Title Insurers Settle with New York's Attorney General
The nation's two largest title insurance companies have entered into a settlement agreement with the New York attorney general's office and the state's insurance department.
Both Fidelity National Title Group Inc., Jacksonville, Fla., and the New York subsidiary of First American Title Insurance Co., Santa Ana, Calif., agreed to a rate reduction of 15% on all purchase transactions in the state involving liability levels up to $1 million.
In addition, both will pay a $2 million penalty. The agreements stipulate that neither First American nor Fidelity has admitted any wrongdoing.
Fidelity National Title is a majority owned subsidiary of Fidelity National Financial Inc., which is in the process of a corporate reorganization that will result in FNT adopting the FNF name.
"We are pleased that the New York attorney general found no pattern or practice of any wrongdoing on the part of our company," said Peter T. Sadowski, FNT executive vice president and FNF general counsel, in a statement. "This lengthy investigation is now behind us. Measured against hundreds of thousands of transactions, the attorney general's investigators identified only isolated errors or questionable industry practices. We cooperated fully with the attorney general's office and are pleased with the satisfactory resolution of the investigation."
A statement from First American said the fines and rate reductions are not expected to have a material impact on its earnings.
These settlements are the latest in a series the industry has entered into, most notably with regulators in California and Colorado.
LandAmerica Financial Group, Richmond, Va., which has been mentioned along with the other two companies in these various probes, was not part of this settlement.
A statement from company spokeswoman Lloyd Osgood said, "Since June 2004, we've cooperated with all requests during the New York attorney general's investigation of our commercial business practices. When we reach a resolution of the investigation, LandAmerica will issue a statement."
A joint statement from Eliot Spitzer, the New York attorney general who is a candidate for governor, and insurance superintendent Howard Mills, said an investigation started in 2004 found "an illegal scheme" where real estate developers would receive free or discounted title insurance in other states in exchange for giving their New York business to Fidelity or First American.
Title insurers enter into agreements involving commercial transactions with properties in multiple states. These transactions are called "blended rate transactions." While title insurance rates are regulated in New York and for that matter most other states, there are some states where they are not regulated and subject to negotiation.
What supposedly made these transactions illegal, according to the AG/insurance department statement is that the discounts were not available to home purchasers and small businesses, which "in effect subsidized the illegal rebates by paying the 'full freight' of New York's high title insurance rates."
The settlement agreements claim in some cases the negotiated rates were zero dollars.
Another tactic was the use of "delayed blends," where originally only a New York property was being purchased, part of the premium was put into an escrow to be used against future transactions from other states.
Mr. Spitzer also alleged the title insurers were paying illegal referral fees to company representatives who did not perform any substantial services.
According to the settlement agreements, First American has just under a 23% market share for title insurance in New York, while Fidelity has over a one-third share.
Besides the rate reductions, the pair agreed to establish websites that will enable New York consumers to calculate their title insurance premium. The agreement also calls on both companies to ensure that homebuyers are not subject to last-minute "add-ons" at closing.
Later in 2006, the insurance department will hold hearings to review the state's title insurance rates and related matters. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com