Welcome to today’s webinar! P-53 Update (2018 Ethics Course) Dawn Lewallen and John Rothermel March 15, 2018
In order to obtain a CE Certificate or CLE Credit, you must listen to the webinar for a minimum of 55 minutes obtain the password (provided at the end of the presentation) follow the instructions as given 2
ATTORNEY INFORMATION Because of opinions expressed by the Texas Department of Insurance (TDI) concerning rebates, legal credit is available only to: Attorneys who own title agencies that are Stewart Title Guaranty Agents Attorneys employed by a title insurance agent licensed with Stewart Title Guaranty or Stewart entities Fee attorneys who have an Escrow Officer license through a Stewart Title Agent or Stewart entity We welcome any other lawyers to listen, but cannot provide continuing education credit to you. 3
P-53 Update Dawn Lewallen Senior Compliance Officer Senior Underwriter Post Oak Office Stewart Title Guaranty Company John Rothermel Senior Vice President Regional Underwriting Counsel Senior Underwriter SW Regional Underwriting Office Stewart Title Guaranty Company
Title Companies cannot… P-53 is the rule regarding favors/gifts for those who bring us business. DO NOT: – Joint Advertising – Advertising or promoting any one property for sale or lease – Hosting an open house – Prizes, food, beverages, gifts, decorations, entertainment or professional services given at open houses; or – Parties or receptions which promote properties or activities of the Producer. 5
P-53 Rebates and Discounts Prohibited DO: – Join a Trade Association and voluntarily participate in a Trade Association's activities provided that the level of such participation does not exceed normal participation (not more than two hours per business week) of a volunteer member of a Trade Association and is not an activity that would ordinarily be performed by paid staff of a Trade Association; – Purchase advertising promoting the title insurance company or the title insurance agent at market rates from any person in any publication, event, or media; 6
P-53 Rebates and Discounts Prohibited DO: – Deliver to a party in the transaction or the party's representative legal documents or funds which are directly or indirectly related to a real estate transaction closed by the Authorized Person; and – Engage in legal promotional and educational activities that are not conditioned on the referral of title insurance business. 7
RESPA Coverage • Real Estate Brokers and Agents • Mortgage Bankers and Mortgage Brokers • Title Companies and Title Agents • Closing Attorneys • Home Warranty Companies • Hazard Insurance Agents • Appraisers • Flood and Tax Service Providers • Home and Pest Inspectors 8
P-53 Producers Any one in a position to refer title insurance transactions Covered : Real Estate Brokers and Agents Mortgage Bankers and Mortgage Brokers Attorneys Probably Not covered : Home Warranty Companies Hazard Insurance Agents Appraisers Flood and Tax Service Providers Home and Pest Inspectors 9
RESPA Section 8(a) prohibits anyone from: “Giving or accepting a fee, kickback or thing of value pursuant to an agreement in exchange for referral of settlement ” P-53 and 2502.051 Much the same. 10
RESPA Section 8(b) Prohibits: Fee Splitting Payment for goods not actually provided and services not actually performed Texas is essentially the same. 11
Thing of Value is tricky! • Any benefit or discount may be a "thing of value" whether or not it includes the transfer of money. • Anything you give, receive, or exchange with anyone for a referral, no matter how small. • RESPA does NOT have an exception for small "kickback" amount. • Even minimal amounts are considered a "thing of value" under the law. 12
Breakin ’ It Down Any quid pro quo referral agreements: – Steering business based on fees or revenues received; – Lead agreements • one party pays cost of all leads generated ; – Fees and credits to influence selection; – Setting fees for marketing services based on number of referral and revenue. Texas is similar but we will discuss particular situation later. 13
Breakin ’ It Down If a thing of value is given to a referral source, regulators tend to infer an agreement for referrals. 14
Non-MSA Way? Compliance with RESPA Section 8(c): Nothing in this section shall be construed as prohibiting the payment of a fee… Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto. 15
You Can Engage in…. Exception to RESPA’s Prohibitions including: • “Normal promotional and educational activities” • Must not be conditioned on the referral of business; • Must not defray expenses; • Each party must pays its proportional share of expenses at fair market value. 16
Commissioner’s Bulletin #B -23 Title Bulletin No. 23 To: ALL INSURANCE COMPANIES WRITING TITLE INSURANCE IN THE STATE OF TEXAS Re: Interpretation of Article 9.22 1951 Texas Insurance Code The title insurance companies operating in Texas have, from time to time, asked the Board of Insurance Commissioners, through the office of the Casualty Insurance Commissioner, a great many questions about whether actual or proposed methods of doing business would be in violation of law or regulations, with special regard to paying for the solicitation and development of business. These have had to do with the payment of commissions to others than contract representatives operating abstract plants and to the division of premiums, under various methods, also to persons soliciting businesses outside and away from the company home office, including the increasingly prevalent "branch office" managers. What field of activity is proper for licensed attorneys in relation to solicitation and development of title insurance business, including how they may be recompensed, has also been discussed frequently. 17
Other questions have had to do with giving of rebates and discounts, and asked whether it constituted a rebate to do such things as the giving of free legal service to a builder, or to give a sign to a subdivision developer, or furnish shrubs for an operating builder, or take customers on hunting trips, or give them free legal forms. Downtown offices have paid parking tickets for customers. It has even been urged that an operative builder, who closes a loan in permanent form in his own name is entitled to credit for the mortgagee's policy premium at some subsequent date when he sells the property to a purchaser acceptable to the lender. It should not be difficult to determine whether or not a particular course of action constitutes the giving of a premium rebate, or discount. The ordinary definition of a rebate is to make a reduction from or allow a discount to, or to give anything of value, or any inducement amounting to a rebate or discount; a discount being defined as "a deduction from the usual price". (The Winston Dictionary, 1944). The statute (Article 9.22), however, seems to enlarge upon these ordinary definitions of terms by including, as prohibited, the giving or permitting of any kind of indirect or intermediate thing of value, or inducement, whether to the policy buyer or intervening persons in the getting, or paying for, title insurance. Title insurance premium schedules in Texas are established after due hearing, and once having been fixed must be charged without variation therefrom. Hence, any method of doing business, and all devices, whereby the purchaser of a title insurance policy does not pay the full premium, which has been fixed for that particular coverage, constitutes a rebate in violation of the provisions of Article 9.22 (Rebates and Discounts), 1951 Texas Insurance Code. The existence of a prohibited premium discount may be detected in the same manner. 18
The problems concerning division of premiums between the title insurance company and others are also governed by Article 9.22 (Rebates and Discounts), 1951 Texas Insurance Code. It is hoped that the general statements and several illustrative situations appearing below will be of assistance to the companies in applying Article 9.22 to specific questions as they arise; they do not purport to be complete but are intended to set forth and illustrate certain basic interpretations involving rebates and discounts. The possible fact situations differ in varying degrees and intermingle to such an extent as to make a complete analysis of them impracticable. It may be pointed out that the primary responsibility for seeing to it that all title insurance business in Texas is conducted in a proper, lawful manner, in all the details thereof, rests upon the title insurance companies. Each company and its representatives should exercise this responsibility with great care, manifested by an honest attempt to comply with the Statutes and with the rules and regulations governing the doing of a title insurance business in Texas. It is the purpose of the Board to aid the companies in these effort. On the other hand, Article 9.25, 1951 Texas Insurance Code, makes revocation of the permit to do business or forfeiture of corporate charter the penalty for failure to comply with, or violation of, the terms and provisions of Chapter of said Code. 19
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