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A law that aims to prevent inappropriate quid pro quos for title insurance agents got itself another set of sharp teeth, causing an uproar in the already beleaguered industry.
The Office of the General Counsel of the state’s Insurance Department in late May issued an opinion about whether it is legally permissible for residential brokerages to put lawyers on “recommended” lists, which are given to homebuyers, in exchange for those lawyers who refer clients to the title insurance affiliates of the brokerage.
The state’s answer was a reverberating no. According to the state agency, this type of quid pro quo is in contravention with existing state laws. Because of this ruling, brokerages are now banned from rewarding lawyers for using the affiliated title agency of their firm, or “punishing” those who do not by not putting their names on the recommended list. Brokerages that are found to be in violation of the law will be slapped with a fine amounting to $1,000 or five times the financial inducement amount, whichever is bigger.
Although the law has been in effect since the 19702, this new legal opinion is expected to have sweeping consequences for the industry, which has seen in recent years a lot of title insurance companies collaborate with real estate firms.
According to Luigi Rosabianca, the general counsel of Loranca Settlement Services Corp, an independent Manhattan title-insurance provider, “These inside, preferred deals have hindered our market for years, and the end result was a poor system that often closed an eye to title issues and conflicts of interest.”