No more "freebies" from title companies

Revised rule clamps down on giveaways.

by Ron Walker   Recently, the Texas insurance commissioner adopted revisions to a rule that concerns items of value offered by title companies (procedural rule P-53). Concerns have been raised over the years when a title company, as part of its marketing efforts, offers brokers and agents items such as virtual tours, fliers, and postcards in the hope that the brokers or agents would direct business to the title company. The revised rule was adopted in response to those concerns.

What does P-53 prohibit?
With respect to relationships with brokers and salespersons, P-53 provides that a title company may not directly or indirectly pay or subsidize advertising or promotional materials or activities of any producer. The definition of producer includes real estate brokers or salespersons. The terms association or political action committee are not listed in the rule’s definition of a producer. Nonetheless, a title company will not be able to circumvent the intent of P-53 through the guise of association.

Prohibited activities are those that have the effect of subsidizing the business or advertising or promotional activities of a producer. Such activities include, but are not limited to, providing or subsidizing the cost of signs; advertising a property or a group of properties for lease or sale; electronic or hard-copy media describing, promoting, or advertising a property or group of properties; or boxes or similar items in which to store such advertising media. Title companies are also prohibited from conducting, sponsoring, or promoting or paying for any part of an event benefiting a producer, such as an open house, holiday party, or reception or convention event. This includes providing prizes, food, beverages, gifts, decorations, entertainment, professional services, and other items.

P-53 also prohibits a title company from providing or paying for furnishings, postage, office supplies, electronic or hard-copy documents or media, computer hardware or software, telephones, copiers, fax machines, office equipment, vehicles, administrative, management, or staff services, rental space or office facilities for the use of any producer.

Clearly, one of the intended and likely consequences of revised P-53 is to eliminate “freebies” from title companies to real estate brokers and salespersons.

Does P-53 affect my relationship and dealings with other service providers such as lenders and surveyors?
No, P-53 regulates only the relationship between title companies and producers. However, P-53 mirrors similar prohibitions in the Real Estate Settlement Procedures Act (RESPA), which applies to the relationship between any settlement service providers in a real estate transaction.

May a title company purchase an advertisement in a magazine, such as a homes magazine owned by a broker?
P-53 does not prohibit a title company from purchasing advertisements in a broker’s publications provided that the title company pays only a fair-market price for the advertisements.

While a title company may purchase an advertisement for itself in such a publication, the title company may not generate a publication advertising a broker’s listings.

May title companies continue to sponsor or advertise at REALTOR® association events?
In response to a Texas Association of REALTORS® inquiry, the Texas Department of Insurance stated that under P-53, “Title companies and title agents may certainly advertise their businesses, but the department will direct its enforcement resources to scrutinizing the essence of the advertising activity to determine compliance with the stated intent and purpose of the rule. Clearly, paying a producer an inflated price for advertising, over and above the normal market rate, would be a violation.”

A better term than sponsor for this activity is advertiser, which more accurately reflects the allowable activity.

When selling advertising rights at association events to title companies or other settlement service providers, associations should enter into a written advertising agreement, define the specific advertising rights purchased, charge the advertiser no more than a fair market price for the advertising rights, and keep records that help establish the fair market price. TDI has received many inquiries about specific arrangements between title companies and local associations. To comply, the rights purchased under such arrangements must constitute bona fide advertising at fair market prices. The further the arrangement strays from traditional advertising rights, the more scrutiny TDI is likely to give it.

Ron Walker is director of legal affairs for the Texas Association of REALTORS®.

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