Home buyers in New York have to bear several additional costs while purchasing a house known as “closing costs,” one of which is title insurance.
Title Insurance ensures that a property can change ownership without any other claim against it.
The price of this insurance is set by a cartel in the state so almost all of the 30 title insurance companies currently operational charge the exact same rate, which is the highest in the country. The insurance costs 40 percent more than in neighbouring state of Connecticut, and 25 percent more than New Jersey.
Title Insurance Price Set Collectively
Daniel C. Price, the chief executive at OneTitle National Guaranty Company, Inc. claimed that the companies “work together” to file the prices “collectively.”
Such collective price-setting is possible due to an exemption allowed in the antitrust law. However companies can seek permission from the state regulators to charge different rates which two companies have done – Price’s OneTitle and Entitle Direct.
Despite lower prices, these companies have only a fraction of the market.
Companies Lure Intermediaries With Incentives
While consumers pay for the title insurance, they rarely choose the title agent. The title companies spend enormous amounts money entertaining intermediaries like real estate lawyers who divert business to the members of the title cartel.
Maria Vullo, the superintendent of the state’s Department of Financial Services said that the companies offer attractive incentives like sports tickets, strip clubs, “wining and dining,” as well as gift cards. Other gimmicks include renting Citi Field and paying Mets players for a meet-and-greet with real estate lawyers.
Vullo noted that the title insurance industry in New York pays out less than 5 percent of its premiums in losses. Of $1.1 billion collected by way of annual premiums, around 95 percent goes for salaries, bonuses and expenses.
Bills Proposed To Curb Spending On Intermediaries
The New York state has plans to enact a regulation that will limit such spending. However lobbyists have been active, trying their best to quash the new rules, and have achieved some success.
Sen. James L. Seward recently introduced a bill to counter it in Senate and a version of it has been introduced in the Assembly by Assemblyman Kevin A. Cahill. The bill states that regardless of the rules enacted, nothing can prohibit the companies “from undertaking any usual and customary marketing activity” for informing “present and prospective customers “of the advantages of their products.
Vullo has called the bill a virtual “license to bribery.”
In a hearing held this month representatives of the industry stated that their practices were used to build relationships people who are their “clients” referring to the real estate intermediaries, and not the home buyers.
Cahill, the sponsor of one of the bills has suggested that it might not be “ethically appropriate” for the companies to bypass the experts and address the consumers directly.
The industry representatives has also announced that they will launch litigation to fight the new regulation.