ST. GEORGE — In the last week of the legislative session, a bill that is one step away from the governor’s desk has been giving some consumer advocates and members of the title insurance and reality industries heartburn.
Senate Bill 121, sponsored by Sen. Daniel Hemmert, R-Orem, would repeal a decades-old law forbidding a mortgage or similar company from owning a title insurance business.
The bill passed in the Utah Senate with a vote of 26-1 last week, followed a few days later by the House Business and Labor Committee passing with a vote of 10-3. The next step is the House floor where it will either be approved and sent to the governor or be killed off during the final days of the legislative session.
Originally, the bill would repeal the provisions that prohibited someone who owns a mortgage or realty company from referring a consumer to a title company they happened to own, Hemmert said while addressing the Senate earlier this month.
Hemmert called the bill a “very heated and very contested one” as he received conflicting opinions from within the title and real estate industries. Both industries wanted to “expand their offerings” by creating a “one-stop shop” for consumers, the senator said.
After meeting with the Utah Land Title Association and other stakeholders, the Hemmert’s bill was substituted with one that repealed the current law and replaced it with an adaptation of federal law.
Brad Griffiths, executive director of the Utah Consumer Advocacy Network, told St. George News Monday that the current law is set up to protect consumers against being taken advantage of by title companies that would be beholden to a parent, or affiliated company.
“Every time they buy or sell a house, it puts a lot more people into the mix,” Griffiths said, “and that means you pay more money.”
Griffiths argues that repealing the current law, which maintains title companies as independent and impartial third parties in the buying and selling process, will result in closing costs going up.
The rise in cost would be due to covering the cost of kickbacks to title agents who are able to close the deal for the parent company. Those kickbacks would also be covered under the umbrella of profit sharing, he said.
With third party impartiality removed from the equation, a title agent may be tempted to cut corners as they are incentivized to capture as much business as possible, Griffiths said.
As an affiliated company steers clients to a title company, it keeps track of what Griffiths called a “capture rate,” which he compared to a company’s ability to control a client’s decision-making.
“They have an incentive to capture and control the consumer’s decisions,” he said.
Griffiths also argues that adoption of the new law will create monopolies that will discourage competition rather than foster it as supporters of SB 121 claim.
The Utah Association of Mortgage Professionals also opposes the bill.
“This bill tears down regulatory protectionism,” Hemmert said during the House committee meeting. “This takes down a barrier that has existed within the industry.”
Chris Kyler, of the Utah Association of Realtors, said his group felt SB 121 was good for Utah consumers as it would “open up the marketplace to more competition which means prices will go down and the consumer will have a better buying experience.”
In addition to repealing the current law against affiliated business arrangements, SB 121 incorporates the federal Real Estate Settlement Procedures Act.
Hemmert provided highlights of the revised bill on the Senate floor prior to its passage.
- Regulation and enforcement of RESPA regarding affiliated business arrangements would be handled by the Utah Department of Real Estate.
- New title companies must have a minimum of $100,000 in capital to deal with fraudulent wire transactions. Existing title companies have 10 years to reach that amount.
- Submit to a federal “sham test” to ensure the companies are acting in good faith. This test includes the provision that at least 30 percent of an affiliated title company’s business somes from outside of the affiliated company.
- The affiliated companies will be required to report who owns the company, what companies they are affiliated with and any affiliate relations per contract they may have. They must also report the percentage of revenue that comes from non-affiliated business.
Rep. Travis Seegmiller, R-St. George, said Monday he is studying SB 121 in preparation for the pending House vote and hasn’t formed an opinion yet.
“I have received many communications from parties in District 62 representing various perspectives on this issue,” Seegmiller said. “There are those who I represent who are strongly opposed, and those who I represent who are strongly in favor.
“Opponents of the bill say that it could hurt consumers, yet proponents of the bill say that it will benefit the consumers, so I am still unraveling that web of interesting information.”
The 2019 legislative session concludes Thursday.
- Read full text of bill: Utah 2019 Senate Bill 121 — Controlled Business in Title Insurance Repeal
- Contact legislators
- Bill sponsor: Sen. Daniel Hemmert | House sponsor: Rep. Mike Schultz
- Southern Utah Sens. Evan Vickers, Don Ipson, David Hinkins and Ralph Okerlund| Listing of all senators.
- Southern Utah Reps. Travis Seegmiller, Bradley Last, V. Lowry Snow, Walt Brooks, Rex Shipp, Merrill Nelson and Phil Lyman | Listing of all members of the House of Representatives.
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