Despite warnings from state regulators that consumers could suffer, the governor’s office has granted an exemption from state law under the “Regulatory Sandbox” for business, the first such waiver given through a much-ballyhooed, first-of-its-kind program in the country.
The details of the waiver, granted to Homie Title, Inc., are fairly deep in the weeds, but essentially it exempts the company from having to abide by one particular law that competing title companies have to follow.
When someone buys a home, they also have to purchase insurance in case a defect in the chain of ownership trips up the sale. Years ago, a legislator who ran a title company (naturally) got a law passed that prohibited real estate brokerages from also owning their own title companies — the rationale being that handling both parts of the transaction creates potential conflicts of interest.
In 2019, the Legislature revised the law, allowing real estate brokerages to set up a title company, but at least 30% of the business had to come from outside the affiliated brokerage.
Homie wanted to be exempt from the 30% rule and petitioned for relief through the “Regulatory Sandbox” — a program that lets the Office of Regulatory Relief in the governor’s office waive state regulations or, as in this case, state laws that companies claim are stifling new and exciting innovations.
When it was created by the Utah Legislature last year it was heralded nationwide by small-government groups who touted it as a way for states to eliminate onerous, heavy-handed, counter-productive regulations.
Last month I wrote about how the Sandbox was operating like a Black Box since there was no way for the public to find out which companies were petitioning for waivers to state regulations that, businesses say, might hamper getting their innovations to market. The public also can’t see what precautions or concerns state regulators might have or what discussions were had by the Regulatory Sandbox Advisory Commission — the group that hears requests and recommends to the director of the Office of Regulatory Relief whether they should be approved.
When I sent an open records request to the office, I was told nothing could be made public until a petition is approved and agreements are finalized. Two companies had sought waivers, I was also told. I only found out that Homie was one of them after other title companies were upset at Homie’s maneuvering.
They were not alone. The application didn’t sit well with state regulators either.
In a four-page letter to the Office of Regulatory Relief, Utah Division of Real Estate director Jonathan Stewart outlined how consumers might be adversely impacted by granting the exemption and how there is little “innovation” being fostered by granting the waiver.
“Rather than representing true innovation, Homie appears to be seeking a competitive advantage over other businesses,” Stewart wrote.
“Affiliated business arrangements are not new or innovative; rather, they have long been a part of the real estate industry,” he continued. “This business model has been limited for good reason: conflict of interest is inherent in removing competition from an already limited marketplace — one that essentially requires the participation of most real estate consumers.”
Stewart also wrote that having real estate, mortgage and title services in one source discourages customers from shopping around — despite Homie’s claims — and could end up costing the consumer more. He points to estimates on Homie’s website that were higher than competitors’ prices.
“If Homie’s title fees are in fact lower, as they claim, one has to question why it is difficult for them to comply with the 30% non-affiliated requirement,” Stewart wrote.
But in the end, the division did not recommend rejecting the application, leaving it to the discretion of the Office of Regulatory Relief, which approved the request and formally signed the documents earlier this month.
“This approval does not speak well of the Sandbox concept as a whole,” said Cort Ashton, legislative chair for the Utah Land Title Association.
“In this case, it is alarming to us that state real estate regulators so clearly shared their concerns over conflicts of interest, consumer disclosure, and whether Homie’s request was in keeping with the Sandbox mission, nonetheless the agency is being completely ignored,” he said.
Homie, as you might expect, disagrees with the critics and says its business model has saved consumers $123 million, helping home buyers alleviate some of the state’s home affordability crisis. The company is required by federal law to disclose to customers that the title company is affiliated to the real estate brokerage.
“Beyond savings, we also feel that consumers should have more choices around the products and services they use,” the company said in a statement. “One of the things we love about being a technology company in Utah is the state’s appetite and support for innovation.”
Hopefully, more transparency is coming.
Under HB243, which passed this past general session, meetings of the Regulatory Sandbox Program Advisory Committee will be public — unless they need to be closed to protect proprietary information — and applications will be available unless the disclosure would result in “actual economic harm.”
Sometimes eliminating regulations makes sense. Several years ago, Utah was blocking Tesla from opening in Utah because state law prohibits dealers from selling cars directly to consumers, which is Tesla’s model. The company had to create a subsidiary through which it could sell cars.
That was dumb and there should have been a way to change that. So far, though, this Sandbox concept isn’t off to an inspiring start.
And if it routinely ignores warnings of state regulators who know the industries, weakens protections for consumers, gives particular businesses advantages over those that play by the rules all while doing nothing to innovate or create, we may need to stop calling it a Sandbox and start calling it a Litter Box.