First Regular Session

Sixty-first General Assembly

LLS NO. 97­0677.01D DHG HOUSE BILL 97­1325

STATE OF COLORADO

BY REPRESENTATIVE McElhany;

also SENATORS B. Alexander and Bishop.

JUDICIARY

A BILL FOR AN ACT

CONCERNING REGULATION OF THE BUSINESS ACTIVITIES OF TITLE INSURERS UNDERTAKEN IN CONJUNCTION WITH CLOSING AND SETTLEMENT SERVICES, AND, IN CONNECTION THEREWITH, REQUIRING DISCLOSURE IN ADVANCE OF CERTAIN BUSINESS RELATIONSHIPS AND INTERESTS AND PROVIDING THAT AFFILIATED BUSINESS ARRANGEMENTS DO NOT CONSTITUTE AN UNFAIR METHOD OF COMPETITION OR A DECEPTIVE PRACTICE IN THE BUSINESS OF INSURANCE.

Bill Summary

(Note: This summary applies to this bill as introduced and does not necessarily reflect any amendments which may be subsequently adopted.)

Declares that Colorado consumers will benefit from disclosure of the circumstances under which title insurance is offered and provided in connection with the purchase and sale of real estate. Endorses the use of business arrangements that allow title insurance to be provided through persons already involved in the transaction so long as such arrangements are fully disclosed in advance and no party to the transaction is in a position to benefit financially from exercising any undue influence on the selection of a title insurer.

Allows real estate brokers and others associated with transactions involving title insurance to refer business to title insurance providers in which they have an interest if:

C A written disclosure of such interest is given to the person whose business is referred;

C The person making the referral has not required any person to use a particular title insurance company; and

C The person making the referral does not receive any payment tied to the number or dollar value of referrals they make.

Be it enacted by the General Assembly of the State of Colorado:

SECTION 1.  Legislative declaration. (1)  The general assembly finds, determines, and declares that:

(a)  The purchase of title insurance in connection with transfers of real property is customary, commercially reasonable, and of real and measurable benefit to the parties to such transactions;

(b)  Affiliated business arrangements under which persons otherwise involved in such transactions recommend or provide title insurance are not inherently contrary to the interests of consumers or competing title insurers, so long as such arrangements are fully and fairly disclosed in advance, consumers are informed about the choices that are available, and no party to the transaction is in a position unduly to influence the selection of a title insurer; and

(c)  It is in the public interest to allow Colorado consumers to purchase title insurance that is made available through such business arrangements.

SECTION 2.  Article 11 of title 10, Colorado Revised Statutes, 1994 Repl. Vol., is amended BY THE ADDITION OF A NEW SECTION to read:

10­11­108.5.  Affiliated business arrangements permitted ­ powers of commissioner ­ disciplinary action. (1)  AS USED IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE REQUIRES:

(a)  "AFFILIATED BUSINESS ARRANGEMENT" MEANS AN ARRANGEMENT IN WHICH A REAL ESTATE BROKER OR AGENT, LENDER, MORTGAGE BROKER, BUILDER OR DEVELOPER, ATTORNEY, TITLE INSURANCE AGENT, TITLE INSURANCE COMPANY, OR OTHER PERSON ASSOCIATED WITH A TRANSACTION INVOLVING TITLE INSURANCE:

(I)  IS IN A POSITION TO REFER BUSINESS AS PART OF A TRANSACTION INVOLVING TITLE INSURANCE;

(II)  HAS EITHER AN AFFILIATE RELATIONSHIP WITH OR A DIRECT OR BENEFICIAL OWNERSHIP INTEREST IN A TITLE INSURANCE COMPANY OR TITLE INSURANCE AGENT; AND

(III)  DOES REFER BUSINESS TO THAT TITLE INSURANCE COMPANY OR AGENT, EITHER DIRECTLY OR INDIRECTLY, WITH THE PURPOSE OR SUBSTANTIAL EFFECT OF ENABLING SUCH PERSON TO BENEFIT FINANCIALLY FROM THE REFERRAL.

(b)  "AFFILIATED RELATIONSHIP" MEANS A RELATIONSHIP AMONG TWO OR MORE ENTITIES IN WHICH:

(I)  ONE ENTITY HAS EFFECTIVE CONTROL OVER ANOTHER BY VIRTUE OF A PARTNERSHIP AGREEMENT OR OTHER AGREEMENT;

(II)  ONE ENTITY IS UNDER COMMON CONTROL WITH ANOTHER BY A THIRD ENTITY; OR

(III)  THE ENTITIES ARE CORPORATIONS AND ARE RELATED AS PARENT AND SUBSIDIARY BY AN IDENTITY OF STOCK OWNERSHIP.

(2)  AN AFFILIATED BUSINESS ARRANGEMENT THAT INCLUDES A TITLE INSURANCE COMPANY OR A TITLE INSURANCE AGENT DOES NOT, FOR THAT REASON, VIOLATE EITHER SECTION 10­2­401 OR 10­3­1104.

(3)  A THING OF VALUE RECEIVED BY A PERSON WHO REFERS BUSINESS TO A TITLE INSURANCE COMPANY OR TITLE INSURANCE AGENT UNDER AN AFFILIATED BUSINESS ARRANGEMENT SHALL NOT BE DEEMED REMUNERATION FOR PURPOSES OF SECTION 10­11­108 IF:

(a)  AT OR BEFORE THE TIME OF THE REFERRAL, THE PERSON MAKING THE REFERRAL HAS PROVIDED TO EACH PERSON WHOSE BUSINESS IS REFERRED A DISCLOSURE OF THOSE MATTERS REQUIRED TO BE DISCLOSED UNDER THE FEDERAL "REAL ESTATE SETTLEMENT PROCEDURES ACT", 12 U.S.C. SECS. 2601 TO 2617, AND ALL RULES ADOPTED THEREUNDER AND OF ANY ADDITIONAL MATTERS REQUIRED TO BE DISCLOSED UNDER RULES OF THE COMMISSIONER;

(b)  THE PERSON MAKING THE REFERRAL HAS NOT REQUIRED ANY PERSON TO USE A PARTICULAR TITLE INSURANCE COMPANY; AND

(c) (I)  THE ONLY THING OF VALUE THAT IS RECEIVED AS A RESULT OF THE ARRANGEMENT IS A RETURN ON AN OWNERSHIP INTEREST.

(II)  AS USED IN THIS PARAGRAPH (c), A "RETURN ON AN OWNERSHIP INTEREST" MAY INCLUDE, BUT SHALL NOT BE LIMITED TO:

(A)  BONA FIDE DIVIDENDS, AND CAPITAL OR EQUITY DISTRIBUTIONS, RELATED TO OWNERSHIP INTEREST BETWEEN THE ENTITIES IN AN AFFILIATED RELATIONSHIP; AND

(B)  BONA FIDE BUSINESS LOANS, ADVANCES, AND CAPITAL OR EQUITY CONTRIBUTIONS BETWEEN ENTITIES IN AN AFFILIATED RELATIONSHIP, SO LONG AS THEY ARE FOR ORDINARY BUSINESS PURPOSES AND ARE NOT FEES FOR THE REFERRAL OF TITLE INSURANCE BUSINESS OR UNEARNED FEES.

(III)  AS USED IN THIS PARAGRAPH (c), A "RETURN ON AN OWNERSHIP INTEREST" MAY NOT INCLUDE ANY PAYMENT THAT:

(A)  HAS NO APPARENT BUSINESS MOTIVE OTHER THAN DISTINGUISHING AMONG RECIPIENTS OF PAYMENTS ON THE BASIS OF THE NUMBER OR DOLLAR VALUE OF THEIR ACTUAL, ESTIMATED, OR ANTICIPATED REFERRALS;

(B)  VARIES ACCORDING TO THE RELATIVE NUMBER OR DOLLAR VALUE OF REFERRALS BY THE DIFFERENT RECIPIENTS OF SIMILAR PAYMENTS; OR

(C)  IS BASED ON AN OWNERSHIP, PARTNERSHIP, OR JOINT VENTURE SHARE WHICH HAS BEEN ADJUSTED ON THE BASIS OF THE RELATIVE NUMBER OR DOLLAR VALUE OF PREVIOUS REFERRALS BY RECIPIENTS OF SIMILAR PAYMENTS.

(4)  THE DISCLOSURE REQUIRED BY PARAGRAPH (a) OF SUBSECTION (3) OF THIS SECTION SHALL BE PROVIDED IN WRITING, CONSPICUOUS TO THE READER. IF THE PERSON MAKING THE REFERRAL IS A MORTGAGE LENDER, THE DISCLOSURE SHALL BE PROVIDED AT THE TIME OF THE LOAN APPLICATION. IF THE PERSON MAKING THE REFERRAL IS NOT A MORTGAGE LENDER, THE DISCLOSURE SHALL BE PROVIDED AT OR BEFORE THE TIME A CONTRACTUAL RELATIONSHIP IS ENTERED INTO BETWEEN THE PURCHASER AND THE PERSON MAKING THE REFERRAL.

(5)  THE COMMISSIONER MAY TAKE DISCIPLINARY ACTION UNDER PART 8 OF ARTICLE 2 OF THIS TITLE AGAINST ANY TITLE INSURANCE COMPANY OR AGENT THAT VIOLATES THIS SECTION OR ANY RULE ADOPTED IN FURTHERANCE OF THIS SECTION IN ACCORDANCE WITH THE "STATE ADMINISTRATIVE PROCEDURE ACT", ARTICLE 4 OF TITLE 24, C.R.S. THE COMMISSIONER IS HEREBY GRANTED THE EXPRESS AUTHORITY TO ADOPT SUCH RULES.

SECTION 3.  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.