Real Estate and Real Estate Finance
In October 2017, the New York State Department of Financial Services (DFS) announced new regulations designed to enforce a law prohibiting title companies and title agencies from obtaining title insurance business directly through the utilization of various marketing activities that could be considered inducements. As we reported in a Client Alert last year, the regulations issued by the DFS are extremely broad, deeming “any marketing practices that conveyed a benefit onto a perspective client an illegal inducement ‘regardless of whether provided as a quid pro quo for perspective business.’” This left the title insurance industry with only narrow, highly proscribed marketing tactics at their disposal.
News of the regulations caused uproar in the industry, which began lobbying heavily to prevent the implementation of the new regulations. Certain state politicians responded, calling the new regulations “poorly conceived,” and urged the DFS to delay implementation. Acquiescing, the DFS delayed implementation of the regulations to February 1, 2018.
New York State Senator James Seward and others argued that the DFS regulations go beyond the intended scope of the law, which is to prevent quid pro quo arrangements, not merely the conveyance of a benefit to a prospective client. To that end, Senator Seward sponsored Senate Bill S6704, which would amend Section 6409(d) of the Insurance Law to clarify that the mere presence of common marketing activities absent a quid pro quo does not constitute an illegal inducement.
The bill does this by redefining the term “inducement” to mean a “benefit given with the intention to compensate or offer compensation, directly or indirectly, for any past or present placement for a particular piece of title insurance business. . .” This narrows the scope of what is considered illegal to the intentional use of marketing expenses to directly compensate clients for the placement of specific business.
The effect of this bill would be to force the DFS to scale back the scope of its regulations and allow title companies and agencies to continue to market their services through “wining and dining” potential clients, while still prohibiting quid pro quo relationships that intentionally compensate clients for their business.
While this bill has come as a relief to the industry, it is not yet law. The bill passed the Senate by unanimous vote but must still pass the New York State Assembly and be signed into law by Governor Andrew Cuomo. While the legislature considers the bill and the industry mulls their options for litigation, the regulations went into effect as of February 1, 2018.
Morrison & Foerster’s New York Real Estate Group will continue to monitor the situation and advise accordingly. If you have any questions, please do not hesitate to reach out to any member of our team.
Mark S. Edelstein Chair, Global Real Estate Group(212) email@example.com
Jeffrey J. Temple Co-Chair, U.S. Real Estate Group (212) 468-8031 firstname.lastname@example.org
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