It’s always party time for New York’s title deed insurers

They indulge in the good times and get their clients to pay through high premiums

“The legislators, instead of saying, ‘Oh, good for consumers.’ They’re saying, ‘My God — oh the poor industry,’” said J. Robert Hunter, director of insurance for the Consumer Federation of America.

Not every state is like this. In Iowa, for instance, the state government took over the title business decades ago, and it charges a fraction of the price in New York: $110 for a residential purchase up to $500,000, according to the state. The price for title insurance on a $500,000 home in or near New York City, with 20 per cent down, is about $2,700.

Title insurance in New York is a particularly peculiar market. Customers are typically required to buy it to guarantee clear ownership of their property. But most rely on real estate agents or attorneys to decide which title insurance to buy, because all the biggest companies charge the exact same regulatorapproved price.

Standing out

So how do title companies stand out? For years, industry veterans said, it’s been by dangling an array of perks for developers and other mortgage-industry insiders. “This industry more than any other lives and dies by providing entertainment,” said Jonathan Miller, the president and CEO of Miller Samuel, a real estate appraisal and consulting firm. “Everybody has the same price. Yeah, their logos are different. But the way that you differentiate is by providing entertainment.”

Hunter, who studied the data from a New York title insurance investigation from 2008-12, said “improper expenses” in those years amounted to $79.5 million — roughly 6.3 per cent of premiums.

Robert Treuber, executive director of New York State Land Title Association, argues that Vullo’s proposal — which would ban expenses as small as buying a client a cup of coffee — overreaches. He broadly defended the industry’s expenses as necessary business development, and said title companies are following rules and rates set by the state. “They’re spending their profit to grow their business,” he said.

The industry-backed legislation advancing in Albany would narrow the entertainment prohibition to more explicit “quid pro quo” gifts — the direct exchange of tickets or meals for particular business. Entertaining in luxury boxes or handing out gift cards to designer stores without such an explicit connection would thus be considered legal.

Current law already prohibits using entertainment as “an inducement” for business. The debate between Vullo and the title insurance industry is what exactly “inducement” means. “There’s no reason to do the tickets unless you’re ‘inducing’ business,” she said.

She gave the example of one title firm, which she declined to name, that spent “$5.4 million for tickets, just tickets” in 2008, plus another $120,000 on country club dues and $833,000 on meals. The company collected $30.9 million in premiums that year — meaning more than 18 per cent of its revenue was spent on entertainment.

“I’m protecting homebuyers,” Vullo said of the new rule, which would immediately slash title insurance rates in the state by 5 per cent. “I’m trying to reduce closing costs.”

But Treuber and lawmakers have asked, if the current expenses are so outrageous, why hasn’t Vullo cracked down on any of the supposed bad actors? “Sure, some may be able to point to some sensational incident or two, but let’s not harm the entire industry,” said state Sen. James L. Seward, the Republican chairman of the insurance committee, who wrote the bill that passed unanimously.

“If it’s illegal, prosecute,” Assemblyman Kevin A. Cahill, a Democrat who is chairman of the Assembly’s insurance committee, said of Vullo. “If it’s not illegal, come to the Legislature and let’s make it illegal.”

Postponed

The expense ban had originally been set to go into effect in midDecember but was postponed to February 1 after legislators asked for time to examine it. Title insurance companies marshaled a half-dozen lobbying firms to make their case.

One company, AmTrust Financial Services, which, along with a subsidiary, First Nationwide Title Agency, hosted the Citi Field event in October, opened a political action committee in New York and quickly raised more than $100,000. Another, State Street Title Agency, gave Cuomo $50,000 in December.

First Nationwide is known for its hospitality. The company logo has been affixed to the wall of a Madison Square Garden suite in recent years, according to social media posts. And last year, the company’s marketing team invited clients to watch the ACC college basketball tournament at a “luxury suite” at the Barclays Center. “Contact your FNT sales representative to secure your seat!” said an invitation.

Back in 2012, one of the firm’s first tweets featured a company executive sitting with then New York developer Trump at what appears to be a sporting event, urging its executives to “get out there and build those relationships!”

“We believe these activities are an efficient method of maintaining communications with our large commercial real estate clients, which are represented by some of the most sophisticated and prestigious law firms and real estate investors in the world,” Hoffmann said.

Napolitano declined to comment. Hoffmann noted that Napolitano had “no significant political activity in the past year beyond support of his local elected officials” and that his giving is allowed.

Treuber said the gift rule, when combined with new caps on fees that title companies can charge, could cost jobs in an industry that employs thousands. “If we can solve this problem through talking with DFS, if we can get relief through legislative measures, that would be great. If going to litigation is necessary, then that’s an option that we’ll have to consider,” he said.

Treuber’s association has retained a major law firm, Gibson Dunn, as they consider suing, and is raising hundreds of thousands of dollars to cover the potential legal bills. For now, the title insurance parties are rolling on.

At an real estate gala in midJanuary, AmTrust Title hosted three open bars across two ballrooms in Midtown Manhattan, as hundreds of real estate officials mingled between bites of tuna tartare and fresh mint mojitos that came with a stirrer with AmTrust’s logo on it. A few blocks away, at the upscale restaurant Nobu 57, an after-party co-sponsored by at least one title agency, Royal Abstract, kept the cocktails flowing and sushi rolling through midnight.