In February of this year, strict new regulations, promulgated by the New York Department of Financial Services (DFS), went into effect, banning title companies from engaging in a wide range of marketing activities that could be considered inducements for business. The regulations were extremely broad, and were quickly challenged in court by the New York State Land Title Association and several title agencies.

On July 5, Judge Eileen A. Rakower of the New York State Supreme Court annulled the DFS regulations. The court found that the regulations issued by DFS had exceeded the intent of the statute; the intent of the underlying statute was to prohibit kickbacks and other inducements, not “to prohibit ordinary marketing and entertainment expenses.” Judge Rakower called it an “absurd proposition” to suggest that the legislature intended to “prohibit title insurance corporations from marketing themselves for business.”

The title insurance industry is seemingly split over how to react to the ruling, as DFS Superintendent Maria Vullo has already filed a notice of appeal with the court. Some in the industry expect to remain cautious in light of the pending appeal, especially if the appellate court stays the lower court’s decision. But even without a stay, no one wants to be the example that supports the DFS’s case at the appellate level. Others, however, feel vindicated and foresee a return to business as usual in marketing and entertainment activities. We have informally polled various contacts in the title industry regarding how they plan to respond to this development, and many said they will “wait and see” what happens during the appeal process.

This ruling seems to be good news for many in the title industry who wish to see a return to the wining and dining and lavish parties of the recent past, but this is only the beginning of a continuing battle. The next step is up to Maria Vullo and the DFS. This seems far from over.

Morrison & Foerster’s New York Real Estate Group will continue to monitor the situation and advise accordingly.