February 13, 2009
California regulation aimed at addressing the growing problem of title marketing representatives utilizing illegal rebate tactics to market their title insurance companies to real estate agents and brokers has received mixed reaction from the industry since being effective for a little over a month. Some say it’s leveled the playing field, while other say the regulation has gone too far.
Senate Bill 133, which was sponsored by the California Land Title Association (CLTA) and went into effect Jan. 1, provides the Department of Insurance with significant new power to regulate marketing practices in the title insurance industry. In particular, the bill creates the first program in the country to register and regulate title company sales representatives.
While many in the industry seem to agree with the concept of the legislation, the practice and everyday implications of the new regulation seem to be causing concern.
Erin Attardi, a Realtor in Sacramento, Calif., said that while there have been pre-existing rules in effect regarding "inducements," this law takes everything to a new level.
“Now title reps can not participate in any Sacramento Association of Realtors committees,” she said.
As an example, Attardi said one title representative that served on the Young Professionals Council had to resign her position at the end of 2008 to be in compliance.
Attardi said title companies cannot sponsor any SAR or real estate office events or fundraisers or sponsor a booth at an annual real estate conference.
“If a title rep and a real estate agent happen to be friends, the title rep can not buy the agent a birthday present, cannot validate parking and can’t make copies at an escrow signing. How far does this really go?”
The regulation allows the Department of Insurance to revoke, suspend, restrict or decline to issue a certificate of registration if it determines, after a hearing, that the title marketing representative has violated any of the rules.
SB 133 was the culmination of several years of effort by the Department of Insurance to address the growing problem of title marketing representatives using illegal rebates. While such practices are illegal, the Department of Insurance currently has no enforcement authority over the individuals who are using them. Enticing agents and brokers to promote a specific title insurer may result in persons paying higher title insurance costs.
The bill identifies the marketing activities that are illegal for title marketing representatives to use for title insurance business inducement purposes. Additionally, it provides the Department of Insurance regulatory oversight of title marketing representatives by establishing a process for registering them and disciplining those who fail to abide by the law.
According to Cheryl Johnson, of Bob Taylor Properties in Los Angeles, it had been a common practice for real estate agents to order copies of building permits with a property profile. She said the city can be litigious, and including permit copies with the seller's transfer disclosure was just one more little piece of risk management.
Johnson said that under SB 133, title companies can no longer provide permit copies until an escrow transaction is opened, and the cost of permits is billed to the file.
“The title companies were providing this service to any agent who requested,” she said. “No one was buying anyone else's business. But it did make our work a tiny bit easier.”
Johnson continued: “Suppose a member of the public calls my office and requests some information about sales on a particular street. I look up the information and provide it to the caller. Maybe I even print some copies of listings for the caller. By doing this am I ‘buying’ the caller's business? I am providing a service in the hope of getting future business, yes, of course. Isn't that how business is done?”
While the legislators who created SB 133 said it was created in the spirit of consumer protection, some say it’s only part of the solution. One title professional in California said another major hurdle is addressing the issue of affiliated business arrangement.
The title professional said SB 133 does not address this issue which has become more prevalent since brokerages realized the potential revenue stream which could be generated by affiliated title, escrow and lending operations. The agent said that if SB 133 is really about the consumer, regulators should enforce the 51 percent cap California has on business directed from its affiliates.
“The one-stop-shop concept was created under the auspices of making a real estate transaction more convenient for the consumer,” the title agent said. “Maybe it does, but at what cost. Maybe an office manager offering to pay for an agents marketing materials if the brokerages title company is used does somehow benefit the home seller if the house indeed sells.”
Tom Giansante, a marketing representative for The Title Company of Jersey, said he would rather see a situation like California than what he is experiencing in New Jersey. He said he would gladly welcome a level playing field where service is the only difference between companies where the rates are regulated.
“This industry needs to be cleaned up and the rules need to be enforced,” he said. “Some have expressed that the new regulations may be too strict, but look at what happens without those type of guidelines.”
He believes that half the existing companies will be eliminated in the first year of the new regulation and most of the others would have to learn how to compete with service.
One former title marketing representative said she was glad to see a state “finally put their foot down” regarding kickbacks. The agent said she worked for a few title companies across the country and was instructed several occasions to create and run copies of fliers for different agents and mortgage brokers.
“I recall one run of 3,000 full color copies, at 25 cents each that our company absorbed for the broker,” she said. “That ended up being more than the company made on the title order.”
“When I finally put my foot down and told my supervisor that as a title marketing coordinator, I did not want to be sent out to a Realtor's office to create their own personal marketing campaign for a property they had listed, I got laid off,” she continued.