We have noted before that the California Department of Insurance (DOI), like its counterparts in many states, is concerned that consumers unwittingly pay too much for title insurance. The cause, the Department believes, is that typical consumers (buyers, sellers, refinancing homeowners) have no knowledge of the title insurance market and they are unaware of pricing differences between different companies. Most purchasers of title insurance rely upon the recommendations of a real estate agent. And those recommendations are frequently biased by the fact that the agent (or even the agent’s entire office) may have been wined, dined or otherwise influenced by various forms of largesse distributed by the representative of a title company.

California, again like many other states, has a variety of laws on the books that make it illegal for title insurance business to be bought by means of rebates, inducements, and perks. Unfortunately, the existence of these laws has had little effect on practices in the field.

During California’s recently-concluded legislative session a little-noticed bill was introduced that took aim at correcting this situation. (Actually, the bill was inserted as a replacement into a bill on another topic.) The bill, SB 133 (Aanestad), addressed the problem on two fronts: (1) the class of persons known as title marketing representatives, (2) making more clear what behavior by title companies and their representatives is prohibited.

The senate’s legislative analyst put it this way: “Existing law provides no mechanism for tracking, registering, licensing, or disciplining title marketing representatives. Instead, title companies are left to police their own employees, something they have traditionally done poorly. Furthermore, although existing law allows DOI [Department of Insurance] to punish title insurers, these punishments have little, if any, impact on the activities of the title insurers’ employees.”

SB 133 requires that title marketing representatives obtain a “certificate of registration” from the office of the Insurance Commissioner. The certificate will be good for a three-year period. The bill requires that the Insurance Commissioner be notified when a title marketing representative is either hired or terminated. The hiring company must certify that the title marketing representative will receive training on Insurance Code Section 12404 (see below) within sixty days of the hiring date. A title marketing representative may have his or her registration revoked for cause. Due process provisions for hearings are spelled out. Finally, if registration is revoked, the title marketing representative may not reapply for five years.

Insurance Code section 12404 is where one can find the prohibitions against giving rebates or inducements for the referral of title business. While the section is clear about a whole variety of activities, it also contains a giant loophole. Currently, section 6 (d) says “Reasonable expenditures for food, beverages, entertainment, educational programs, and promotional items constituting ordinary business expenses are deemed not to constitute an inducement for the placement or referral of title business.” You can imagine how much jawboning has gone on over the term “reasonable.”

That problem-causing section has been removed from the code. Left in its place are rules that are much more clear and concise. “Expenditures for food, beverages, and entertainment” are prohibited. Period. No fudge factor standard of “reasonable” is present. Moreover, a long-sought specific dollar amount is presented with respect to gifts. “Promotional items with a permanently affixed company logo of [the title company] with a value of not more than ten dollars ($10) each” is permissible. There can be no giving of “a gift certificate, gift card, or other item that has a specific monetary value on its face, or that may be exchanged for any other item having a specific monetary value.”

SB 133 was signed into law by the Governor on September 25. Normally, it would become effective January 1, 2009, although it seems unlikely that all the details and implementing regulations will be ready by then. It was, though, supported by the Department of Insurance, and it seems reasonable to think that they will have the procedures worked out sooner rather than later.

Published: November 10, 2008

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Bob Hunt is a director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .