During the National Settlement Services Summit, four state regulators spoke about their efforts to work with industry members to educate consumers and each other on ways to combat fraud and tackle other challenges being faced today.
Consumer education
Regulators have been increasing efforts to educate consumers on what title insurance is, how it helps them, and what it covers.
Pratima Lele, market compliance examinations manager, District of Columbia Department of Insurance, Securities and Banking (DISB), said that D.C. continues to work on increasing consumer education and expanding the topics being covered.
“The goal this past year, and in our upcoming year, is to allow for more information for the consumer so that they understand what title insurance actually is,” she said. “To that end, we recently published a brief five-page guide on the title process, the settlement process, learning terms like title insurance and what a settlement agent does.”
She noted her background in default servicing before joining DISB gives her insight into what consumers file complaints about.
“One of the number one trends was that they simply didn’t understand,” Lele stated. “They don’t understand the deed of trust; they don’t understand what a power of attorney does for them. This is a common theme that appears throughout all of the things that regulators do.”
Lele noted that consumers are not a monolith; they come from different backgrounds and have different perspectives. She said it’s important for regulators, and industry members, to meet consumers where they are and understand everyone does not come from the same background.
“We created a guide that walks a person through putting in your offer; then what title insurance is, how it’s calculated; how your purchase price correlates to the title insurance premium itself. Owners’ policies and lenders’ policies, the idea that there are two different kinds of policies, blows the mind of the average person buying a house,” she said.
Kim Holbrook, chair of the Utah Title and Escrow Commission and vice president at Old Republic Title Insurance Co., said part of the commission’s efforts have been making sure that real estate agents have an understanding as well. Realtors are a trusted contact for the consumer, and they help with the industry’s education efforts.
“Getting that education out there so [the consumer] understands what a title commitment is, typically the consumer doesn’t know anything about title insurance. Once they understand this, they can review their title commitment to see if there is an exception to title that concerns them,” she said. “While rare, there may be one. The education piece is something I’m passionate about, especially when it comes to consumer protection.”
She added that educating real estate agents and consumers on the value of closing protection letters is something they are specifically working on in Utah.
Rules changes
It is also a key role as a regulator to educate industry members on changes to statues and regulations.
“Recently in Utah, we’ve received several questions on compliance issues. Market conduct concerns and reporting requirements, what is required, who is required to report and how are the requirements enforced,” Holbrook said. “In reviewing some of those things, the Title and Escrow Commission has been working with the Utah Department of Insurance to review existing rules and statues. Market conduct is a hot topic when business slows down. We want to make sure everyone is aware of and playing by the same rule.
“Statutorily, we’ve made changes to our funds statute to allow for the Real Time Payment Network and FedNow,” she continued. “We’re always looking for ways to educate the consumer and opportunities to keep our industry professionals – real estate agents and title agents – current on secure and acceptable payment options in the real estate world. We’ve got a high standard when we handle consumers’ funds. We want to make sure that everybody understands what new technologies and new money movement rails can do for us.”
Fraud
It is important that as fraud schemes come to light, industry members and regulators work together to create awareness and find solutions to combat these schemes.
Holbrook noted that an agency defalcation at the end of the year had quite a bit of media coverage and got everybody’s attention.
“We need to protect the consumer. The defalcation understandably, has created questions. Is it safe for me to send my money to a title company? We’ve been working closely with the industry to educate and ensure everyone is aware of the safeguards that are already in place,” she said. “Use a professional. Use the title professional, use the real estate professional.”
Lele noted there are general principles regarding fraud protection that industry members should be familiar with, such as protecting personal identifying information; understanding where you’re being asked to send funds and verifying that the person you are sending funds to is someone you are supposed to be sending funds to.
She said DISB did a program with the Federal Trade Commission reinforcing those principles, understanding where your money is going, understanding who is asking for your social security number or bank account and realizing that information can be used to do things like show up at a closing table and buy a house in your name.
“There’s a waterfall effect to all of that sharing of information, which a lot of people just don’t think about on a daily basis,” Lele said.
“In today’s time, we’re really big on the cybersecurity issue and how to tighten that down and not be a victim of business email compromise,” said Chuck Myers, deputy commissioner, Office of Property & Casualty, Louisiana Department of Insurance. “The industry has done a really good job about that. It’s a matter of educating the consumer about the attacks; you’ve got a large amount of money you are bringing to the table and how’s that going to look when a Yahoo account is being hacked and now they are sending the money they need to bring to closing to the bad guys? And we find out at the table that it’s gone?”
Holbrook also said the Utah Title and Escrow Commission has worked with the state’s Department of Insurance and the Utah Real Estate commission to brainstorm ways to protect consumers from seller impersonation fraud. She said they were looking to see if there were any statutory changes that they could make to help curb that.
“The one that’s on the table right now is when we have seller impersonation fraud, and a fraudulent deed is recorded, can we look to an expedited judicial process to cleanup (quiet) the title? This could be a great benefit to the property owner,” she said. “The [buyer] hopefully has their own title insurance policy that will protect them, but that property owner is left with a clouded title. In some cases, title insurance may provide post policy fraud and forgery coverage for the property owner as well.
“I don’t have any answers yet, but we are talking about it; educating is a constant there’s always something new coming down the pike,” Holbrook added. “What can we do as industry professionals to educate ourselves and consumers? Fraudsters are always going to be several steps ahead of us. But we can stay calm, educate, and provide solutions for the consumer, which end up helping all of us.”
Affiliated businesses
One area where an open dialogue is critical is in regard to affiliated businesses.
“Affiliated businesses are fairly new for us, in Utah,” Holbrook said. “We’ve got a 30 percent requirement where you’ve got to have 30 percent of your business that doesn’t come from an affiliated source. It’s important to educate on these requirements as well. I’m seeing a focus on education to ensure that all agencies doing business in Utah understand the reporting requirements. Of course, we’re bringing in the compliance piece, but we bring it in with the education piece first and foremost to make sure that everybody understands ‘Hey, did you know you were supposed to be doing this before we’re going to fine you.’ We work through those sorts of things.
“The other thing I keyed in on was the disclosure to the consumers to make sure they understand this is an affiliated arrangement, this is an estimate of the costs and you do have the choice to go where you choose to go,” she continued. “With that in place, you know the consumer is informed. We’re seeing more folks come into the state and we’re seeing more of those businesses thriving and we’ll see what it brings us.”
“A lot of agencies are concerned that you’re going to see the Consumer Financial Protection Bureau knocking on your door and coming after you,” Myers added. “I can tell you this, the CFPB isn’t going to come knock on your door unless you’re really in deep and affiliated with a bank. We had a few of those a few years back where it was mostly the bank they came after.
“It’s your local regulators and state regulators that are going to look at you,” he continued. “If you have questions on affiliated agreements and arrangements, talk to your state that you are doing business in, have them give you some direction or point you to the statute so you can get with your attorneys and determine [whether it’s a good proposal].”
Open dialogue
Above all, the speakers encouraged attendees to maintain an open dialogue with their regulators.
“We want to help them educate and welcome those calls and questions,” Myers said. “We’re not going to tell you how to run your business, but we’re going to give you some thoughts and some direction on how to approach it. Or if you have some bad players in the field, how you can reach out to us and see how we can do that while keeping you confidential and protected.”
Holbrook agreed.
“With all the things that have been going on in Utah lately, I’m getting an education,” she said. “I appreciate the opportunity to be educated on a statute or a rule, especially if I read it differently than the department or someone else. It’s important to keep those things top of mind and remember there’s always something new to learn.”