ARE YOU REFERRING CLIENTS TO A TITLE COMPANY THAT OFFERS A FREE HOME WARRANTY, REBATE OR THE LIKE TO REEL IN BUSINESS?
ARE YOU THAT TITLE COMPANY?
IF SO – STOP! YOU MIGHT BE BREAKING THE LAW OR AT THE LEAST, TREADING IN DANGEROUS WATERS.
If something sounds too good to be true, there is a good chance that it is. Let me explain: As an attorney in the title insurance industry, I have been asked on several occasions if our title company would provide Buyers a free home warranty in exchange for us handling their settlement. It was apparent that the Buyers were shopping around for a title company. It may surprise you that even on the day of settlement, Buyer’s Agents have asked me if we would provide a free home warranty as a gift to their client. In both cases, our answer was “No.”
In the past, Maryland has issued rulings and bulletins prohibiting rebates, inducements or payments offered in connection with the sale of title insurance, which we anticipated would also apply to home warranties in the future. That time has come. On December 18, 2017, the Maryland Insurance Administration issued a Bulletin that confirmed our suspicion: Title companies that offer free home warranties, home inspections, and the like, to entice consumers to use their company and/or purchase title insurance are breaking the law.
What about price shopping and price matching?
The Insurance Administration is aware of the fact that some people are interpreting the latest ruling to prohibit consumers from shopping around for the best price for settlement services. In other words, some in the industry believe that consumers cannot comparison shop and ask a title company to “match” or “beat” another company’s prices.
We have spoken with the Administration and they will be issuing a bulletin to clarify this issue. By all accounts, the purpose of the prior rulings is to avoid the free giveaways in exchange for purchasing title insurance. The Administration does not appear to want to limit the consumer’s ability to obtain the best price for settlement services and we are expecting the updated Bulletin to address this issue.
What exactly is prohibited?
Let’s say that you work for a title company, as an attorney or paralegal, and have a title producer’s license issued by the State Insurance Administration. Section 27-212(b) of the Insurance Article prohibits an insurer, employee or representative of an insurer or insurance producer, from offering, paying for, or giving directly or indirectly to a consumer:
- a rebate, discount, abatement, credit, or reduction of the premium stated in the policy;
- a special favor or advantagein the dividends or other benefits to accrue on the policy; or
- any valuable consideration or other inducement not specified in the policy
for the purpose of enticing them to buy insurance. Keep in mind that 27-212(b) is broadly written to prohibit inducements in their many forms, and is certainly not limited to free home warranties or home inspections. If any of the above happens prior to settlement or after settlement, it falls within the coverage of the statute. Moreover, the Insurance Administration clarified that as long as the prohibited discount, credit, rebate etc. took place, it does not matter whether the consumer ultimately purchased title insurance.
In other words, if you offer a free home warranty just to get business, and do not make it conditioned on the consumer purchasing title insurance, you are still violating the law. These examples are further explained in the context of direct versus indirect inducements, which are both illegal:
What is direct inducement?
Offering a consumer a free item in exchange for them purchasing title insurance. For example, a title company offering a free home warranty or a free home inspection in return for a consumer electing to buy owner’s title insurance. According to the Insurance Administration, the company here is improperly giving the consumer a rebate or credit under Section 27-212(b)(1) to get their business.
What is indirect inducement?
Offering an item of value to get a consumer’s business regardless of whether title insurance is purchased. For instance, a title company advertising that all consumers that settle with their company receive a free home warranty or a free home inspection. Even though the free item is not conditioned on purchasing title insurance, the law recognizes that the “no strings attached” offer may still persuade a consumer to purchase title insurance or select a title company based on the gratuity. This example, per the Administration, violates Section 27-212(b)(3).
Those that violate the law could face suspension or revocation of a license, or refusal of the Insurance Administration to renew or reinstate their license, plus fines.
For a violation of Section 27-212(b), the Commissioner of the Insurance Administration may, under Section 10-126 of the Insurance Article, suspend, revoke, or refuse to renew or reinstate a license after notice and opportunity for a hearing. In addition to suspending or revoking a license, the Commissioner may impose on the holder of the license a penalty of not less than one hundred dollars ($100.00), but not exceeding five hundred dollars ($500.00) for each violation. If a license is suspended, the Commissioner may require an individual to pass an examination and file a new application before the suspension is lifted.
I am not an insurer, employee or representative of an insurer or insurance producer. Why should I care?
Consider this: If you know of a title company that is breaking the law by wrongfully offering free home warranties or the like to entice Buyers to settle and buy insurance, can you really trust them to handle your client’s biggest investment professionally (and otherwise legally)? Moreover, there could be some liability for assisting someone in breaking the law.
It simply isn’t worth risking your license so that your customer and/or client can get a free home warranty. The day may come where Realtors® face similar penalties for referring clients to law-breaking title companies, especially since the Insurance Article is enforced by the State, which licenses agents.
- Brianne Paugh
Readers with questions about this or any real estate legal matter can reach Brianne at 301-698-9300.
Statutes&Bulletin No. 17-16:
(For the full text of 27-212(b), see https://govt.westlaw.com/mdc/Document/N158B92C064F411DE8574DAB9633CBEB4?viewType=FullText&originationContext=documenttoc&transitionType=CategoryPageItem&contextData=(sc.Default) ).
(For the full text of 10-126, see https://govt.westlaw.com/mdc/Document/NDC4721809CE311DB9BCF9DAC28345A2A?viewType=FullText&originationContext=documenttoc&transitionType=CategoryPageItem&contextData=(sc.Default) ).
(For Bulletin No. 17-16 issued by the Maryland Insurance Administration, see MIA Bulletin 17-16 )
*Brianne Paugh is an Attorney with Village Settlements, Inc. and The Law Offices of Parker, Simon, Hahn & DeLisi, LLC, in Frederick, Maryland.