New York Title Insurance Regulations Miss the Point
Many people who buy real estate in New York neither understand, nor like, purchasing title insurance. It’s rather amorphous and expensive and you’re not sure if it’s actually ever going to help you insure anything.
For years, some title insurance companies have taken significant liberties by lavishing attorneys with gifts on the backs of clients, by padding bills. They’ll pay $100 to do a Patriot search but charge the client $400. They’ll charge $60 for FedEx fees. It’s all complete BS and the legislature should have done something to deal with this years ago. Well, now they did. And while it helps in some respects, it wildly misses the mark in others.
NEW YORK REGULATIONS FOR TITLE INSURANCE
N.Y. Regulations for Title Insurance Industry
Proposed 11 NYC RR227 looks to address the “outrageous” costs of Title Insurance by proposing the following legitimate, logical changes:
- Capping fees for out of pocket searches (Patriot Act, Bankruptcy searches, etc) that Title companies can charge.
- Capping fees that title companies can charge to hold escrow money (essentially doing nothing) to $25 per escrow charge.
- Capping FedEx fees to, you know, the actual cost of Fed Ex fees.
- Reducing premiums homeowners pay for refinances because you’re insuring something that doesn’t really need to be insured.
- Reducing premiums title companies charge for standard insurance by 20%.
Now, here’s where the legislature takes a bunch of bath salt and says “What else can we throw in here?”:
- Independent title closers can no longer be “tipped” by Purchasers and Sellers for their work. At first blush, this would sound great to a layperson, but it’s not. That title rep at the closing is an independent contractor. They live off of these “tips” the same way your Uber driver lives off of your fares. They’re at the closing and take care of everything. They’re also certainly not raking in the dough when they make about $250-$400 per closing (that’s if the Sellers or purchasers actually pay-sometimes they don’t.) It’s maddening to try and figure out what the impetus was for this (as opposed to capping these fees) until you see the real reason behind this laid out below.
- Title companies can no longer spend any money on attorneys or other real estate professionals. I hear you grumbling, but trust me I’m not going to give you a sob story about attorneys not receiving gifts. The current bill states “Payment of any consideration…includes…(a) meals and beverages (e) holiday parties (f) continuing legal education for which credits are provided for a reduced fee or no fee.” This means, and I’m serious, that if a title company rep wanted to earn my business he/she could not buy me a coffee and discuss their company. It means that I could not take a free class put on by a title company to learn more about real estate law, tax law, etc. This is not strippers and steak. This is Starbucks and studying. Outlawed. Name me one other industry that forbids a company from taking a potential client out for coffee or lunch. Name me one other industry that forbids educational and continuing learning initiatives. It’s asinine and does absolutely nothing to protect consumers. In fact, it does the opposite.
Should this new bill pass in it’s current form, here’s what will happen:
- Mom and pop title shops will close because they can’t afford to pay their independent closers as employees. Only large title companies will be able to do so. This will lead to less competition (which, as we know, always helps consumers).
- The large title companies will absolutely win out in this, and, because they know that they’re the only show in town, service will suffer (I’M LOOKING AT YOU, TIME WARNER).
- Hundreds of independent closers will lose their jobs. These are mothers who work part time and can’t do a full time gig. These are attorneys trying to make ends meet by picking up a closing. These are real estate professionals that want to learn a new industry and help.
The new legislation fails to address the two 800 lb gorilla’s in the room:
- Unless you’re an underwriter, you can’t compete on price because of regulations. If I wanted to start a title company and say “I’m going to charge 75% less than my competitors” I wouldn’t be allowed to do it. I’d have to negotiate my rate with the State who would absolutely decline my invitation to bring open competition and massively reduced fees to the marketplace.
- Interestingly, this legislation fails to address real estate brokerages with title insurance companies on the side and “nudging” attorneys to use those companies. Two very, very large real estate brokerages in New York have title insurance companies that they’re “affiliated” with, that, in my opinion, don’t necessarily do the Lord’s work. I’ve represented clients at hundreds and hundreds of transactions in New York, but I can’t step foot in these brokerages unless I wink wink that I will perhaps send some work to an affiliated title company. This isn’t a big secret. Some attorneys have transactions that pour in from particular real estate brokerages and, others, who are tremendous attorneys (not including me in this) do not. If the Governor was interested in evening the playing field, he’d be wise to look into that. Recent reforms passed are not enough to get the job done.