February 06, 2018
Important Information about Regulation 208
Alan M. Doran, OneTitle General Counsel
The major legal changes last week prompted many questions from clients. We want you to have the facts you need to protect yourself and avoid the misinformation.
The major points:
- Regulation 208 is fully in effect. No legislation passed that changes the regulation in any way.
- The penalties for anyone who accepts (not just provides) an illegal inducement can be severe. Significant penalties apply to both the title company that offers the inducement and the recipient, including attorneys, lenders, developers, agents, etc. There are indications that enforcement activity will increase.
- Nearly all meals, drinks, entertainment, gifts, vacations, outings and parties are now illegal if offered by a title company to any client or potential client (“illegal inducements”).
OneTitle will continue to offer you and your clients lower premiums (10-25% less) and outstanding direct service. I would be more than happy to discuss any of these changes with you and how OneTitle can help you to grow your business.
- The regulations went into full effect on February 1st. The Department of Financial Services did not extend the amended effective date, so all parts of Regulations 206 and 208 are now in effect. The legislature did not take any final actions that would have delayed or changed the regulations or limited enforcement. While a bill did pass the State Senate, the Assembly has not even voted. Any legislation would also require the Governor’s signature.
- DFS has already increased its enforcement activities according to multiple press reports. Potential penalties extend to both the recipient and the title company.The regulations are based on New York Insurance Law Section 6409(d) (included below), which specifies that the recipient of any illegal inducement can face penalties of up to $5,000 or five times the value of any illegal inducement. The law explicitly includes any “agent, representative, attorney, or employee of the owner, lessee, mortgagee or of the prospective owner, lessee, or mortgagee of the real property or anyone having any interest in real property” as well as the insured.
- As a reminder, the following are explicitly illegal inducements with potential penalties for the both the title company and the recipient:
- Meals and beverages, regardless of how inexpensive
- Entertainment, including tickets to any event, sports game, play or concert
- Parties (including holiday parties, cocktail parties, open houses at the client’s or title company’s office)
- Assistance with business or office expenses, including office supplies
- Providing non-title services without charge
- Meals and beverages, regardless of how inexpensive
On the other hand, the following are considered acceptable marketing expenses:
- Advertising or marketing in any publication, or media, at market rates;
- Advertising and promotional items of a de minimus value that include a permanently affixed logo of a title insurance agent or title insurance corporation;
- Promotional or marketing events including complimentary food and beverages that are open to and attended by the general public;
- Continuing legal education events including complimentary food and beverages that are open to any member of the legal profession;
- Complementary attendance offered by a title insurance corporation, title insurance agent as a host of a marketing or promotional event, including food and beverages available to all attendees so long as (a) title insurance business is discussed for a substantial portion of the event including a presentation of title insurance products and services, (b) such events are not offered on a regular basis or as a regular occurrence and (c) at least twenty-five diverse individuals from different organizations not affiliated with the host attend or were, in good faith, invited to attend in person;
- Charitable contributions made by negotiable instrument made payable only to the charitable organization in the name of the title insurance corporation or title insurance agent; and
- Political contributions.
New York Consolidated Laws, Insurance Law – ISC Section 6409(d)
Below is the full text of the relevant section. I have bolded the most relevant sections to draw since many individuals have expressed to us that they were unaware that it is established law in New York that the acceptance of rebates, other consideration or things of value could result in substantial penalties to the recipient.
“Section 6409(d) No title insurance corporation, title insurance agent, or any other person acting for or on behalf of the title insurance corporation or title insurance agent, shall offer or make, directly or indirectly, any rebate of any portion of the fee, premium or charge made, or pay or give to any applicant, or to any person, firm, or corporation acting as agent, representative, attorney, or employee of the owner, lessee, mortgagee or the prospective owner, lessee, or mortgagee of the real property or any interest therein, either directly or indirectly, any commission, any part of its fees or charges, or any other consideration or valuable thing, as an inducement for, or as compensation for, any title insurance business, nor shall any applicant, or any person, firm, or corporation acting as agent, representative, attorney, or employee of the owner, lessee, mortgagee or of the prospective owner, lessee, or mortgagee of the real property or anyone having any interest in real property knowingly receive, directly or indirectly, any such rebate or other consideration or valuable thing. Any person or entity who violates this section shall be subject to a penalty of (1) five thousand dollars; or (2) up to ten times the amount of any compensation or rebate received or paid in the case of a title insurance corporation or title insurance agent; or (3) up to five times the amount of any compensation or rebate received or paid; or (4) in the case of an applicant for title insurance that covers real property used predominantly for residential purposes, and which consists of not more than four dwelling units, other than hotels and motels, an amount not to exceed the compensation or rebate received or paid, when such applicant knew that it was a violation to receive such rebate, or other consideration or valuable thing; provided, however, if such applicant did not know that it was a violation to receive such rebate, or other consideration or valuable thing, he or she shall not be assessed a penalty under this subdivision.”
I would be more than happy to discuss any of these changes with you and look forward to working together.
Alan M. Doran
Executive Vice President and General Counsel
OneTitle National Guaranty Company, Inc.