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A FRESH LOOK AT P-53 PRESENTED BY: Brian Pitman CEO and Co-Founder

SPECIAL THANKS TO:

Troy Greenamyre

Jay Fitzgerald

Cass Burton

Legal Intern,

General Counsel,

Regulatory Compliance Counsel,

Independence Title

FNF Family of Companies

DISCLAIMER This presentation is for information purposes only and is not and may not be construed as legal advice. Independence Title is not a law firm and does not offer legal services of any kind. No third-party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action. Independence Title makes no express or implied warranty with respect to the information presented and assumes no responsibility for errors and omissions.

TEXAS ANTI-REBATING LAW TIMELINE

1995

Modern version of Art. 9.30 adopted

1996 Procedural Rule P-53 is proposed

HUD takes enforcement action against real estate agents

2002

2003

Procedural Rule P-53 is adopted

Art. 9.30 recodified as § 2502.051, et seq. /exceptions expanded

2004 2005

Exceptions in § 2502.055 amended further

TDI issues Title Bulletin No. 158

2011

2012-17

Period involving the most frequent TDI enforcement activity

TEXAS INSURANCE CODE Section 2502.051 – 2502.056 Sec. 2502.051. REBATES AND DISCOUNTS PROHIBITED. A commission, rebate, discount, portion of a title insurance premium, or other thing of value may not be directly or indirectly paid, allowed, or permitted by a person engaged in the business of title insurance or received or accepted by a person for engaging in the business of title insurance or for soliciting or referring title insurance business.

PROHIBITED ITEMS COMMISSION

REBATE

PORTION OF PREMIUM

DISCOUNT THING OF VALUE

KEY PHRASE

"FOR REFERRING OF TITLE INSURANCE BUSINESS"

Sec. 2502.053. CERTAIN COMPENSATORY PAYMENTS NOT PROHIBITED. This subchapter does not prohibit: 1. payment for services actually performed by a title insurance company, title insurance agent, or direct operation in connection with title examination or with closing the transaction or furnishing title evidence if: (A) the payment does not exceed the percentage of premium or other amount established by the commissioner for the payment; and (B) the person receiving the payment is licensed as provided by this title; 2. payment of bona fide compensation to a bona fide employee principally employed by a title insurance company, title insurance agent, or direct operation; 3. reasonable payment for goods or facilities actually provided and received; or 4. payment for services actually performed by an attorney in connection with title examination or with closing the transaction, if the payment does not exceed a reasonable charge for the services.

Sec. 2502.055. PROMOTIONAL AND EDUCATIONAL ACTIVITIES NOT REBATES. (a) The activities described in this section are not rebates. Nothing in this subchapter prohibits a title insurance company or a title insurance agent from: 1. engaging in promotional and educational activities that are not conditioned on the referral of title insurance business and not prohibited by Subchapter B, Chapter 541; 2. purchasing advertising promoting the title insurance company or the title insurance agent at market rates from any person in any publication, event, or media; 3. delivering to a party in the transaction or the party's representative legal documents or funds which are directly or indirectly related to a transaction closed by the title insurance company or title insurance agent; 4. participating in an association of attorneys, builders, developers, realtors, or other real estate practitioners provided that the level of such participation does not exceed normal participation of a volunteer member of the association and is not activity that would ordinarily be performed by paid staff of an association; or 5. providing continuing education courses at "market rates", regardless of whether participants receive credit hours.

KEY PHRASE

"NOT CONDITIONED ON THE REFERRAL OF TITLE INSURANCE BUSINESS"

Sec. 2502.055. PROMOTIONAL AND EDUCATIONAL ACTIVITIES NOT REBATES. (b) "Market rate" means the price at which a seller, under no obligation or duress to sell, is willing to accept and a buyer, under no obligation or duress to buy, is willing to pay in an arms-length transaction. The market rate is determined by comparing the rights or items purchased or sold to similar rights or items that have been recently purchased by others or sold to others, including others not in the title insurance business.

KEY CONCEPT

MAKE SURE WHAT YOU ARE CHARGING/PAYING IS MARKET RATE

Procedural Rule P-53.2 2. Except as provided by this rule, an Authorized Person, directly or through an Affiliate, may not: a. pay, contribute, share in the cost of or finance any part of the Business Expenses of a Producer; b. pay, contribute, share in the cost of or finance any part of the expenses of an event or activity of a Trade Association that exists for the primary benefit of Producers and in which a majority of members are Producers; or c. solicit or engage in a title insurance transaction(s) involving land located in more than one state which includes land located in Texas if: 1. the policy premium charged or solicited to be charged by the Authorized Person or Affiliate for any title insurance policy issued in the transaction(s) covering the land described in the policy outside the state of Texas violates the law of that other jurisdiction where the land is located; or 2. the policy premium for the land in the other jurisdiction is so discounted or reduced from the normal and customary charge as to constitute a thing of value in this state.

Procedural Rule P-53.1.b. 1. For the purposes of this rule the following terms have the following meanings. a. an "Authorized Person" means a person doing the business of title insurance under the authority of the Texas Title Insurance Act of the Insurance Code. b. "Producer" means a real estate broker, real estate agent, lender, mortgage company, mortgage broker, builder, developer, attorney, or architect who is not an Affiliate of an Authorized Person. A Trade Association is not a Producer; however, Paragraphs 2 and 3 of this rule apply to a Trade Association. c. "Affiliate" means: i. officer, director, agent or employee of an Authorized Person or a Producer; ii. a member of the immediate family of an officer, director, agent, or employee of an Authorized Person or a Producer; iii. a Person who owns a Producer or Authorized Person; iv. a Person who is owned by a Producer or Authorized Person; or v. a Person who is under common ownership with a Producer or Authorized Person.

KEY QUESTION

WHAT IS A PRODUCER?

Procedural Rule P-53.1.d. 1. For the purposes of this rule the following terms have the following meanings. d. "Business Expense" means a cost to operate or promote a business, including but not limited to costs of furnishings, postage, office supplies, advertising, electronic media, computer hardware, computer software, telephones, telephone charges, printing, copiers, fax machines, office equipment, vehicles, staff, employee compensation, and rent. An expense that a Producer is, in accordance with generally acceptable accounting principles, permitted to deduct for tax purposes is presumed to be a Business Expense...

KEY QUESTION

IS THE EXPENSE SOMETHING THEY CAN DEDUCT FOR TAX PURPOSES? 8

Procedural Rule P-53.1.d. cont. …Without limiting this definition, the following constitute the payment of Business Expenses of a Producer by an Authorized Person, subject to the provisions of paragraph 3 herein: 1. jointly, with a Producer, advertising real property not owned by the Authorized Person for sale or lease; 2. contributing to a Producer or paying any part of the Producer's costs of any of the following: a. for sale or for lease signs; b. advertisements, in any media or form, that promote any one property not owned by the Authorized Person for sale or lease; c. boxes or similar items in which to store advertising media; d. hosting an open house; e. prizes, food, beverages, gifts, decorations, entertainment or professional services given at open houses; or f. parties or receptions which promote a Producer or the Producer's properties or activities of the Producer.

Procedural Rule P-53.3 3. Notwithstanding Paragraph 2, an Authorized Person or its Affiliates may: a. join a Trade Association and voluntarily participate in a Trade Association's activities provided that the level of such participation does not exceed normal participation (not more than two hours per business week) of a volunteer member of a Trade Association and is not activity that would ordinarily be performed by paid staff of a Trade Association; b. purchase advertising promoting the title insurance company or the title insurance agent at market rates from any person in any publication, event, or media; c. deliver to a party in the transaction or the party's representative legal documents or funds which are directly or indirectly related to a real estate transaction closed by the Authorized Person; and d. engage in legal promotional and educational activities that are not conditioned on the referral of title insurance business.

KEY CONCEPT CONTEXT IS EVERYTHING Here is a candle with our company logo that promotes our company.

VERSUS

Here is a box of candles with my logo that you can use at your open houses.

Title Bulletin No. 158 "The following non-exclusive list would be considered illegal rebates and violations of Art. 9.30(A): Vacation Trips Providing or contributing to recreational activities or vacation trips.

Gifts for Occasions Christmas gifts, open house gifts or gifts for other occasions.

Property Reports & Brochures Providing property profile reports, "farming" reports and brochures promoting the business of realtors, builders or other intermediaries.

Prize Drawings Providing for drawings at educational or promotional events where the winner receives a cash prize or other thing of value.

Open Houses & Social Functions Conducting, sponsoring or promoting open houses and social functions for realtors, builders or other intermediaries.

Personnel, Equipment, or Office Space Providing personnel, equipment or office space for the use of an intermediary's business.

Inflated Rent Renting space from an intermediary at an inflated cost.

Free Meals at Seminars Providing free meals to intermediaries or their employees at seminars.

Independence Title v Texas Dept of Insurance – November 2011 Clarification of Texas Law

Judge's Intended Ruling

During the period of frequent enforcement that was referenced on the timeline, this case helped clarify Texas law as it relates to enforcement of P-53 and the other rules on this topic.

Included in the materials is the letter from the Judge to the lawyers on both sides informing the parties of his intended ruling.

Promotional Activities Discussion

Ruling on Referral Benefits

The Judge discusses "promotional activities" and the intent of the Texas legislature.

The ruling cannot be affirmed on the grounds that Independence Title bestowed a benefit "conditioned on" referral of title business because there is no such finding of fact.

Cause No. D-1-GN-11-000890, Independence Title Company v Texas Department of Insurance and Mike Geeslin, Texas Commissioner of Insurance; in the 250th Judicial District Court, Travis County, Texas.

Has there been any current P-53 enforcement? Consent Order – TDI Enforcement File No. 34319, dated 11/4/2024 COMPLAINT FILED

SUMMARY

RESOLUTION

A complaint was filed that generated enforcement

"Gifts" provided "for their continued, repeat business and transactions closed".

"ceased its client appreciation practices"

KEY TAKEAWAY REFER TO ALL ELEMENTS FOR EACH COMPLIANCE QUESTION PRESENTED:

Section 2502.051, et seq.

Procedural Rule-53

Bulletin 158

TDI AUDITOR'S PERSPECTIVE Explore the anti-rebating concepts by analyzing the Market Conduct Questionnaire in a team setting.

ADDRESSING QUESTIONABLE CONDUCT Get the facts.

Contact the Designated On-Site Manager Identified on TDI's website at https://appscenter.tdi.texas.gov/tdireports/p/externalReports

Consider escalation options (e.g., filing a complaint).