Judge blocks IL regulators from compelling new title insurance disclosures to homebuyers

By Jonathan Bilyk | Jul 10, 2018

A Cook County judge has signed off on an order blocking Illinois state regulators from rolling out new disclosure requirements for attorneys and other agents involved in helping property buyers and lenders obtain title insurance. The legal challenge asserts the state overstepped the law, specifically in requiring attorneys to disclose fees earned in title insurance transactions.

A Cook County judge has signed off on an order blocking Illinois state regulators from rolling out new disclosure requirements for attorneys and other agents involved in helping property buyers and lenders obtain title insurance.

On June 29, Cook County Circuit Judge Thomas R. Allen granted a temporary restraining order requested in the action by Attorneys’ Title Guaranty Fund, a company providing title insurance in Illinois through a network of thousands of lawyers, who are also considered “member agents.”

According to its website, ATG, which is lawyer-owned, has provided title insurance services to property buyers and lenders since 1964, forming in response to “the erosion of the lawyer’s role in real estate transactions.”  According to court filings, ATG is “the only Illinois domiciled title insurance underwriter doing business in Illinois, including Chicago.”

According to its website, ATG boasts more than 4,000 attorney member agents in Illinois, Indiana and Michigan. According to court filings, 2,300 of those agents are in Illinois.

The order from Judge Allen came just one day after ATG filed suit in Cook County Circuit Court against the Illinois Department of Financial and Professional Regulation, asserting the agency overstepped its authority under state law in introducing a revised disclosure form it would require the title insurance agents to complete and give to those purchasing title insurance.

The judge’s order blocked the IDFPR’s new instructions, requiring “title insurance companies, title insurance agents (and) independent escrowees” to disclose “their financial interest to any home seller and buyer involved in the closing process,” according to a memorandum issued by the IDFPR in April.

The new rules would require insurers and agents to disclose “the names of all title insurance providers;” and “the percentage the agent will receive for statutorily authorized services that the agent will perform, including an estimate of the fee,” including all charges related to “seller and buyer charges, the estimated agent fee and  the seller’s (or buyer’s) attorney’s fee.”

The IDFPR further would have required the title insurance agent to notify consumers involved in real estate transactions that they “will be paying for both the attorney and agent’s fee” and that “title fees can vary, so it is advantageous to shop around,” according to the April memo.

The title insurance agency objected to the IDFPR’s new disclosure form, and the agency delayed their introduction until July 1. However, when no further delay appeared forthcoming, ATG sued to block them.

In the June 28 complaint, ATG alleged many of the disclosure requirements were either false or misleading, and would harm consumers, attorneys and title insurance agents.

“The Form without adjustments portrays the attorney as a party whom the consumer should eye warily,” the ATG said in its lawsuit. “This Form will logically result in consumers eschewing counsel.”

The  complaint outlined “multiple problems” with the IDFPR’s required form, including:

  • “False” claims that consumers would “pay both an attorney’s fee and title agent fee.” Rather, ATG asserted “the consumer would pay an attorney’s fee and title insurance and closing fees;”
  • “Misleading” assertions that consumers could face legal penalties if they accept “discounted legal fees in exchange for allowing their attorney to refer title insurance business.” ATG argued it would be “impossible to determine how a consumer would know if they are receiving a discount on attorney fees or if a discount actually exists. And ATG asserted state law “allows for fee reimbursement to title agents for work actually performed, and specifically carves out an exemption for attorneys issuing title insurance as an ‘affiliated business;’”
  • “Vague” and “ambiguous” language throughout the form, even though “it is unlikely consumers will know the technical meaning of terms defined” in state law; and
  • Instructions for the form which “are misleading and outside the scope of the (IDFPR’s) authority,” including requiring attorney agents to disclose their fees, which, ATG argued “may give the false impression that consumers are being overcharged if they use an attorney agent.”
ATG asserted the IDFPR’s new disclosure rules exceed its authority, as ATG argued the state agency cannot compel attorneys to disclose their fees.

“The amount of the attorney’s fees to be charged is based on an agreement, often an engagement letter, between the attorney and the client, which agreement should remain private, unless the attorney is required to disclose his fees to a court or the client grants permission to disclose the information,” ATG wrote in its complaint. “Since the Form will be disclosed to other parties this private information between attorney and client will be disclosed to the public.”

ATG noted attorneys “already (have) an ethical obligation to disclose (their) fees or hourly rate to the client,” and those fees can vary widely from transaction to transaction, as some transactions “are more complex than others, some clients may receive discounts because of the volume of work they sent to the attorney or because the number of years they have been a client of the firm and sometimes fees may be bundled together with other services that are being provided to the client, making it difficult to carve out the fees solely related to the closing.”

Further, ATG asserted in its complaint that the state agency overstepped its authority in requiring attorneys to potentially reveal their cut of title insurance premiums. While state law requires agents to disclose their “financial interest” in transactions, ATG said the law does not define this to encompass the scope of the disclosures the IDFPR form would require.

“How fees are split between the agent and the insurer is undoubtedly of little consequence to the consumer,” ATG asserted.

And, ATG argued the IDFPR also sidestepped the regulatory rulemaking process in attempting simply to embed new rules in the revised form, offering no opportunities for public hearings or formal comments.

ATG asked the court to issue temporary and permanent injunctions blocking the IDFPR from implementing the new disclosure requirements, and formally to declare the state agency had exceeded its authority.

The case remains pending before Judge Allen.

ATG is represented in the action by attorneys Scott Fandre and Nick Strom, of the firm of Krieg DeVault LLP, of Chicago.

 

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Organizations in this Story

Attorney's Title Guaranty Fund, Inc Circuit Court of Cook County Illinois Department of Financial and Professional Regulation Krieg DeVault LLP

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