State Cracks Down on Phony Fees for Title Insurance

The New York State Department of Financial Services (DFS) has issued new regulations designed to end extensive overcharges for title insurance that have artificially inflated closing costs. New York homebuyers routinely spend thousands of dollars on title insurance, which protects them against any previous liens on a property and also guarantees they’ll have a clear claim to the title after closing. 

A 2015 DFS investigation found that numerous title insurers entertain real estate agents, mortgage brokers, attorneys and others in order to win the business of their clients who are buying homes. The perks included golf outings, Madison Square Garden suites, and other gifts, which the title insurers labeled as “marketing costs” and passed along to homebuyers in the form of fees. 

The new regulations provide a list of prohibited and permitted expenditures. The former include tickets to sporting events or concerts, gifts, outings, or parties. The new regs also require title insurance agents to provide “a list of the applicant’s actual title insurance costs,” with a clear breakdown of premium costs and all ancillary fees. 

Maria Vullo, superintendent of DFS, said in a statement that the regulations “end the widespread practice of using meals and entertainment as inducement for title insurance business. New Yorkers can now rest assured that they will know exactly what they are paying for during the closing process and that they will pay only their fair closing costs.” 

The Consumer Federation of America and other public advocacy groups have spent years trying to reform overcharges for real estate title insurance. In 2012, New Yorkers paid $819 million in title insurance premiums. Much of that, according to the DFS investigation, was to cover the cost of what amounted to payola. 

The system was ripe for abuses. Buyers trust their real estate agents and attorneys, often following their recommendations for title insurance agents and policies without question. At the closing, consumers pay multiple invoices, often without receiving a detailed breakdown of fees and expenses.

J. Robert Hunter, director of insurance with the Washington, D.C.-based Consumer Federation of America, has testified before the DFS that 70 percent of title insurance premiums are labeled as “marketing costs” that are paid to professionals who recommend title insurance companies before a closing. The practice is not confined to New York State. When asked how many millions of dollars are tacked onto title insurance premiums in the form of “marketing costs” nationwide, Hunter replies: “Millions? It’s billions. Absolutely. Well over half of the premiums are unnecessary. I’ve followed this for decades.” 

In 2015 a bill was introduced in the U.S. Congress to end title insurance kickbacks at the federal level. Though supported by the Consumer Federation of America and others, the bill died a quick death. “This happens every day in Washington to consumer-protection bills that have a huge industry lobbying against it,” Hunter says. “Money talks down here.” 

Hunter last testified on this issue in New York State in 2013. Now, four years later, New York homebuyers will begin to benefit from much-needed, and long-overdue, reform.