New York cracks down on title insurers for kickbacks

New regulations expected to reduce title insurance costs by up to 20%

The state of New York is cracking down on the title insurance industry after a New York Department of Financial Services investigation found that some title insurers are providing kickbacks in exchange for business and passing those costs along to consumers by significantly inflating title insurance premiums.

New York Governor Andrew Cuomo announced Wednesday a set of new “anti-inducement” regulations designed to reign in kickbacks and “other improper expenditures,” such as excessive meal and entertainment expenses given to attorneys, real estate professionals, and others in an attempt to obtain business.

According to Cuomo’s office, the new regulations are expected 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,” 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.”

Cuomo said that the NYDFS investigation into the title insurance industry found that expenditures including meals, entertainment, vacations and gifts were provided to attorneys, real estate professionals, and others, who represent consumers and order title insurance on their behalf.

The new regulation outlines categories of expenditures which, when provided as an inducement for title insurance business, are improper and violate the New York Insurance Law.

“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,” Cuomo’s office said. “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 new regulations mandate that these improper expenditures, which violate the anti-inducement provision of the Insurance Law, be eliminated from the rates charged to consumer, which will result in lower title insurance premiums.

“Our investigation uncovered that title insurance companies paid for lavish meals and entertainment on the dime of consumers, which inflated premiums,” NYDFS Superintendent Benjamin Lawsky said. “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 new regulations also impose caps on what the states calls “ancillary charges.” Included in those ancillary charges are 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 NYDFS investigation also 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 new regulation also prohibits the payment of gratuities and pick-up fees to closers of real estate transactions, which add hundreds of dollar to consumers’ final closing bills, Cuomo’s office said.

Cuomo’s office also said that the new regulation mandates that title insurers must file with the state at least once every three years to demonstrate that their title insurance rates comply with the Insurance Law, and are not excessive, inadequate or discriminatory.

Michelle Korsmo, the chief executive officer of the American Land Title Association, said any violators of the law should be held accountable.

“We’ve seen reports that the New York State Department of Financial Services found that kickbacks have occurred in the real estate industry,” Korsmo said. “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. 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.”

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