The New York State Title Insurance Industry Takes On The New York State Department Of Financial Services In An Article 78 Proceeding….And Wins!
A year after the open letter below was written (yes, time does fly when you’re having fun) and more than six months after NYSDFS Regulation 208 went into effect, it has been summarily annulled by the courts!
This means that dollar limits concerning allowable ancillary and ‘junk’ fees that title insurance companies can charge have been lifted.
While that is the case, Hallmark Abstract Service will continue to set fees at what can arguably be considered some of the lowest levels in the industry as we believe that the premium that we earn is sufficient!
For those who may be unaware of the issues being argued it partially had to do with the way that title closers, key cogs in the closing process and the last line of defense protecting the consumer, were compensated.
It also had to do with the stipulations in the now annulled NYSDFS Regulation 208 that outlawed any type of business development activities, or marketing, allowed by title insurance companies.
In other words, title companies could present a coffee cup with their company logo to an attorney (considered de minimis), but could not fill it with coffee!
For anyone interested, the Open Letter below written by Hallmark Abstract Service President Michael Haltman in June 2017, explains…
An Open Letter Circa June 2017
New York State Regulations 206 and 208: Our Thoughts
I’d like to take this opportunity to present some of my thoughts concerning the proposed Regulations 206 and 208.
Please let me know if you have any comments.
My name is Michael Haltman and I own Hallmark Abstract Service located in Jericho, New York.
I opened my firm in 2008 during the turmoil created by the financial crisis.
First let me acknowledge that the title insurance industry, as most if not all industries do, has its share of bad actors who do not comply with existing regulations and disclosures.
And while the proposed Regulations 206 and 208 as they are written will to some extent impact those bad actors, at the same time they will likely hurt the consumer while putting many title companies out of business.
Imposed legislation and regulation typically tend to achieve their intended results, but will also more often than not result in unintended consequences as well. In the case of Regulations 206 and 208, these unintended consequences will in my view be significant.
Affiliated Business Relationships (ABR) and Joint Venture Partnerships
Affiliated Business Relationships and Joint Venture Partnerships created between title companies and real estate companies, lenders, etc., will likely flourish in the future as Regulations 206 and 208 are written now.
So who will any expansion of this practice help and who will it hurt?
Of course some small segment of the title industry will thrive, but will this happen at the expense of the consumer who are the very people that these regulations are supposed to help? In effect, it’s my opinion that the DFS will ultimately be picking title industry winners and losers!
In our view the number one casualty of these business relationships is the consumer who relies on the independence of the title insurance provider. It’s through this independence that any issue, even one that might prevent a transaction from being completed, is recognized and dealt with.
When a contractual relationship between various parties to a transaction exists (i.e. attorney and title company), objectivity and due diligence may be clouded by the desire to close the deal.
The consumer will be impacted once again as a limited number of title industry players with ‘deep pockets’ create these ABR’s and JV’s, while smaller title companies unable to compete will be hurt and may ultimately be forced close. Less competition means less choice for the consumer, and the potential that issues detrimental to their best interests will arise and be allowed to fall through the cracks!
Finally, while ‘steering’ of business is also a net negative for the consumer, ABR’s and JV’s tend to reward such activity.
Marketing and Business Development Activities
When it comes to business development, I am hard-pressed to think of an industry, any industry, that prohibits companies from marketing their firms.
And while there should never be a quid pro quo connecting marketing and business, referring back to ABR’s and JV’s it’s the smaller title firms that are less known who will be hurt by the inability to market themselves. That, by extension, will hurt the consumer.
Lastly no firm should be passing its marketing expenses along to the consumer we are ultimately trying to protect.
Relating all of the proposed regulations back to consumer protection, in the case of title closer compensation it’s the consumer who will most definitely be hurt were the current payment methodology changed in the way that the proposed regulations describe.
Why is that?
If and when title closers become employees of title companies, they will be at the closing table representing said company. The attorney will likely need to take on greater responsibility translating into increased time spent on a deal resulting in the legal costs to the consumer having to rise.
Similarly if the bank needs to send its own representative to closings in order to ‘pick-up’ payoffs, the cost to close for the banks will rise, with those increases no doubt being passed along to the consumer.
If and when title companies need to carry the added expense of title closers on payroll, some will once again likely be forced to close leading to decreased competition, a net negative for the consumer.
Finally, the potential for fewer available closers can mean delays scheduling closings that can cost the consumer both time and money.
To conclude, I firmly believe in the attempt to weed out of the title industry bad actions and actors as they are both detrimental to the consumer as well as to the standing and viability of companies that do things the right way.
But, it’s also critical for any governing body to try and envision the potential unintended consequences that any legislation or regulation might cause, because ultimately the idea is not to hurt the very people you are trying to help, the consumer.
Michael Haltman, President
Hallmark Abstract Service