| LEGISLATURE | ||||||||
Except for those who have spent the last couple of years doing escrows in a galaxy far, far away, all CEA members are aware by now of Insurance Commissioner John Garamendi’s vendetta against escrow and title. Cloaked in the guise of consumer protection, but missing no opportunity for press coverage, the Commissioner alleges that both the title and escrow businesses in California are characterized by a complete lack of competition. In fact, Mr. Garamendi argues that consumers are victimized by “reverse competition,” where referrals by real estate agents are made solely because of the payment of unlawful rebates. Of course, the word “rebate” is simply another word for “kickback.” Just as it takes two parties to elect a fiercely ambitious candidate for Lieutenant Governor (voter and candidate), so it takes two parties to conduct a good kickback. The Commissioner is really arguing not only that escrow providers can compete only by providing favors for the referral of business, but that real estate agents are motivated solely by kickbacks, thereby putting their own interests ahead of the interests of their clients. Lawyers call this concept “breach of fiduciary duty,” and they file lawsuits alleging commission of this offense. Thus the Commissioner’s public posturings impugn the integrity of hundreds of thousands of hard working escrow and title employees, and the 506,000 current licensees of the Department of Real Estate. The public is being (mis)led to believe that throughout the greatest real estate boom in the history of civilization, Realtors were elevating kickbacks above the importance of having transactions closed quickly and efficiently, so that buyers could move into homes, sellers could buy new homes, and agents could make commissions on the sales. Without a doubt, all CEA members know Realtors who would disagree with Commissioner Garamendi! Last year the Commissioner attempted to address the rebate issue with proposed legislation relating to “title solicitors.” The bill would have permitted the Department of Insurance to revoke the solicitor registration of any individual caught paying an illegal rebate. The only deficiency in the bill was that the Commissioner could not define a “title solicitor,” or an illegal rebate. When the bill died in the Senate Banking, Finance and Insurance Committee, the Commissioner very literally stormed out of the room into the hallway, and vowed further action. The first reaction from the Department was a hastily ginned-up “study” on title and escrow prepared by an out-of-state “expert.” The study reeked of inductive reasoning, where the conclusion is developed first and the evidence is manufactured to support the conclusion. Made to appear scientific, the study not surprisingly concluded that the title and escrow industries are non-competitive. A particularly galling point in the report, for the independent escrow companies who work so hard to compete, was that independent escrow companies are worthless middlemen in real estate transactions. CEA, CLTA, and the Escrow Institute all responded that the Commissioner and his “expert” completely mischaracterized the industry. CEA argued that escrow is a fiercely competitive industry, with service in closing transactions being the prime determinant of who succeeds and who does not. This point was made repeatedly, both in the press and at a public hearing called by the Department of Insurance. Unfortunately, the Commissioner did not attend the hearing. Now the Commissioner is relying on his bogus study in proposing regulations on title insurance premiums and escrow fees. Although the draft is exceedingly lengthy and complicated, the upshot for escrow is that fees would be reduced, at least for DOI licensees, by approximately 27 percent. Mr. Garamendi argues that this fee reduction would somehow restore competition to the escrow business. He must never have been good at “connect the dots,” however, because he fails to explain how reducing fees across the board will improve competition between companies. A hearing on the proposed regulations is scheduled for August 30 in San Francisco. Along with our industry partners, CEA will appear and testify. Once again, the message will be rather simple: the “study” underlying the regulations is wrong, the industry is highly competitive, escrow officers compete on the basis of service, Realtors are motivated to close transactions, and the fee reduction will do nothing to increase competition industry-wide. Call us cynics, but we have a sneaking suspicion that this all has more to do with the race for Lieutenant Governor .... |
by Michael D. Belote
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