The Real Deal New York

Title companies sue over DFS regulations

Article 78 challenges agency's right to unilaterally ban marketing
By E.B. Solomont | February 21, 2018 09:39AM

From left: Bob Treuber, Kevin Cahill and Maria Vullo

UPDATED: Feb. 21, 10:18 a.m.: New York’s title insurance companies are taking the state to court over strict new regulations that effectively shut down their wining and dining of clients.

The New York State Land Title Association, along with Great American Title Agency Inc. and Venture Title Agency, filed an Article 78 petition on Tuesday to challenge rules put forth by the Department of Financial Services. In court documents, they claim DFS’s new regulations — which took effect Feb. 1 — will “wreak havoc” on title companies by forcing company closures, layoffs and reduced services.

“DFS must be stopped,” the title companies said in court documents, first reported by the New York Law Journal. Ordinary marketing activities “are critical for the success of the industry.”

In the fall, DFS enacted strict rules around marketing expenses aimed at stopping “unscrupulous practices” in the title industry.  The regulations ban title companies from paying for client meals and entertainment, as well as tipping title closers (freelancers who attend closings are paid largely by gratuity.)

In their Article 78, the title companies challenged a portion of the regulations that impose a rate reduction as a retroactive penalty for activities that are now banned. It also says the current regulations are “unconstitutionally vague” when it comes to political and charitable contributions and advertising. Though “lavish and expensive” spending is not permitted, the regulations do not define what’s too lavish or too expensive.

Along with the Article 78 filing, lawyers for the title companies submitted an affidavit from Gregory Serio, former New York insurance superintendent who is now a lobbyist. He said the regulations go “far beyond DFS” statutory authority, and gives regulations “discretion to subjectively enforce its provisions” since there is no “specific guidance” as to what is prohibited (or possibly permitted). Serio, who works for lobbying firm Park Strategies, was hired by the New York State Land Title Association to review the regulations. The NYSLTA referred questions about the Article 78 to court documents.

Although the state Senate passed a bill to ease the rules in January, Assemblyman Kevin Cahill recently hinted that a legislative effort to undo DFS’ regulations may not be enough. The Assembly’s insurance committee is working on a version of the Senate bill, which would strike more of a middle ground. “You don’t come to the Legislature to overrule an agency if an agency has overstepped bounds,” Cahill said. “You go to court.” 

In December, just as the regulations were going into effect, DFS Superintendent Maria Vullo — under pressure from title companies and some lawmakers — delayed parts of the regulations until Feb. 1.

The title companies are being represented by Mylan Denerstein, a partner at Gibson, Dunn & Crutcher who served as Gov. Andrew Cuomo’s chief counsel.

Asked to comment, the New York State Land Title Association referred questions to court documents. A DFS spokesman did not immediately comment.