January 12, 2018

Statement of Maria T. Vullo, Superintendent New York State Department of Financial Services Prepared for Delivery at Public Hearing: An Examination of Recent Title Insurance Regulation in New York State Albany, New York

January 12, 2018


Good Morning Chairman Cahill and members of the Assembly Standing Committee on Insurance.  As Superintendent of the New York State Department of Financial Services (DFS), I appreciate the opportunity to appear before you today to discuss how DFS’s Title Insurance Regulations (Insurance Regulations 206 and 208) “are successfully lowering consumer costs while also ensuring that the title insurance market remains healthy and competitive in New York State.”  In my testimony, I will describe in detail the thoughtful and fulsome process that informed and ultimately led to finalizing Regulations 206 and 208, and address the topics set forth in the Notice of Public Hearing.

DFS’s Role

By way of background, DFS regulates and supervises the activities of more than 1,400 insurance companies with assets of more than $4.3 trillion.  DFS also licenses insurance agents and brokers, with approximately 300,000 total agents and brokers licensed in the state, including, since 2014, title insurance agents.

In addition to its insurance supervision, DFS supervises about 10,000 banking and mortgage related financial entities with assets of more than $2.6 trillion, ranging from some of the largest and most complex international banking organizations, to over 7,600 mortgage loan originators.  In other words, DFS’s experience spans from very large to very small businesses, as well as to individual licensees.

DFS, and its predecessor the Department of Insurance, has longstanding experience as the regulator of title insurance in New York.  There currently are 31 title insurance companies that DFS has licensed to do business in New York and, as of December 31, 2017, DFS had approximately 2,735 licensed title agents.  DFS also brings to this industry its perspective as the regulator of banks and mortgage providers.  Pursuant to its regulatory mission and statutory obligation, DFS regularly examines the title companies for fiscal soundness, reviews and approves rate submissions, reviews and approves policy forms, and oversees the market conduct of the industry.  DFS does so with consumer protection at the forefront of its mission.   

DFS Regulations 206 and 208 are the result of a lengthy, comprehensive and inclusive process.  After conducting a thorough investigation and a public hearing, DFS proposed regulations that went through two substantive comment periods under the State Administrative Procedures Act.  The industry has been involved in the process every step of the way, producing information and testifying during our investigation, and submitting comments and meeting with us as we developed our regulations.  We carefully considered the evidence adduced during DFS’s investigation, and the comments we received from all interested parties, including the title industry, consumer groups and the housing industry.    The final regulations reflect a thorough and careful balancing that benefits your constituents who are buying or refinancing their homes, and reduces their closing costs.  DFS is confident that the regulations it has crafted, taking into consideration the comments of all interested stakeholders, will accomplish important reforms, eliminating improper expenses that have driven up rates, while promoting a level playing field in the industry.

I understand that a number of representatives from the industry will be testifying in person after me, and I expect you will receive additional written submissions from the industry.  At DFS we received extensive comments in formulating these regulations and we held meetings with every industry trade group and their members.  However, missing from the lobbying push are all of the homeowners and future home buyers who do not have the means to hire high-powered lobbyists and attorneys to represent their interests.  It is they who are the beneficiaries of DFS’s Regulation 208, who will benefit from lower closing costs and, were they here, would weight the balance differently from the picture we see today in this hearing.  As regulators, DFS has balanced all interests and, I believe, has arrived at the appropriate resolution.

Background on Title Insurance

Striking the balance between industry promotion and consumer protection is DFS’s mandate.  With respect to the insurance industry in general and the title insurance business in particular, we must ensure that rates are fair and that consumers do not pay more than they should for the product they are getting.  The title insurance industry protects title, allows homeownership, and protects property owners and mortgage lenders against future claims for any unknown defects in title at the time of sale.

The cost of title insurance impacts consumers widely throughout the state, and impacts them at a crucial time when they have saved up for and are buying a new home.  Banks require mortgage borrowers to purchase a lender policy that protects the bank from any claims against title, and consumers most often also purchase an owner’s policy to protect themselves.  Thus, when a consumer purchases a home with a mortgage, or refinances her existing mortgage, she usually purchases both an owner and a lender title insurance policy.  As the costs for these policies are borne by the consumer, DFS as regulator is watchful of the factors contributing to these costs, bearing in mind the benefits provided the consumer by the professionals involved in the transaction.

In 2016, title insurance companies in New York wrote over $1.1 billion in premiums -- this compares with national title insurance premiums of $11.7 billion.  So, New York title insurance is almost 10% of the national market.

As I noted, the cost of title insurance is added to the closing costs paid by the new homeowner.  The high cost of real estate closing costs impacts consumers throughout the state as well as the economy of the state as it impacts both residential and commercial real estate development.  To encourage homeownership throughout the state, we must continue to bring down the costs to the consumer of buying or refinancing a home.

Most notably for the subject of today’s hearing, the cost of title insurance in New York is higher than in other comparable states.  For example, an insurance premium (before ancillary fees) for an owner and a lender title insurance policies on a $200,000 home with 20% down, in Zone 2 which includes all counties from Albany downstate, including Ulster and Nassau Counties, is now $1,291.  The same priced $200,000 home with 20% down in Connecticut, as derived from publicly available rate calculators, is $875, which means that your constituents are paying 40% more than Connecticut home buyers.   Massachusetts and New Jersey rates are more than 25% less than New York.

Unlike other lines of insurance, a majority of the title insurance premium paid by the consumer goes to expenses, and very, very small amounts are paid for actual claims.   Specifically, in New York, only about $51 million of the $1.1 billion in premiums written in 2016 were paid out in claims or losses to the insurance companies.  That means that over a billion dollars of this industry is the administrative and labor costs of the insurance companies and agents.  Most insurance business does not have such a low loss ratio as compared to premiums.

 Significantly, in New York, the title loss insurance ratio is 4.65% while the loss ratio for all other non-title property companies is 65%.  By further comparison, for health insurance the medical loss ratio is capped by statute at 82%, leaving 18 percent for all administrative expenses and profit for the insurance company.  Again, this 82 percent is compared to 4.65 percent for title insurance companies, a remarkable contrast.  This means that more than 95% of title insurance premiums, or a billion dollars in 2016, relate to expenses and profit of the title insurance industry, not losses or claims.

Title insurance has a very low loss ratio in part because it operates more like a surety.  Most of the work to ensure clean title is supposed to be done prior to the insurance being issued.  While this distinction from other lines of insurance is important, it also highlights why controlling the expenses of the industry is essential to keeping costs down for the consumer.  Moreover, it is critically important to recognize that  competition for title insurance business is “reverse competition,” meaning a market structure in which the seller of a product markets the product to an intermediary instead of the ultimate purchaser of the product.  As one witness testified at our public hearing, “[t]he ultimate consumer has little or no market power in the title insurance transaction because title insurance is required for obtaining the loan… and because the consumer who infrequently purchases real estate has little knowledge of title insurance and not time to shop.”

In particular, title insurance is unusual because of the high percentage of the premium paid to the agents.  In New York, on average, 85% of the premiums paid by consumers for title insurance is paid to title agents.  Title agents do very important work: they do the research on title and usually record the deeds, pay off mortgages, arrange for the payment of necessary taxes, and perform the curative work.  However, according to testimony and evidence adduced by DFS in our investigation, only about one third of the real estate transactions include curative work, which means very little is done for two thirds of the transactions.  Industry witnesses also testified to different ranges of the amount of work required for the transactions requiring curative work, from on the high end the average being two and a half hours, to at the low end the work required being on average 10-30 minutes.  It is this work that is to be compensated by the premium paid by the consumer.

Title insurance is also a very concentrated market. The top four groups have 91 percent of market.  The title insurance industry in New York has been very profitable in recent years.  

The DFS Regulations

As a result of our investigation, DFS proposed and made final two regulations: Insurance Regulation 206 and 208.  First, Insurance Regulation 206, which notably has gotten little attention, is an important effort to achieve a fair competitive environment.   Regulation 206 responds to the concerns of DFS and many independent agents that larger institutions, including mortgage lenders, effectively refer all their customers to an affiliated title company without actually competing for the business.  Our Regulation 206 thus requires title insurance corporations or agents that generate a portion of their business from affiliates to function separately and independently from any affiliate and be open for business from other sources.  This regulation protects consumers, as well as independent title agents, including those testifying later today.  You might want to ask the independent agents whether they support a strong regulator when it comes to DFS taking strong and consistent measures to enforce the affiliate rules in Regulation 206 and take steps to prevent sham joint ventures and other business arrangements that are used to create unfair competition in this industry.

Insurance Regulation 208, which has received the most attention, contains important rules about appropriate expenses including meals and entertainment and ancillary fees that title agents or title insurers may charge the home buyer at closing.   The purpose of this regulation is to eliminate the improper inducements widely given out by the industry and uncovered in DFS’s investigation, and then eliminate the cost of these improper expenses from the rates charged the consumer.  It is important to stress that, while the effect of this Regulation will be to bring down the rates charged to consumers at closing, the financial impact on the industry will be neutral – the only expenses being eliminated are those that DFS found to be improper and rates will fall commensurate with the amount of the costs of the previous improper inducements. 

DFS’s Investigation

Unlike other types of insurance where DFS had significant visibility into the components of and expenses included in the rates being charged, for many years the opacity surrounding title agents’ expenses was a significant hurdle for DFS – and the Insurance Department before it -- because title agents were not required to be licensed.  This opacity has now transformed into transparency, for the good of the public.

Pursuant to the Insurance Law, every title insurer writing business in New York is required to submit its rates for DFS review and approval.  The Insurance law also provides that rates shall not be excessive, inadequate, unfairly discriminatory, destructive of competition or detrimental to the solvency of insurers. Therefore, all title insurance rates are, and have been, subject to prior approval. Individual title insurers have the option to follow the rates submitted for approval by TIRSA, the industry’s statistical agent, or to file their own independent rates for approval.  Currently, only two title insurers writing title business in New York use independent rates; all others follow TIRSA.

 In the course of its work, DFS noted that a large majority of expenses were not separately itemized and comprised a significantly larger percentage of expenses than in any other insurance business.  DFS also received numerous complaints about this industry, as well as some anonymous information.

DFS commenced an investigation in 2012, during which DFS reviewed the industry's expenses and what consumers were actually paying for in premiums.  DFS commenced its investigation to find out more about what the industry was doing with the expenses that comprise over 95% of the premium and whether rates based on these expenses were fair and appropriate.  DFS also sought to determine whether title insurance corporations and title insurance agents were making expenditures that were prohibited under Insurance Law section 6409(d) as inducements for title insurance business.  Our investigation revealed significant expenses by both title insurers and title agents that were being spent on improper inducements to get business.

As part of the investigation, DFS requested information for the years 2008-2012 from all its licensed title insurance corporations, and approximately 65 title agents representing a broad sample across the following categories: large agents (by number of employees and revenue), small agents and commercial agents, including agents issuing policies in each of the 62 counties in New York.  Following the document and information gathering, on December 10, 2013, DFS held a public hearing at which representatives from the industry -- five title insurers, eight title agents and TIRSA -- provided testimony, both written and oral.  Two additional witnesses provided expert testimony.

  In our investigation, we found that insurers reported meal and entertainment expenses in the following categories: advertising, marketing and promotional, travel, and “other.”  There was a lot of “other.”  And when we got into the details, the “other” category was very objectionable.  These expenses were replete with excessive entertainment, some of which was completely inappropriate, that was being used as inducements for title insurance referrals.  Compensating someone for a referral is a violation of law under Insurance Law 6409.  Despite this statutory prohibition, the industry has been widely, and inappropriately, wining and dining and providing gifts of various kinds to real estate professionals in a position to refer business.  And, in the end, your constituents have been paying for the entertainment of industry players and their referral sources.

One insurer consistently spent millions of dollars each year on high-priced tickets to basketball games watched from a lavish Madison Square Garden suite, baseball games, and the US Open for their so-called “clients,” mainly attorneys providing them with business.  In the five years for which we collected data, the expenditures ranged from $2,464,491 to $5,404,617, representing 4.9 to 14% of retained premium.  Let me repeat that, up to 14% of the premiums charged to New York customers was spent on tickets, just tickets, for lawyers who referred those customers to the title insurer.  One insurer spent more than $1 million annually on tickets in four of the five years studied.  And this statistic does not include the hundreds of thousands of dollars that insurers also spent on meals and other forms of entertainment.

We also uncovered that insurers and agents have paid for their clients to frequent a “Gentlemen’s Club” on Long Island, lavish sports bars and Hooters.  Multiple times, and to this day.  DFS has also found that agents have spent lavishly on gifts to their referral sources, including expensive designer goods given to lucrative referrers and even gift cards.  There is no legitimate business reason for taking referral sources to strip clubs and giving them designer products and then making home buyers pay for such conduct.

We further found that one title agent spent between 15 and 30 percent of retained premium on a variety of entertainment and gift expenses.  One title agent appeared to spend 50% of its revenue on meals for its referral sources.  The agent’s attorney later explained that some of this expense was generated outside of New York for business elsewhere.  The expense, however, was reported as a New York expense, perhaps, because at the time New York had not addressed this problem.  Another title agent, which is affiliated with several other title agents, paid a management fee to one of its affiliates of almost the entirety of premiums retained, despite having only one employee.

Since agents retain approximately 85% of the title insurance premium, and their expenses are included by the industry in the data report to justify rates, all these expenses were being included in the expenses submitted to DFS to justify the rates charged.

Of course, marketing and client development are important parts of running a successful business.  There have been many false claims about this subject and how our regulation addresses it.  Contrary to the many suggestions otherwise, our regulation allows permissible, appropriate marketing expenditures of various kinds.  But, there is no place for claimed competitive advantage determined by which title agent or insurer can lavish the most expensive gifts, throw the best parties, hand out the best seats to sporting events, or socialize with referral sources at strip clubs.  These so-called “marketing” expenses are not direct to the consumer, which is part of the problem.  In short, New York consumers/homeowners should not be charged in their insurance premium for the insurance professionals to take their referral sources to high-priced sports events, restaurants or worse.

Some of the companies who will testify later today will say that DFS is preventing them from competing in the marketplace. Not true. Regulation 208 makes ample provisions for marketing, but it simply does not allow improper inducements in the form of tickets to sporting events, lavish dancers and strip clubs.  In fact, Regulation 208 specifically provides that if expenses are not conditioned on the referral of title insurance business and there is no expectation of a referral, the following expenses are expressly permitted:

  • Advertising or marketing in any publication, or media, at market rates; 
  • Advertising and promotional items of a de minimus value that include the company’s logo;
  • Promotional or marketing events that are open to and attended by the general public, including food and beverages;
  • CLE events open to any member of the legal profession, including food and beverages;
  • Marketing or promotional events, including food and beverages, provided title insurance business is discussed for a substantial portion of the event, the events are not offered on a regular basis, and at least 25 diverse individuals from different organizations not affiliated with the host attend, or were invited;
  • Charitable contributions; and
  • Political contributions.

  Indeed, the provision of meals and entertainment simply is not a necessary element for a business professional to make an introduction or to hold a pitch meeting to sell his services.  On the contrary, that is improper inducement that violates the Insurance Law.  DFS heard testimony to this effect when Mr. DeSalvo of First American was asked whether they market themselves in any way other than meals and entertainment.  He responded:  “We basically use situations where continuing legal education courses will be available where we put—kind of can show the employees of our company they can come forth and give a legal presentation on an educational product.  We also use advertising…flyers…mailers that go out to the legal community…”  When asked why those methods were not sufficient, Mr. DeSalvo responded: “Under the present system, that is the way that the products have been marketed and advertised and we participate in that fashion just like any other company to be competitive within our market.”  (Transcript, p. 77-78).  As we all know, the fact that “everyone else does it” does not make it right, proper or legal. 

In addition, during our investigation, DFS discovered that in addition to the premiums charged, the industry was supplementing its already high profit margin by marking up or overcharging for ancillary fees.  These ancillary fees are then tacked on to the costs, in addition to the premiums for the title policies, paid by the homeowner at closing.  

The DFS investigation found, for example, that although agents and insurers were billed, for the most part, between $72 and $116 for a third party to conduct a municipal search, the consumer was billed between $275 and $600 for that search.  Another example, “Patriot” searches, which can be done for free on the Department of Homeland Security website or cost at most $2 to $3 per name searched, were routinely billed at $25 per person.  That’s an over 800 percent mark-up.  Similarly, bankruptcy searches, which cost from $.10 to $5 per name, were typically billed at $40 per name searched.  Some agents charged a flat fee, such as $85 per transaction, which might seem like a good deal if there were four people being searched, two sellers and two buyers, but not so good if there was only one person on each side of the transaction.  Charges to record documents, above what the county clerk or county register charged, ranged from $25 to $85 per document.  Each of these mark-ups may appear small in isolation, but they all add up to the consumer who is already paying more than in other states for the title insurance premium, and who has saved up to buy a home.

Reforms Resulting from DFS’s Investigation

As a result of its investigation, DFS undertook to initiate appropriate reforms of the title insurance industry.  The first reform was the licensing of title agents.  As a result, licensing of title agents was included in the Governor’s Executive Budget for 2014 and the legislature passed important legislation authorizing DFS to license and regulate title agents in New York. 

Key to the mission as a regulator of this industry, DFS is also addressing the evidence uncovered in its investigation concerning improper inducements and the exorbitant expenses comprising premiums paid by the consumer/home buyer.  Regulations 206 and 208 address these important issues, and give the industry clear regulatory parameters for its activities.  The regulations address the conduct of title agents, the relationships between affiliated organizations, and important disclosures that must be made to consumers.

 In the past few months after DFS finalized these regulations, I have heard, and received letters claiming, that DFS is threatening people's jobs.  Not true.  Nothing in the DFS regulations seeks to eliminate any job in the title insurance industry.    In fact, this regulation will not reduce the amount of title insurance business: surely no one is going to not buy a home or not refinance a mortgage because the closing costs have gone down.  Nor will a hardworking title agent lose his job because of an inability to spend excessively on tickets for referral business.  Indeed, if anything, the DFS regulation should increase the likely real estate transactions by reducing closing costs, while ensuring a fair, level, competitive market.  This is particularly important now, with federal tax changes to the mortgage interest deduction and the property tax deduction creating increased costs for homeownership.  We are simply saying that consumers should not have to pay for the cost of strip clubs and high-priced restaurants in their premium and fees for title insurance.

In addition, because insurance rates are calculated based on historical data, Regulation 208 has provisions that require that the impermissible expenses be removed from the expense schedules submitted to DFS to support future rate applications.  Without a correction of the historical expense data, consumers would continue to pay inflated rates based on the prior historical data.  Thus, Regulation 208 requires any insurer who cannot certify that it has not incurred improper expenses to submit expenses to support future rate applications that exclude such improper expenses so that a new, lower rate can be calculated.  The regulation further provides for limits on ancillary searches and services, including fees for closers.

Multiple Comment Periods and Tailoring Regulation 208

Regulation 208 was proposed for two full comment periods over an extended period.  We received more than 1,000 written comments, revised the regulation to respond to those comments and re-proposed the regulation for an additional comment period.  DFS received approximately 300 comments on the second proposed regulation.  On both occasions, we met with every relevant industry group as well as their members, we listened carefully, and we made accommodations where warranted consistently with the law and DFS’s regulatory mission.

Specifically, DFS met with various industry stakeholders, including insurers, agents, real estate associations, land title associations, and the rate service organization.  DFS heard arguments regarding our interpretation of Insurance Law 6409(d), claiming that the items set forth as prohibited expenditures were forms of marketing, that the initially proposed 10-year look back and restatement of expenses was too burdensome, and that the proposed limits on ancillary searches and services were too much.

We made many changes to the regulation in response to these comments.  We toned down some language about the results of our investigation and the improper behavior by the industry.  We made changes to address industry concerns regarding the list of prohibited expenditures in response to their request that DFS include a permissible list of expenditures.  DFS made changes to the language regarding prohibited expenses and included a list of permissible expenses to make sure that the industry understood that legitimate marketing is permissible.

DFS receives, in its annual Statistical Report, detail regarding expenses incurred by both title insurers and title agents.  The Statistical Report for 2016 included 22 categories of advertising and marketing expenses incurred by title agents ranging from direct mail, paid media, pens, pads and calendars, maintaining a website, training and souvenirs.  Regulation 208 continues to permit virtually all of these advertising and marketing expenses, with the exception of vaguely described categories like event sponsorship and “other”.  Regulation 208 allows all legitimate marketing expenses.  It permits competition based on competitive customer service, and other legitimate marketing.  “Marketing” based on high-priced tickets, wine, and gentlemen’s clubs are simply not legitimate “expenses” to be passed on to the consumer.

Similarly, industry expressed concern that they would have difficulty identifying impermissible expenses in their historical records and restating their expenses without such expenses to create a basis for future rate submissions.  In response to such comments, with respect to the normal 10 years of expense data required to support future rate applications, DFS reduced it to six years for the purpose of the corrective rates under Regulation 208.  Importantly, we also provided the companies with two methods of restating expense schedules and an alternative to both: instead of restating expenses and resubmitting rates, insurers may take a uniform 5% reduction in the base rate schedule for each category of policy.

As explained, insurance rates must be supported by historical expense data.  Regulation 208 gives the industry several options.  First, they can simply certify that their past submissions to DFS did not include any improper expenses and then they need not submit any new rate or make any reduction.  However, given that there was widespread inappropriate behavior in the industry and that our investigation demonstrated multiple violations of 6409(d), DFS needed to give industry a mechanism to submit schedules if they would be unable to certify that their expenses were proper.

Accordingly, Regulation 208 allows several alternatives for insurers and agents to justify their rates.  They may submit a rate application reflecting six years of data, with the improper expenses removed.  The regulation also provides that title insurance corporations may present alternative reasonable data with actuarial support for DFS to consider.  This option added in the final regulation gives insurers a significant amount of latitude as to what they submit to support their rate applications, so long as it has actuarial support.  The regulation also provides the alternative of a 5% rate reduction – companies can entirely avoid restating any of their expenses by implementing a 5% rate reduction.

In response to comments received relating to the limits to ancillary fees, DFS increased several of the amounts from the original proposal including: the allowable markup for Patriot and bankruptcy searches was increased from 150% to 200%; recording charges were increased from $25 per closing to $25 per document; and out-of-pocket costs were added to the $75 fee that a survey inspector could charge.  In addition, DFS made an additional change to the regulation, applying these ancillary fee limitations only to residential real estate transactions based on comments received indicating that commercial real estate closings could be much more complicated, taking multiple days and could therefore involve other types and amounts of fees that were best negotiated between sophisticated real estate developers and the title agents or insurers involved.

Just to be clear, no one will lose their job because of these regulations.  Rate applications will continue to be approved with all their salaries and proper expense data.  And insurers need not take any reduction if they certify that there are no past expenses that would be inappropriate as set forth in Regulation 208.

As noted, the insurers have been provided the alternative that they may avoid submitting any materials on past expenses by taking a flat 5% reduction in premium as recognition for the inclusion of previously inappropriate expenses.  DFS’s review of records during the investigation indicated that the amount of improper expenses was at least if not more than 5% of the expenses that the industry incurred.  Prior to the regulation being finalized, this number was confirmed by DFS actuarial staff as a fair representation of an average level of inappropriate expenses, based on a comparison of marketing budgets as percentage of total expenses of other insurance companies.  Marketing expenses for title insurance companies and agents is approximately 5% higher than the percentage of total expenses attributed to marketing for other property casualty insurance companies. Thus, the 5% figure in Regulation 208 is supported by the results of our investigation and comparisons to other insurance companies.  It is a fair alternative.  However, any company that believes it can support a higher rate through the submission of appropriate and legitimate expense data to support it can file at any time with DFS. 

 Likewise, any company that wishes to compete based on rates is welcome to submit a rate application to DFS.  As of today, two title insurers do offer lower rates, demonstrating that there are many proper ways to compete in New York for this business.


DFS also adjusted its treatment of closers in Regulation 208 in response to comments.  Closers only exist downstate – closers are not part of the upstate real estate market because the service is provided by other professionals.  Between our first proposed and final regulation we made several changes to address the payment of closers, including making clear that independent closers must be paid for their work by the entity that hires them.

During the DFS investigation, we identified inconsistent practices regarding closers.  Closers are people who go to a closing to ensure the transfer of clean insurable title.  Independent closers are not used upstate; they are purely a downstate industry.  Downstate insurers and agents send closers to the closing.  Some of these closers are full-time employees of the title companies and some are independent contractors.  In both cases, the closers are the representatives of the title insurer or agent that sent them and their job is to make sure that clean title is transferred.  As one witness testified at the DFS hearing, the closers attend the closing as the eyes and ears of the title insurers and agents to ensure the transfer of clean title and the removal of all liens.

During our investigation, DFS discovered that quite inappropriately, some title agents and insurers were not adequately compensating the closers who they were hiring to send to closings.  A practice had developed downstate of suggesting that the buyer pay a “gratuity” to the closer.  During our investigation, we found that when insurers or title agents engaged independent closers to represent them at the closing and perform the closing tasks, closers were paid $0 to $75. Such additional payments by the consumer is a cost above the title premium, while violates our rate approval.  Indeed, the TIRSA manual provides that for all routine closings an attendance fee is included in the premium and an additional charge may only be charged if the closing exceeds 2 hours.  This means that absent unusual circumstances, the title insurer or agent must pay the closer.

Instead of being compensated by the insurer or agent that hired them, many closers were relying on the consumer for some of their compensation.  We found that purchasers were encouraged by their attorneys (who likely had been lavishly entertained by the agent or insurer) to pay a “gratuity” to the closer, or sometimes closers would present an invoice to the purchaser, in amounts ranging from $100 to $250.  In addition, in many cases the closer would invoice the seller for remitting the loan payoff in the amount of $175-$250 per remittance, called a pick-up fee.  Thus, the purchaser of title insurance has been paying twice for the services of the closer – once by paying a title insurance premium that is designed to compensate for an attendance fee and a second time by paying the closer directly at closing for aiding the transfer of clear title.

As I noted, these gratuities do not exist upstate where there are no gratuities or pickup fees.  Moreover, based on the testimony at the public hearing, gratuities are not paid in any other state.  And even downstate practices differ where some title agents and insurers prohibit their closers from accepting gratuities and some did not.  The services of closers where they are used downstate are part of premium paid and the title companies therefore must pay them.

Accordingly, DFS’s regulation requires the title insurer or agent that hires a closer to both be responsible for and to compensate the closer for his or her services.  These are two very important and related requirements.  Closers are individuals being sent to closings, and entrusted with significant sums of money.  The person responsible for selecting and hiring the closer must be responsible for their conduct, make sure that the people sent to represent them are trustworthy, and they – not the buyer -- must compensate them for that work.  And that is what the DFS regulation requires.

However, we recognize that, in some cases, again only downstate, the closer may perform services for the seller by transmitting the proceeds of the transaction to pay-off the seller’s mortgage.  In those cases, Regulation 208 permits independent closers to charge for the pay-off services provided to the seller, if the title insurer or agent that hires them deems the charge to be in a reasonable amount and ensures that the amount of the charge is disclosed in advance to the seller who will be charged.

During the DFS public hearing, in response to a question as to whether the amount that independent closers are paid is sufficient for them to make a living, one agent responded:  “I think they are sufficiently compensated with the fees the title companies pay them plus the pick-up fees…” (Transcript p. 161-162)  DFS has acted to protect the interests of these small businesses that exist downstate.  Regulation 208 also protects the interests of the consumer by prohibiting the purchaser of insurance from paying twice for the same services, and requiring other parties charged to be in reasonable amounts that are disclosed.


DFS’s final regulations reflect the culmination of years of thorough review and analysis, and input and dialogue with all concerned stakeholders who participated at all steps in the process.  As I said earlier, DFS also made sure, at every step, to be a voice for the home buyers who do not have attorneys and lobbyists aggressively weighing in as part of this process.  With these regulations, we will end the widespread practice of using high-priced tickets, meals, lavish gifts and strip clubs as inducement for title insurance business, and New York consumers can now rest assured that they will know exactly what they are paying for during the closing process, and that they will pay only fair and appropriate closing costs. 

When I began my testimony, I asked you to consider the different picture that would be painted if every home buyer were able to afford to testify or send a proxy here today.  If they could afford it, those homebuyers may say that living in New York, with the highest closing costs in the country, is a real barrier to achieving the American Dream of home ownership.  They would say that every one of those dollars that they saved to buy a home counts.  With Regulation 208, DFS will reduce title insurance premiums and fees charged.  That is real money to your constituents.   And the title industry will continue to profit, and employ many people, with no change other than that they cannot pass on inappropriate, lavish entertainment expenses to the consumer.

DFS firmly believes that these two regulations provide solid protections for New York consumers, while allowing title insurance corporations and title insurance agents to engage in legitimate marketing activities that do not run afoul of the law.

Thank you again for inviting me here today.  I am happy to answer your questions.."

Total Marketing Expenses and New York Title Insurance Expenses Chart (PDF)