State Investigating Three Title Insurance Firms

The crackdown on the title-insurance industry continues as the state Department of Financial Services (DFS) pursues investigations of three title-insurance companies, Crain’s reports. The department has sent letters to Everest Abstract, Riverside, and Royal Abstract, requesting itemized descriptions of gifts given to current or potential clients, along with records pertaining to “marketing expenses,” a catchall term that typically includes meals and other forms of entertainment. In the case of Everest Abstract, the department also requested a list of all joint ventures, business affiliates, and employees. 

The state's request, which was triggered by an anonymous tip, is part of a broader push to rein in what DFS Superintendent Maria Vullo has called the industry's history of "inappropriate and, in some cases, illegal conduct that has resulted in decades of inflated title-insurance rates." 

Lenders require title insurance for every property transaction they finance to ensure the validity of the property records. 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, wining and dining, and other gifts, which the title insurers labeled as “marketing costs” and then passed along to homebuyers in the form of fees. 

A side effect of the new regulations to end such practices has been a squeeze on title closers, independent contractors who perform numerous tasks at every real estate closing. The regulations ban closers from receiving gratuities and attendance fees, customarily paid by the seller, which have been a major source of their income.

Last week, just as a new set of rules regulating the title-insurance industry was set to take effect, the state abruptly delayed a key component until February. The delay was instigated by state legislators who are opposed to the new stipulations and plan to hold a hearing in January. The crackdown appears to be developing cracks.