The recent decision by Judge Rakower and the ensuing developments have been overwhelming to understand at times.  Much of this complexity was explained at the two Town Hall meetings but of course every member was not able to attend those sessions.

Therefore, we are providing you with a brief summary of the status of the litigation below.  I will do my best to keep this simple and concise.

•     We brought our suit in the NY State Supreme Court in New York County.
•     The case was assigned to Judge Rakower and pleadings were filed by our attorneys.
•     The Attorney General’s (AG) office representing the DFS replied to our pleadings and we responded.
•     A hearing was held before Judge Rakower on  June 14, 2018.
•     Judge Rakower rendered a decision on July 5th.
•     The decision effectively nullified Regulation 208 in its entirety.
•     The AG filed a notice of appeal on July 6th.
•     The AG immediately notified our attorneys of their intention to seek an emergency stay of the judge’s decision. An emergency stay, If granted , would postpone the judge’s ruling of annulling the regulation and “reimpose” the Regulation 208 until the case was heard on appeal in the Appellate Division).
•     The AG later informed our counsel that they would NOT be seeking an emergency stay.
•     Both the AG and NYSLTA must file additional pleadings with the Appellate Division prior to the next court appearance.

The earliest this matter could come before the Appellate judges is October. Given the congestion of the court’s schedule, it could slip to late October or later.  Until then, the regulation 208 is annulled.   All other regulations pertaining to the title industry remain in effect.

 We will continue to keep you advised.

Please see the attached document.

The current issue of City and State Magazine is dedicated to the topic of insurance.  You can read it online here - https://issuu.com/cityandstate/docs/csny_04092018_version .

This edition contains interviews with the Chairmen of the Insurance Committees in the State Senate and the Assembly, Senator Seward and Assembly Member Cahill.  Both of these gentlemen answer a question on title insurance on page 21 and I encourage you to read their comments. (I also suggest you take a look at the NYSLTA ad on page 23.)

For several months, NYSLTA Members and other concerned citizens have activity communicated with our legislators to repair DFS regulations that threaten our livelihood, disrupt the real estate finance marketplace and create new costs and complications for consumers, lenders and attorneys.

At times, it may appear our efforts are fruitless. I admit the investment is great and to date the returns have been slim. For perspective, I ask you to look closely at Chairman Cahill's reply to the title insurance question.

" Last year, the Assembly Insurance Committee held a hearing on the impact the new regulations are having or would have. The testimony and evidence from stakeholders and consumer advocates was compelling.

Since then, even more colleagues have approached me as chair of the Assembly’s Insurance Committee to discuss title insurance regulatory change.

In fact, more than any other single insurance topic, Assembly members from across the state have brought the concerns of their constituents regarding title insurance regulation to my attention.

While some would attribute the currency of the issue to heavy industry lobbying, it is clear, instead, that the disruption caused by regulatory overreach has impacted stakeholders in every phase of real estate transactions..."

This growing awareness and understanding of the problematic consequences of DFS regulation 208 is the result of YOUR phone calls, YOUR emails, YOUR person-to-person conversations with legislators and key staffers.

The process is slow but this is how we build a presence for the title insurance industry in the halls of government. One by one, one meeting at a time, with follow-up and repetition, with single-minded and consistent messaging - this is how we counter the misinformation and misunderstanding about the work we do and the financial product we provide.

Our work informing and educating the legislators and their staff does not end with Regulation 208. Next year and every year after that, we will function under the purview of the DFS.  Strong relationships in the legislature are our best means of counterbalancing onerous regulation.

If you have sent an email or made a phone call to your Senator or Assembly Member - thank you and now take the next step and meet with them in person.  If you have lobbied in the district office or in Albany - you are a champion, and we need you to bring along others as we continue the effort.

The Title Insurance Industry Objections to DFS Regulation 208 (11 NYCRR 228)

TALKING POINTS

Regulation 208 prohibits most sales and marketing practices – such as coffee during a meeting or an introductory lunch - which are legal and customary in other regulated industries.

Regulation 208 gives title companies the option of a costly, technically complex and logistically difficult refiling of six year’s operating expense data or accept a broad 5% reduction in insurance premiums rates.

DFS overstates title industry marketing expenditures based on anecdotal information.  The NPD Analytics Report show title agents spend 2-5% of the their annual budget on marketing. This is well below the 7-8% recommended by the Small Business Administration.

Regulation 208 also seeks to control business activity outside their authority over title insurance by capping fees for non- title services and adding the expense for non-title insurance services performed by closers.

Typical services performed by title agents that are NOT necessary for title insurance:

·         Pick-ups/satisfaction of an existing mortgage - under certain circumstances Regulation 208 forces agents to provide services without compensation

·         Surveys and searches such as bankruptcy, Patriot, municipal departmental – fees are capped below the cost of providing the service

“Connect the dots” - The NPD Analytics report shows a 40.7% decrease in title agent net income if the 5% rate reductions, the loss of compensation for ancillary services and the added cost absorption are in place as a result of Regulation 208.

What can be done?

S6704 - A8467 clarifies insurance law so that the longstanding definition requirement of a quid pro quo requirement of "inducements" is re-established.

S7901- A10207 clarifies that DFS does not have authority to regulate fees for non-insurance services.

Legislation should be introduced to clarify that DFS does not have authority to regulate fees for non-insurance services.

Include these proposals in the state budget to provide immediate relief to at-risk businesses.

Where we stand. Where we are going.

The introduction of regulations 206 and 208 by the Department of Financial Services are having the predicted effect of disrupting the title insurance business in New York. The NYSLTA has been at the forefront of the effort to bring stability back to the entire real estate finance sector.

Here is a status report of our current and planned activities.  You are cautioned that this is a fluid situation and this Association has to adapt to changing circumstances.  We will continue to respond as necessary to advance toward our goal of sustaining a business that provides consumers with a high quality financial product and provides the real estate finance community with stability, security and professionalism.

The Legal Strategy - Article 78

There should be no mistake about one thing: Litigation is a last resort. If we can cure the problems of reg 208 in any other way, we will do so.

Article 78 is a legal process in which a regulated entity or industry can seek relief from the actions of a regulatory body.  NYSLTA has retained Gibson Dunn Crutcher to advise us of our rights and options under the State Administrative Procedures Act (SAPA).

On January 17, 2018, a letter was delivered to DFS Superintendent Maria Vullo, citing the Association’s concerns with regulation 208 and giving notice that if the DFS failed to cure these issues, we may file an Article 78 action.

In the January 17th letter, Gibson Dunn mentions a number of issues. Please note these items are not necessarily the extent of an Article 78 action and as of today, an Article 78 has not yet been filed.

·         The 5% reduction in premiums

·         The spending restrictions on marketing expenditures

·         The restrictions on Closers

·         The price controls on non-title insurance services

The Legislative Strategy

The objective of this strategy is to define limits to DFS authority supported by statute.

Sen. Seward and Assembly Member Cahill introduced companion bills, which restore the legislature’s original definition of 6409d. By negating the DFS’s new assertion that marketing and business entertainment are inducements, the rationale for the 5% rate cut is eliminated and normal business relationship building activity can resume.

The Senate passed the Seward bill on January 18^th.  To become law, the bill must be passed by both Chambers and signed by Governor Cuomo. The Assembly has not yet advanced their version of the bill.

While these developments have not provided relief from regulation 208, they are a clear indication of the legislature’s sentiment to scrutinize the DFS’ actions.

A separate effort is under consideration to draft legislation that will prohibit DFS from attempting to regulate ancillary fees charged by agents and to regulate closers providing non-insurance services.

The Communications Strategy

The DFS has a highly sophisticated media and communications capability.  They have the power to define the title industry in the eyes of the media, the consumer and to some degree, to the Legislature.

At this stage, our communications strategy is focused on the impact of reg 208 that the DFS omits: increased costs to consumer; disruption to a smooth running real estate finance market; loss of jobs; business closures.

All of these unwanted consequences stem from Regulation 208.

It is crucial that you – the title professionals - understand that the harm to our industry is not important to the media or the public.  Our cries of alarm about the consequences to title companies and closers have not produced the support we need to achieve the outcomes we seek.

The focus of our strategy is NOT on the damage to title industry, but on the consequences for consumers and the economy as a result of the damage to title. Read that sentence again. It’s important.

Our message always comes back to how Reg 208 harms the consumers and the economy.

Grassroots lobbying

Plan are in development to activate title professionals in a campaign to personally meet with their state legislators. The goal is to have support in the legislature for statutory measures to address the impact of Regulation 208 and to prevent any further the damage to the economy and consumers.

The Title Action Network is a powerful tool but an in-person meeting with constituents presenting their concerns is something no legislator can ignore.

In a few weeks, we will launch a plan for Members to meet with their Legislators in your local district office.  We will provide materials and guidance. As opportunities arise, we will meet with legislative staff in Albany.