February 08, 2018
OneTitle CEO Warns Regulatory Change ‘Leaves No Flexibility’
Law360. Written by Andrew McIntyre.
A new regulation that bans New York title insurance companies from offering inducements to potential clients will fundamentally change the landscape for an industry long accustomed to the practice, OneTitle National Guaranty Co. Inc. CEO Daniel Price told Law360 in a recent interview.
The change, known as Regulation 208, went into effect earlier this month and ostensibly bans all inducements, from vacations to even a cup of coffee, that title insurance companies might bestow upon real estate investors and developers to win their business.
The reason for the now-banned practice was to make up for a lack of price differentiation: Rates have been largely uniform in the state because of an antitrust exemption that allows for coordination.
But although OneTitle has broken from that tradition and sets its own rates, the company’s chief executive says the ban represents a sea change for the whole industry in New York.
“Title insurance has often marketed its services, particularly in the commercial real estate realm, with entertainment, sporting events, vacation trips, golf outings, meals. All of those, and more, are completely banned by Regulation 208. … The list is long, it’s detailed and it leaves no flexibility or wiggle room,” Price told Law360 in a recent interview.
“All meals, all entertainment, all drinks. It doesn’t matter what the value is. Literally a cup of coffee is prohibited. That’s a fundamental change not just in title insurance … [but] in the entire commercial real estate world. This really has been a core feature of how business gets done,” Price added.
While the change in rules highlights just how prevalent such practices have been in the industry, it now has title companies scrambling to figure out how to adjust their decades-old models and practices. Professionals in various related sectors, including the legal space, are also closely watching for indications of how the new rules will be enforced.
What is certain is that title insurance companies will now have markedly different strategies for interacting with investors and developers.
Currently, with the exception of OneTitle, they don’t use price differentiation as a selling point, since most use the same set of agreed-upon pricing terms.
The Title Insurance Rate Service Association Inc., or TIRSA, is tasked in part with coming up with rates in New York. New York-based OneTitle, though, does not participate in the uniform rate approach, and has instead opted to come up with its own rates.
Rates vary based on purchase price and the amount of debt being assumed.
Title insurance on, say, a $30 million commercial purchase with a $15 million loan would be roughly $105,000 using the TIRSA calculation, according to OneTitle, which noted its own rate is lower.
“Until we came along, the price was uniform,” he said. “We filed our own rates. That hadn’t been done before. … We broke with the industry practice.”
Of course, such coordination would be a blatant antitrust violation, save for an exemption in the 1945 McCarran-Ferguson Act that allows title insurers to come up with a single set of rates.
While title insurance companies in particular are monitoring the new change, Regulation 208 has a reach much wider than just the title insurance sector.
Price said the new rules will also affect attorneys, developers, lenders and agents.
The new rules come with fines for violating the inducements ban: $5,000 or five times the value of the inducement.
“Plus the reputation,” he added. “That’s an issue for the whole commercial real estate world as well as attorneys operating in that space,” Price said.
While the title insurance industry is scrambling to adjust to Regulation 208, the sector is also watching, to a lesser degree, another new regulation.
Regulation 206, which also went into effect earlier this month, deals with instances in which title insurance companies might be involved in joint ventures with developers.
That regulation puts additional oversight and scrutiny on such relationships, to ensure a certain degree of independence exists between the two parties and to ensure the parties’ roles and actions are clearly defined and followed.
And with both Regulations 206 and 208, enforcement remains a question, Price said.
The New York Department of Financial Services couldn’t be immediately reached for comment on the question of enforcement.
“There’s no clarity as to exactly how it will be enforced. DFS has made it clear that you shouldn’t rely on any lack of enforcement in the past as any indication,” Price said. “In fact, they’ve said the opposite, and have given clear indications that enforcement will be stepped up.”
“It’s a warning for people in the commercial real estate space,” Price added.