Study Public Title Insurance

Section 3 of the bill states that members of the task force shall receive no compensation for their services, but shall be reimbursed for actual and necessary expenses.

Section 4 of the bill establishes that the Superintendent of the Depart- ment of Financial Services or her designee shall be the chairperson of the task force.

Section 5 of the bill provides that any vacancies on the task force shall be filled in the same manner provided for in the initial appoint- ment.

Section 6 of the bill authorizes the task force to hold public hearings and meetings to enable it to accomplish its duties.

Section 7 of the bill directs the stakeholders, including the title groups, real estate industry, and institutions, government entities necessary.task force to consult with relevant insurance industry, consumer advocacy any other organizations, educational or individuals the task force deems

Section 8 of the bill directs the Department of Financial Services to provide the task force with such facilities, assistance and data as will enable the task force to carry out its powers and duties.

Section 9 of the bill establishes the purposes of the task force.

Section 10 of the bill requires the task force to complete, within one year, a report on its findings, including any recommendations for legis- lation or regulations, and to submit such report to the Governor and the Legislature.

Section 11 of the bill is the effective date.

Justification

Title insurance policies insure or guarantee property owners and mort- gage lenders from financial losses incurred as a result of future claims of any unknown defects in the title to the property at the time of the sale. Unlike other forms of insurance, which generally protect the poli- cyholder against an unknowable future event, title insurance protects against events that have already occurred. In most instances, the cost of title insurance is added to the closing costs paid by the new home- owner, who will usually pick up the cost of a lender policy protecting the bank through which they've secured a mortgage, as well as an owner's policy to protect themselves.

In 1987, Iowa became the first state in the U.S. to create a state-oper- ated title insurance issuer, the Iowa Title Guaranty. The Iowa Title Guaranty is the only title insurance entity entitled to do business in that state. As a result, title insurance in Iowa is relatively low: a flat rate of $110 for a residential purchase up to $500,000, while in New York the cost of title insurance on a $500,000 home is around $2,700, among the highest rates in the nation. 1

According to the Department of Financial Services, in 2016 title insur- ance companies in New York wrote over $1.1 billion in premiums - almost 10% of the national market for title insurance. However, only about $51 million of the premiums written in 2016 were paid out in claims or loss- es to the insurance companies (a loss ratio of only 4.65% of total premiums). The remaining 95% of premiums went toward the expenses and profits of title insurance companies, four of which control 91% of the market in New York State. As a comparison, the loss ratio for health insurance in New York is capped at 82%, meaning only 18% of premiums in that industry go toward expenses and profit. 2

An investigation commenced by the Department in 2012 reviewed the expenses of the title insurance industry and the impact on consumers' premiums. The investigation found "significant expenses by both title insurers and title agents that were being spent on improper inducements to get business," including millions of dollars on tickets to sporting events, lavish meals, strip clubs, and gifts. 3 The Department subse- quently issued regulations intending to rein in the unscrupulous and unethical practices in the title insurance industry uncovered by its investigation, but those efforts have faced court challenges that make the future of the regulations uncertain.

Given the nature of title insurance and the out-of-control costs faced by consumers in our state, New York should explore Iowa's lead in estab- lishing a public agency or authority to be the exclusive means of guar- anteeing title in the state. This bill would establish a Task Force to examine the issue and make recommendations to the Governor and Legisla- ture within one year of its findings. Sources:

1 Goldmacher, Shane. "New York's Hidden Home Buyer Closing Costs: Luxury Boxes and Mint Mojitos." New York Times (Jan. 29, 2018). A vaila- ble at: nytimes.com/2018/01/29/nyregion/title-insurance-new-york.html.

2 and 3 Testimony of Dept. of Financial Services Superintendent Maria Vullo for a public hearing: An Examination of Recent Title Insur- ance Regulation in New York State (Jan. 12, 2018). Available at: dfs.ny.gov/about/statements/st1801121.htm.

Prior legislative history

None, new bill.

Fiscal implications

To be determined.

Effective date

This act shall take effect immediately and shall expire and be deemed repealed sixty days after transmission of the report of the findings of the task force to the governor, the temporary president of the senate and the speaker of the assembly, as provided in section ten of this act. Provided, however, that the commissioner of the department of financial services shall notify the legislative bill drafting commission upon the transmission of the report of the findings of the task force, as provided in section ten of this act, in order that the commission may maintain an accurate and timely effective data base of the official text of the laws of the state of New York in furtherance of effectuating the provisions of section 44 of the legislative law and section 70-b of the public officers law.