Among the bills recently passed by Utah’s legislature was Senate Bill 121: Controlled Business in Title Insurance Repeal, a decidedly unsexy offering that flew under the radar of most onlookers. Because after all, who knows or cares about title insurance; and, controlled business in any setting sounds like something that should get the ax. Am I right?
Trouble is, the Controlled Business in Title Insurance (CBTI) law that legislators just swept away is a critical consumer protection law. You’d never know by reading it because CBTI accomplishes its consumer welfare objective in a roundabout way, but ultimately CBTI protects people from being misled, paying too much, and otherwise being taken advantage of when closing on the sale or purchase of their homes.
The language of Utah’s CBTI law is confusing, and the confusion starts with the name itself. A more suitable name would be: Limits on Controlled Business in Title Insurance. But if we really wanted to say it like it is, we’d call it this:
Prohibitions on Kickbacks and Bribes Extorted from Title Insurance Companies by their Real Estate Business clients.
That’s right. Our lawmakers just got rid of a prohibition on bribery and extortion! Kick-backs, bribes, and extortion in real estate settlement are illegal for good reason: They cost people money, they hide information people need to make informed decisions, and they hide the truth about the corrupt incentives of those who should be looking out for the consumer’s best interest.
What happens now, you ask?
SB121 will allow for real estate businesses to consolidate ownership in what are affectionately known as Affiliated Business Arrangements (AfBAs), a euphemistic way to describe a mechanism for ripping off consumers. In Utah, a builder or real estate brokerage can now own the title insurance agency where they refer (steer) their clients to close their transactions. With these “affiliations” in place, the kick-backs are now “legalized” and disguised as profit share. But legal or not, the nefarious effects of bribes are the same. In states that allow AfBAs, home buyers and sellers pay higher closing costs, title agent defalcations (trust account embezzlements) happen at a higher rate, title insurance claims rates go up, and title agencies fail at a higher rate.
How did this happen?
Even as legislators’ in-boxes were filling with email from opposed citizens and title insurance practitioners, bill sponsors continued to promote the bill as a “consensus legislation,” agreed upon by the real estate and title insurance industries. This “consensus” status precluded meaningful debate, so many lawmakers simply ignored dissenting views. The tide was beginning to turn, however, as some legislators learned the truth about the nature of the CBTI repeal. But alas, it was too late. The bill passed with 39 votes, barely exceeding the 38-vote minimum.
Perhaps more concerning than the misrepresentation of bill consensus is the fact that the pie fought over by the real estate and title people didn’t belong to either one of them. This is the Utah public’s pie, and their interests were completely ignored in the negotiations for SB 121.
Most people want to pay fair and reasonable fees that reflect the true cost of the title insurance products and services they are receiving when they buy and sell their homes. Ignored.
Most people want an independent and impartial escrow closing agent (title company) to handle the huge dollar amounts and high-value properties that belong to home buyers and sellers, rather than one compromised by conflicts of interest and divided loyalties that can jeopardize the security of the transaction. Ignored.
Most people want to be told the truth about where their money really goes when they pay fees with fancy names like “escrow settlement closing fee” and “lender’s policy of title insurance premium.” Ignored.
Bill sponsors Daniel Hemmert and Mike Schultz should be questioning their endorsement of such a blatant money-grab by a handful of self-interested real estate brokers and their confederate title insurance cronies.
Gov. Gary Herbert should be unwilling to sign such a bill into law. He should veto SB121. And if you have occasion to interact with the governor in the coming weeks, you should tell him so.
J.B. Griffiths is the executive director of the Utah Consumer Advocacy Network (www.ucanutah.org) which advocates for increased transparency in the real estate closing process. He is a licensed Utah attorney, a licensed escrow and title officer, and owns and operates a Utah title insurance agency.