Thursday, March 30, 2023

Challenges to the Title insurance Industry

 Lisa J. Delaney 

A recent article quotes a homebuyer stating closing attorneys “are definitely, on the face of it, double-dipping or triple-dipping” when they

charge for closing services and also receive a share of the title insurance premium.  The article also states that title insurance is “big money” for both lawyers and the title insurance companies and a “kickback” for the lawyers.  The homebuyer felt mislead about his attorney’s fees and believes that counsel should protect both the client’s legal and financial interests without recommending the last-minute purchase of an optional product with most of the fee going back to the attorney.

Prior to 2015, RESPA required that the settlement statement specify both the exact additional amount a buyer was being charged for choosing the optional owner’s policy and the exact amount of premium retained by the closing attorney for issuing both the owner’s and loan policies.  However, the current HUD forms no longer have these requirements.

The BBO’s Office of the Bar Counsel,  in recent article entitled The Cost of Doing Business (With a Client) notes that issuing title insurance for a client falls within the Massachusetts Rules of Professional Conduct 1.8 as “doing business” with the client and therefore a conflict of interest.  Rule 1.8 and its comments do not specify title insurance as business with clients but does cross-reference Rule 5.7, Comment [9] that states title insurance is a law-related service.  

The Office of Bar Counsel requires advance client notice with sufficient time for independent counsel for both the client’s written informed consent and waiver of the conflict of interest.  The Bar Counsel writes:

Accordingly, Massachusetts conveyancers must (a) disclose to the buyer the cost of the policy; (b) advise the clients of the desirability of seeking independent legal advice as to the purchase of the policy; (c) clearly inform the clients of the lawyer’s role in the sale of the policy (which presumably includes disclosure of the lawyer’s share of the policy commission; and (d) secure the client’s terms of the transaction. 

REBA’s Ethics Section is drafting a Disclosure of these required terms that will be available to the membership when it is complete and which can be sent to clients either as a stand-alone document or as part of the engagement letter.  The Office of Bar Counsel article only discusses title policies issued as part of direct buyer representation and does not also address those files where counsel is representing only the lender but not also the buyer.  The Disclosure is being drafted for both file structures to ensure all possible Disclosures have been sent to buyers.   REBA members are encouraged to issue their own Disclosure until the Ethics Section Disclosure and revised REBA engagement letters are in final form.

REBA has scheduled a breakout session at the May 1st Spring Conference lead by Conrad J. Bletzer, Jr. and Erin Higgins entitled Managing the BBO’s Newly-Issued Engagement Letter Advisory where they will discuss the BBO article as well as the required title insurance disclosures.

REBA is also monitoring H951 and H952 recently filed in the Massachusetts Legislature.  H951, filed by Representative Antonio F.D. Cabral of New Bedford with five co-sponsors, is a Bill to reform title insurance.  Rep. Cabral also filed H952 with 3 co-sponsors to establish a commission that oversees title insurance. 

H951, among many other provisions, requires publicly assessable quarterly filings with the insurance commission and attorney general of any “insurance company,” and refers to M.G.L. c. 175, § 47(11) for the definition of an insurance company that could be construed as the issuing attorney-agent as well as the national title insurance companies/underwriters.  H951 also requires a reissue premium rate if the property was insured in the past 15 years and provides for a free owner’s date‑down when refinancing with the same lender. 

Representative Cabral has filed Bills to reform title insurance in past legislative sessions.  REBA has filed opposition to the prior Bills and is now reviewing the two current Bills.

REBA has prepared a brochure reviewing title insurance that includes the attorney’s intricate analysis of known title risks is the basis of both the attorney’s certification and the title company’s authorization to insure both known and unknown title risks.  REBA members may share the brochure with their clients and are encouraged to contact and share it with their legislative representatives.

Nationally, title insurance is being challenged by U.S. Reps. Blaine Luetkemeyer (R-Mo.) and Brad Sherman (D-Calif.) who sent a letter to the Federal Housing Financial Agency (FHFA) that recommends Attorney Title Opinions (ATO) rather than title insurance policies to lower the consumer closing fee costs.  The American Land Title Insurance Association (ALTA) is leading the opposition to ATO’s through letters and other contact with FHFA, Fannie Mae, Freddie Mac and state regulators. 

ALTA’s General Counsel, Steve Gottheim, is a panelist at REBA’s May 1st Conference where he will review the attorney title opinions and ALTA’s actions to challenge their widespread use.  These challenges and ALTA’s actions and objections are being monitored by REBA’s Title Insurance and National Affairs Section partnered with New England Land Title Association (NELTA) which plan to issue articles and/or provide seminars for REBA’s members on this current and troubling topic.

To register for REBA’s Spring Conference on May 1s click here.

Co-chair of REBA’s Title Insurance and National Affairs Section, Lisa Delaney, the owner of the Braintree firm Carvin & Delaney, LLC, concentrates her practice on large commercial transactions, where she handles complex title research, providing detailed analysis of clear and concise facts. She negotiates and drafts commercial contracts with a focus on leasing and purchase agreements.