Second Regular Session Sixty-fifth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 06-0541.01 Thomas Morris HOUSE BILL 06-1141 HOUSE SPONSORSHIP Hall, and Massey SENATE SPONSORSHIP Grossman, House Committees Senate Committees Business Affairs and Labor A BILL FOR AN ACT Concerning the authorization of affiliated business arrangements relating to title insurance. Bill Summary (Note: This summary applies to this bill as introduced and does not necessarily reflect any amendments that may be subsequently adopted.) Authorizes affiliated business arrangements between title insurance companies, title insurance agents, settlement producers, and real estate brokers if the arrangement does not involve compensation for the referral of title insurance business and does not violate existing prohibitions on such entities. Prohibits title insurance companies, title insurance agents, settlement producers, and real estate brokers from requiring the use of an affiliated business arrangement or any particular settlement producer or provider as a condition of obtaining a settlement service. Specifies that giving or receiving, or attempting to give or receive, remuneration in any form pursuant to any agreement or understanding for the referral of title insurance business is an unfair method of competition and an unfair or deceptive act or practice. Requires the disclosure of an affiliated business arrangement to the consumer at the time of an initial real estate contract or when the offer to purchase real property is fully executed. Requires title insurance companies, title insurance agents, and real estate brokers to disclose the existence of their affiliated business arrangements to the division of insurance or division of real estate in connection with an application for a new or renewed license. Authorizes the commissioner of insurance and the real estate commission to promulgate rules to regulate affiliated business arrangements. Specifies that the commissioner of insurance and the real estate commission must consult with one another in the promulgation of these rules. Requires such rules to be at least as stringent as those promulgated pursuant to the federal "Real Estate Settlement Procedures Act". Authorizes the divisions of insurance and real estate to share information derived from investigations of affiliated business arrangements. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. 10-11-102 (1), Colorado Revised Statutes, is amended, and the said 10-11-102 is further amended BY THE ADDITION OF THE FOLLOWING NEW SUBSECTIONS, to read: 10-11-102. Definitions. As used in this article, unless the context otherwise requires: (1) "Alien title insurance company" means any title insurance company incorporated or organized under the laws of any foreign nation, or of any province or territory thereof, not included under the definition of foreign title insurance company. "Affiliated business arrangement" means an arrangement in which: (a) A settlement producer or an associate of such producer has either an affiliate relationship with, or a direct beneficial ownership interest of more than one percent in, a title insurance company or title insurance agent; and (b) Either the settlement producer or the agent of the settlement producer directly or indirectly refers settlement service business to that different settlement producer or affirmatively influences the selection of that different settlement producer. (1.5) "Alien title insurance company" means a title insurance company incorporated or organized under the laws of a foreign nation, or of any province or territory thereof, not included under the definition of a foreign title insurance company. (2.5) "Associate" means a person who has one or more of the following relationships with a person in a position to refer settlement business: (a) A spouse, parent, or child of such person; (b) A corporation or business entity that controls, is controlled by, or is under common control with such person; (c) An employer, officer, director, partner, franchiser, or franchisee of such person; or (d) Anyone who has an agreement, arrangement, or understanding with such person, the purpose or substantial effect of which is to enable the person in a position to refer settlement business to benefit financially from referrals of such business. (6.5) "Settlement producer" means a person who is in a position to refer business that is incident to or a part of a settlement service. "Settlement producer" includes, but is not limited to, a person who: (a) Buys or sells an interest in real property; (b) Makes loans secured by an interest in real property; (c) Acts as an agent, representative, attorney, or employee of a person who: (I) Buys or sells real property; or (II) Lends or borrows moneys with an interest in real estate as security; or (d) Is an associate of a person described in this subsection (6.5). (6.7) "Settlement service" means any service provided in connection with a real estate settlement. "Settlement services" include, but are not limited to, the following: (a) Title searches; (b) Title examinations; (c) The provision of title certificates; (d) Title insurance; (e) Services rendered by an attorney; (f) The preparation of title documents; (g) Property surveys; (h) The rendering of credit reports or appraisals; (i) Pest and fungus inspections; (j) Services rendered by a real estate broker; (k) Services rendered by a real estate appraiser; (l) Home inspection services; (m) The origination of a loan; (n) The taking of a loan application; (o) Processing of a loan; (p) Underwriting and funding of a loan; (q) Escrow handling services; (r) The handling of the processing; and (s) Closing of settlement. SECTION 2. Article 11 of title 10, Colorado Revised Statutes, is amended BY THE ADDITION OF THE FOLLOWING NEW SECTIONS to read: 10-11-124. Affiliated business arrangements - rules - investigative information shared with the division of real estate. (1) (a) An affiliated business arrangement is permitted where the person referring business to the affiliated business arrangement receives payment only in the form of a return on an investment and where it does not violate the provisions of section 10-11-108 (1). (b) A title company or a title insurance agent making a referral as part of an affiliated business arrangement shall disclose the affiliation in accordance with the federal "Real Estate Settlement Procedures Act", 12 U.S.C. sec. 2601 et seq. (c) Neither a title insurance company nor a title insurance agent shall require the use of an affiliated business arrangement or a particular settlement producer as a condition of obtaining title insurance services from the company or agent. For the purposes of this paragraph (c), "require the use" shall have the same meaning as "required use" in 24 CFR 3500.2 (b). (2) The commissioner may promulgate rules concerning the creation and conduct of an affiliated business arrangement, including, but not limited to, rules defining what constitutes a sham affiliated business arrangement. Nothing in this subsection (2) shall be construed to increase a fee or create a licensure program for affiliated business arrangements. The commissioner may adopt the rules, policies, or guidelines issued by the United States department of housing and urban development concerning the federal "Real Estate Settlement Procedures Act", 12 U.S.C. sec. 2601 et seq. Rules adopted by the commissioner shall be at least as stringent as the federal rules and shall ensure that consumers are adequately informed about affiliated business arrangements. The commissioner shall consult with the real estate commission pursuant to section 12-61-113.2 (5), C.R.S., concerning rules the real estate commission may promulgate concerning affiliated business arrangements. Neither the rules promulgated by the commissioner nor the real estate commission may create a conflicting regulatory burden on an affiliated business arrangement. (3) The division may share information gathered during an investigation of an affiliated business arrangement with the division of real estate. 10-11-125. Affiliated business arrangements - enforcement - penalties. (1) The commissioner shall have the same remedies available to him or her as those available to the administrator of the department of housing and urban development in the federal "Real Estate Settlement Procedures Act", 12 U.S.C. sec. 2607. (2) In addition to any other remedies available to the commissioner pursuant to this title, after notice and a hearing pursuant to section 24-4-105, C.R.S., the commissioner may assess a penalty for a violation of this article or a rule promulgated under this article. The penalty shall be the amount of remuneration improperly paid and shall be paid to the person aggrieved by the violation or apportioned among multiple aggrieved persons as determined by the commissioner. SECTION 3. 10-2-401, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SUBSECTION to read: 10-2-401. License required. (6) A title insurance agent and a title insurance company, as defined in section 10-11-102 (9) and (10), shall disclose the names of all affiliated business arrangements to which the company or agent is a party at the time of application for a new license, on the continuation due date of an existing license, and upon a change to any identifying information, in a form and manner acceptable to the commissioner. The disclosure shall include the physical location of the affiliated businesses, identify the settlement producer with whom the company or agent is associated, and identify the underwriter of the title insurance business. SECTION 4. 10-3-1104 (1), Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW PARAGRAPH to read: 10-3-1104. Unfair methods of competition and unfair or deceptive acts or practices. (1) The following are defined as unfair methods of competition and unfair or deceptive acts or practices in the business of insurance: (ee) Violating section 10-11-108 (1) (c) or (1) (d), including a violation through the creation of an improper affiliated business arrangement. SECTION 5. 12-61-113.2, Colorado Revised Statutes, is REPEALED AND REENACTED, WITH AMENDMENTS, to read: 12-61-113.2. Affiliated business arrangements - definitions - disclosures - enforcement and penalties - reporting - rules - investigation information shared with the division of insurance. (1) As used in this section, unless the context otherwise requires: (a) "Affiliated business arrangement" means an arrangement in which: (I) A settlement provider or an associate of such provider has either an affiliate relationship with or a direct beneficial ownership interest of more than one percent in a provider of settlement services; and (II) Either the settlement provider or the associate of the settlement provider directly or indirectly refers such business to that settlement provider or affirmatively influences the selection of that settlement provider. (b) "Associate" means a person who has one or more of the following relationships with a person in a position to refer settlement business: (I) A spouse, parent, or child of such person; (II) A corporation or business entity that controls, is controlled by, or is under common control with such person; (III) An employer, officer, director, partner, franchiser, or franchisee of such person, including a broker acting as an independent contractor; or (IV) Anyone who has an agreement, arrangement, or understanding with such person, the purpose or substantial effect of which is to enable the person in a position to refer settlement business to benefit financially from referrals of such business. (c) "Settlement provider" means a person who is in a position to refer business that is incident to or a part of a settlement service. "Settlement provider" includes, but is not limited to, a person who: (I) Buys or sells an interest in real property; (II) Makes loans secured by an interest in real property; (III) Acts as an agent, representative, attorney, or employee of a person who: (A) Buys or sells real property; or (B) Lends or borrows moneys with an interest in real estate as security; or (IV) Is an associate of a person described in this paragraph (c). (d) "Settlement service" means any service provided in connection with a real estate settlement including, but not limited to, the following: (I) Title searches; (II) Title examinations; (III) The provision of title certificates; (IV) Title insurance; (V) Services rendered by an attorney; (VI) The preparation of title documents; (VII) Property surveys; (VIII) The rendering of credit reports or appraisals; (IX) Real estate appraisal services; (X) Home inspection services; (XI) Services rendered by a real estate broker; (XII) The origination of a loan; (XIII) The taking of a loan application; (XIV) The processing of a loan; (XV) Underwriting and funding of a loan; (XVI) Escrow handling services; (XVII) The handling of the processing; and (XVIII) Closing of settlement. (2) (a) An affiliated business arrangement is permitted where the person referring business to the affiliated business arrangement receives payment only in the form of a return on an investment and where it does not violate the provisions of section 12-61-113. (b) If a licensee or the employing broker of a licensee is part of an affiliated business arrangement when an offer to purchase real property is fully executed, the licensee shall disclose to all parties to the real estate transaction the existence of the arrangement. The disclosure shall be written, shall be signed by all parties to the real estate transaction, and shall comply with the federal "Real Estate Settlement Procedures Act", 12 U.S.C. sec. 2601 et seq. (c) A licensee shall not require the use of an affiliated business arrangement or a particular settlement provider as a condition of obtaining services from that licensee for any settlement service. For the purposes of this paragraph (c), "require the use" shall have the same meaning as "required use" in 24 CFR 3500.2 (b). (d) No licensee shall give or accept any fee, kickback, or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving an affiliated business arrangement shall be referred to any settlement provider. (3) On and after July 1, 2006, a licensee shall disclose at the time the licensee enters into or changes an affiliated business arrangement, in a form and manner acceptable to the commission, the names of all affiliated business arrangements to which the licensee is a party. The disclosure shall include the physical location of the affiliated businesses. (4) On and after July 1, 2006, an employing broker, in a form and manner acceptable to the commission, shall at least annually disclose the names of all affiliated business arrangements to which the employing broker is a party. The disclosure shall include the physical location of the affiliated businesses. (5) The commission may promulgate rules concerning the creation and conduct of an affiliated business arrangement, including, but not limited to, rules defining what constitutes a sham affiliated business arrangement. The commission may adopt the rules, policies, or guidelines issued by the United States department of housing and urban development concerning the federal "Real Estate Settlement Procedures Act", 12 U.S.C. sec. 2601 et seq. Rules adopted by the commission shall be at least as stringent as the federal rules and shall ensure that consumers are adequately informed about affiliated business arrangements. The commission shall consult with the insurance commissioner pursuant to section 10-11-124 (2), C.R.S., concerning rules the insurance commissioner may promulgate concerning affiliated business arrangements. Neither the rules promulgated by the commissioner nor the real estate commission may create a conflicting regulatory burden on an affiliated business arrangement. (6) The division may share information gathered during an investigation of an affiliated business arrangement with the division of insurance. SECTION 6. 12-61-113 (1), Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW PARAGRAPH to read: 12-61-113. Investigation - revocation - actions against licensee - repeal. (1) The commission, upon its own motion, may, and, upon the complaint in writing of any person, shall, investigate the activities of any licensee or any person who assumes to act in such capacity within the state, and the commission, after the holding of a hearing pursuant to section 12-61-114, has the power to impose an administrative fine not to exceed two thousand five hundred dollars for each separate offense and to censure a licensee, to place the licensee on probation and to set the terms of probation, or to temporarily suspend or permanently revoke a license when the licensee has performed, is performing, or is attempting to perform any of the following acts and is guilty of: (x) (I) Violating any provision of section 12-61-113.2. (II) In addition to any other remedies available to the commission pursuant to this title, after notice and a hearing pursuant to section 24-4-105, C.R.S., the commission may assess a penalty for a violation of section 12-61-113.2 or of any rule promulgated pursuant to section 12-61-113.2. The penalty shall be the amount of remuneration improperly paid and shall be transmitted to the state treasurer and credited to the general fund. SECTION 7. Effective date - applicability. This act shall take effect July 1, 2006, and shall apply to acts occurring on or after said date. SECTION 8. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, and safety.