While there are many functions that a title agency might offer to an attorney acting on behalf of a client or to a client directly, the primary function is generally going to be issuing a title insurance policy for a property that will ensure the owner good, clean and clear ownership!
In other words that no one can come back at some future date and claim that they are actually the rightful owner of the property, that they have a valid lien on the property and are therefore owed money by the new owner or that taxes were left unpaid by a prior owner of the property and that the new owner is now on the hook for it.
In the scheme of a transaction this makes title insurance an extremely important cog in the process.
New Industry Licensing Requirements
As of the beginning of October, 2014, title agencies in New York State, for the first time, are required to be licensed by the NYS Department of Financial Services (DFS) so that the consumer is better protected and completely understands what they are receiving and how much it will cost.
The new regulations are also meant to alert the consumer to any potential conflicts of interest that may exist between the people recommending a title company and the title company itself in what are commonly known as Affiliated Business Arrangements or ABA.
In a nutshell, the definition of an ABA as it concerns a real estate transaction is…
An AfBA is an arrangement to share or refer business between two different companies involved in providing services in the closing of a real estate transaction. There may be ownership interest of a party in both the business referring out the service and the business receiving the referral. (Source)
If an Affiliated Business Arrangement is disclosed then no issue exists because it means that the consumer is fully aware that a player in the transaction process, for example an attorney, might benefit in some financial way from the title portion of the closing.
For the buyer of a property having this potential conflict disclosed is helpful because their attorney is tasked with examining the title report with an eye towards any potential problems that could affect their client and be acting solely to protect that client.
But, if benefiting financially from the deal closing, such scrutiny could potentially be compromised and some potential red flag overlooked.
Full disclosure of an ABA helps to level the playing field and ensure that the client is receiving the best counsel possible, no if’s, and’s or but’s!
At the end of the day each participant in a real estate transaction has a job to do and that job is to ensure that every T is crossed and that every I is dotted so that whoever it is that they are representing in the transaction, is being represented to the best of their ability.
As professionals, whether title, law or real estate, we are compensated well for what we do and at least in our opinion should stick to our knitting rather than seeking to be paid by one of the other professionals.
We look forward to and encourage any and all feedback on this somewhat controversial topic.
Written by Michael Haltman, President of Hallmark Abstract Service, New York.
HAS is a provider of title insurance in New York State for residential and commercial real estate transactions of any size.
To the consumer: Remember that while your attorney will likely recommend a title insurance provider, you have the right to choose your own (click here to learn more)!
And while the title insurance premium will not vary from firm to firm, the other fees involved in your transaction most definitely will! Send us your title bill to make sure you’re not paying too much!
If you have any questions you can reach Michael by email at firstname.lastname@example.org.Google+