Mark S. Edelstein, Jeffrey J. Temple, and Austin T. Jennings
Real Estate and Real Estate Finance
In February of last year, strict new regulations, promulgated by the New York Department of Financial Services (DFS), went into effect, banning title companies from engaging in a wide range of marketing activities that could be considered inducements for business. The regulations were extremely broad (including meals, entertainment, parties, etc.) and were quickly challenged in court by the New York State Land Title Association and several title agencies.
On July 5, 2018, Judge Eileen A. Rakower of the New York State Supreme Court annulled the DFS regulations. The court found that the regulations issued by DFS had exceeded the intent of the statute; the intent of the underlying statute was to prohibit kickbacks and other inducements, not “to prohibit ordinary marketing and entertainment expenses.” Judge Rakower called it an “absurd proposition” to suggest that the Legislature intended to “prohibit title insurance corporations from marketing themselves for business.”
Judge Rakower’s order was appealed, and on January 15, 2019, in a unanimous decision, a state appeals court panel reversed the order, thereby reinstating the bulk of the regulations. Justice Anil Singh, writing for the panel, asserted that the DFS did not exceed its authority under the statute. However, the panel upheld Judge Rakower’s order as it pertains to two provisions of the regulations, writing that “there is no rational basis for DFS to impose an absolute ban on the collection of certain fees by in-house closers … as long as the fees are reasonable and the requisite notice is provided to consumers… Nor is there a rational basis for capping fees for certain ancillary searches.”
This is a blow to the title insurance industry, but it is likely not the last word. The New York State Land Title Association has stated publicly that they are reviewing the decision, but it is likely that they will continue the appeals process in an effort to obtain a favorable ruling. However, for the time being, the regulations strictly restricting the marketing practices of title companies are in effect.
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 of our team members.
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