Florida Reissue Rate Debate

Attorney, title agent team up to tackle reissue rate fraud in Sunshine State — without litigation

Excerpts from an original article published in “The Legal Description” on 1/15/2007

Attorney Nancy Norelli and her husband, real estate broker and title agent Jack Laufer, have teamed up to tackle the title insurance industry’s reissue rate woes in Florida — possibly without filing a single lawsuit.

“Our mission is consumer advocacy,” Norelli recently told The Legal Description. “We believe that educating consumers and making changes in the legislative process — especially the language in key state statutes — will be more effective than filing class action lawsuits.”

Several years ago, Norelli and Laufer investigated filing class action lawsuits against underwriters and title companies for overcharging homeowners for title premiums in refinance transactions. Rather than file the lawsuits herself, Norelli, then pregnant, passed them onto colleague, attorney Marc A. Wites, founder of Lighthouse Point, Fla.-based Wites & Kapetan PA….

In 2005, Wites won a $2.5 million settlement from Florida’s largest title insurer, Attorneys Title Insurance Fund Inc., known as The Fund, which also agreed to institute wide-ranging changes in their business practices to educate underwriters and title agents about reissue rates….

Said Laufer, “What we see happening in Florida is a long series of successful reissue rate cases.” However, Despite Wites’ success, Norelli and Laufer believe the legal route is no longer the way to go.

“We won’t be working with Marc Wites anymore,” Norelli said. “We are going a different route — consumer protection.”

Burden of proof
The lawsuits don’t get to the heart of the reissue rate debate — the disconnect between the underwriter and consumer, the pair said.

Worse yet, ambiguous statutes don’t empower consumers to request discounted rates they may qualify for in refinance or new home purchase transactions.

The couple learned firsthand just how confusing the language used by the industry was…

“When we bought our home in a new development, we thought we qualified for a new home purchase discount – but couldn’t figure out what that new home purchase rate was,” Norelli said. “There we stood, Jack a title agent and me an attorney, and we couldn’t understand it. So how can we expect anyone else to?”

The state describes the New Home Purchase Discount in this way:

“Provided the seller has not leased or occupied the premises, the original premium for a policy on the first sale of residential property with a one- to four-family improvement that is granted a certificate of occupancy shall be discounted by the amount of premium paid for any prior loan policies insuring the lien of a mortgage executed by the seller on the premises. In the case of prior loan policies insuring the lien of a mortgage on multiple units or parcels, the discount shall be pro-rated by dividing the amount of the premium paid for the prior loan policies by the total number of units or parcels without regard to varying unit or parcel value. The minimum new home purchase premium shall be $200. The new home purchase discount may not be combined with any other reduction from original premium rates provided for in this section. The insurer shall reserve for unearned premiums only on the excess amount of the policy over the amount of the actual or prorated amount of the prior loan policy.”

Many found this language difficult to translate into layman’s terms.

“I have no problem with how the new home purchase discount regulation reads, although I would propose mandatory disclosure be given at the time of purchase or when a new file has been opened,” Laufer said. “The disclosure could either be given by the developer/seller or the title insurance agency conducting the closing.”

Norelli and Laufer believe the burden of understanding the reissue and new home purchase rates should fall on the underwriter — not the consumer.

“We can use every tool to reform the industry, but we want to change the language of the legislation and have the industry inform the homeowner about reissue rates and new home purchase discounts,” Norelli said. “One almost needs a secret code to obtain a reissue rate. We found that even industry professionals and title agents were genuinely confused about when to apply the reissue or new home purchase rates. They had not been educated by the underwriters. The consumer needs to know the reissue rate exists, and demand it be given. The consumer’s ignorance has worked to the industry’s favor.”

Bad for the industry?
Florida law states consumers are entitled to the discounted reissue rate provided that the reissuing agent and the underwriter kept for their respective files a copy of the prior policy, Norelli said. But if the underwriter was the same person who had issued the prior policy, it’s difficult to believe he couldn’t obtain this information if the consumer had purchased his prior title policy from the exact same underwriter, she said.

“The underwriter’s entire job is to keep track of the history of a property’s title,” she said.

As part of a class action settlement, one can require industry disclosure, but there are problems with using the legal forum to address these kinds of industry practices, Norelli said. A class action lawyer’s duty is primarily to the plaintiff and the class. But a class settlement may or may not address the underlying problem that led to the bad practice in the first place.

“Class action lawyers are not title experts just because they bring a title case to court,” she said. “Class actions require an enormous investment of time and money. Class action lawyers will call riffs off the same successful cases for as long as they can. This may not be good for the industry.”

Other worries may lay ahead for the industry, Norelli said. Given the success of the recent reissue rate cases, the class action bar will next look to pursue title agents for the portion of the premium they retained on the reissue cases, she predicted.

These agency cases will probably be barred as a matter of law, since the insurer will be found to be an indispensable party and solely responsible for making the premium charge, Norelli said. The primary function of an agency is to perform primary title services, conduct closings and to act on behalf of its principal — the underwriter, she pointed out. Since the charge for the performance of primary title services is wrapped within the premium charge, it is an integral component of the total charge — and ultimately, the responsibility of the underwriter, Norelli said.

Then it might be tempting for lawyers to go after underwriters regarding the new home purchase discount, she said.

One or the other
Laufer and Norelli are not closing the door on lawyers.

“We are not ruling out class action cases,” Norelli said. “We will partner with class action lawyers when it provides the necessary framework for addressing consumers’ concerns.”

Even before Norelli offered Wites the first reissue rate cases, “we tried to informally engage many title industry professionals in a dialogue on the reissue rates,” Norelli said. “And if we were able to effectuate change within the industry without filing suit, we would have done so.”

But when Wites filed the reissue rate class actions, Laufer and Norelli “made a trade-off — and our concerns as consumer protectionists became secondary,” Norelli said. “We had to support a particular lawyer who had filed our case on behalf of a particular group of aggrieved consumers. The settlements were adequate, but we are happy that we can regain an independent voice to address the industry.”

The Legal Description will provide updates on Laufer and Norelli’s new direction — and on the results of Wites’ pending and future reissue cases.

Feedback? Contact Lori Lesko at llesko@octoberresearch.com.