Two major title insurance companies have agreed to end a practice of providing rebates to major commercial property customers at the expense of homeowners and small businesses, New York State Attorney General Eliot Spitzer said Tuesday.
Fidelity National Title Group Inc. of Jacksonville, Fla., and First American Title Insurance Co. of Santa Ana, Calif. settled an investigation by agreeing to reduce their rates to New York homeowners and small businesses by 15 percent for properties sold for up to $1 million, Spitzer said. Each company also agreed to pay New York $2 million in penalties.
Spitzer said real estate developers typically received free or discounted title insurance in other states in exchange for giving their New York business to the two companies. New York’s higher rates subsidized the incentives and that violated state business law, Spitzer said.
Once state insurance regulations are changed to reflect the settlement, a home buyer in Queens purchasing a typical $300,000 home in that area would save $250 from the current $2,800 premium for title insurance from one of the two companies. An upstate home buyer purchasing a typical $175,000 home would save about $150 off a $1,700 premium from the companies.
Property buyers who take out mortgages are required to buy title insurance as protection against subsequent claims on the ownership of the property.
Title insurance in New York, which is regulated by the state, can cost twice as much as in other states. The settlement, however, will force price competition into the industry.
“One of the veins running through much of what I say about policy, whether it’s education and business, is that competition works,” Spitzer said. “In this context, the absence of competition is what has led to much of the improper behavior we have seen.”
He said the settlement should result in lower premiums and better policies for consumers.
“For the first time, consumers will have the capacity to make a determination based on price,” said Spitzer, who is running for governor. “This is a real reduction in the cost of buying a home, selling a home or refinancing a mortgage.”
The companies, which have half the New York market, also agreed under the settlement to end last-minute additions to their title insurance payment at mortgage closings, which can be stressful, confusing and costly. An investigation with the state Insurance Department continues into other title insurance companies and title insurance agents. The department plans hearings on the topic that could lead to more strict regulation.
“We are pleased that the New York attorney general found no pattern or practice of any wrongdoing on the part of our company,” said Peter T. Sadowski, executive vice president of Fidelity National Title Group. “This lengthy investigation is now behind us. Measured against hundreds of thousands of transactions, the attorney general’s investigators identified only isolated errors or questionable industry practices.”
Fidelity National Title Group, owned by Fidelity National Financial Inc., issues about 31 percent of title polices nationwide.
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