d) imposes significant financial penalties on Title Company or any other person acting for or on behalf of the Title Company, offering or making, directly or indirectly, any rebate of any portion of the fee, premium or charge made, or paying or giving to any applicant, or to any person, firm, or corporation acting as agent, representative, attorney, or employee of the owner, lessee, mortgagee or the prospective owner, lessee, or mortgagee of the real property or any interest therein, either directly or indirectly, any commission, any part of its fees or charges, or any other consideration or valuable thing, as an inducement for, or as compensation for, any title insurance business, as well as any applicant, or any person, firm, or corporation acting as agent, representative, attorney, or employee of the owner, lessee, mortgagee or of the prospective owner, lessee, or mortgagee of the real property or anyone having any interest in real property who knowingly receive, directly or indirectly, any such rebate or other consideration or valuable thing. New Regulation 228.2 fleshes out what DFS views as the constraints imposed by Insurance Law Section 6409(d), including the view that it prohibits any such payment "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." among (but without limitation) the payments, expenses, compensation or benefits expressly prohibited by the Regulation are:

1. Meals and beverages unless authorized under the list of expressly authorized expenses below;
2. entertainment, including tickets to sporting events, concerts, shows, or artistic performances;
3. gifts, including cash, gift cards, gift certificates, or other items with a specific monetary face value;
4. outings, including vacations, holidays, golf, ski, fishing, and other sport outings, gambling trips, shopping trips to recreational areas, including country clubs;
5. parties, including cocktail parties and holiday parties, open houses;
6. providing assistance with business expenses of another person, including but not limited to rent, employee salaries, advertising, furniture, office supplies, telephones, telecommunications, computers and other electronic devices and business equipment, or automobiles, or leasing, renting, operating, or maintaining any of such items, for use by other than a title insurance corporation or title insurance agent;
7. use of premises, unless a fair rental fee is charged that is equal to the market value in the premises' geographical area;
8. paying the fees or charges of any professional representing an insured as part of a real estate transaction, such as an attorney, engineer, appraiser, or surveyor, or paying rent or all or any part of the salary or other compensation of any employee or officer of any current or prospective customer; and
9. providing or offering to provide non-title services, without a charge that is commensurate with the actual cost thereof.

Certain expenses are expressly authorized "provided that they are without regard to insured status or conditioned directly or indirectly on the referral of title business, and offered with no expectation of, or obligation imposed upon, to refer, apply for or purchase insurance. In addition, any expenses incurred pursuant to this subsection must be reasonable and customary, and not lavish or excessive":

1. Advertising or marketing in any publication, or media, at market rates;
2. Advertising and promotional items of a de minumus (sic) value that include a permanently affixed logo of the Title Company;
3. Promotional or marketing events including complementary food and beverages that are open to a and attended by the general public;
4. Continuing legal education events including complementary food and beverages that are open to any member of the legal profession;
5. Complementary attendance offered by a Title Company as a host of a marketing or promotional event, including food and beverages available to all attendees so long as (a) title insurance business is discussed for a substantial portion of the event including a presentation of title insurance products and services, (b) such events are not offered on a regular basis or as a regular occurrence, and (c) at least twenty-five diverse individuals from different organizations not affiliated with the host attend or were, in good faith, invited to attend in person;
6. Charitable contributions made by negotiable instrument made payable only to the charitable organization in the name of the Title Company;
7. Political contributions.

Section 228.5 Ancillary and other discretionary fee.

There is a limitation on how much a Title Company can charge for various ancillary services provided by the Title Company, including Patriot and bankruptcy searches, municipal departmental searches, document recording, survey inspections, and escrow fees, on residential real property (defined to include property improved by a 1-4 family dwelling, including property used in part but not entirely for business purposes, and an individual condominium or cooperative apartment used as a dwelling).

Section 228.5 Ancillary and other discretionary fee as it relates to title closers.

Payments tot title closers are limited in two material ways, Title closers are prohibited from receiving any compensation directly or indirectly from the applicant (applicant is defined in the regulations as the owner of the property that is the subject of the title policy, a purchaser, a seller an Insured, or any person who is an attorney-in-fact for any of the foregoing). This means that the common practice of giving a gratuity to a title closer is done. In addition, the practice regarding so-called "pick-ups" will change. The charge for pick-ups must be disclosed to the person responsible for its payment at least three days prior to closing, the charge must be "reasonable," and employees of the Title Company may not charge a pick-up fee. The charging of pick-up fees is no longer allowed on refinance transactions, and will only apply to purchase and sale transactions.

Please contact your Fidelity National Title sales representative with any questions.

Update: The effective date of the proposed regulations regarding prohibited sales practices has been delayed until February 1, 2018