The following article appeared in the Louisville Bar Association’s BARbriefs publication in October 2016.
Mark Twain is said to have once quipped, “When the end of the world comes, I want to be in Kentucky because it’s always 20 years behind the times.” Unfortunately, real estate attorneys in the Commonwealth can no longer afford to live 20 years behind the times. We have spent the last 20 years being out-organized when trying to compete with out-of-state title agents, while being regulated by the Kentucky Bar Association (KBA), and while watching as more lay people ignore our laws prohibiting the unauthorized practice of law. Title agent licensing is not a perfect solution, but it is the most practical first step toward the future for real estate attorneys.
As some background, there have been several attempts to pass title agent licensing over the last several regular sessions of the Kentucky General Assembly. In 2012, Senator Dorsey Ridley proposed an amendment to House Bill 244 that would have required an agent of a title insurer to be licensed as an agent with a title line of authority in accordance with provisions of the Kentucky Insurance Code. Representative Jeff Greer filed House Bill 448 late in the regular session of 2013, with the support of the Kentucky Department of Insurance (DOI), which would have adopted the Association of Insurance Commissioners’ (NAIC) model legislation to establish a licensing procedure and the requirements for the business of title insurance.
Most recently, in 2016, Representative Greer sponsored House Bill 335, which was a modification of the NAIC’s model legislation. HB 335 passed the Kentucky House of Representatives, and it received the unanimous approval of the Kentucky Senate Banking & Insurance Committee. The full Kentucky Senate, however, never voted on that bill. At this point, it is not if title agent licensing will come to Kentucky but when, and real estate attorneys need to prepare for that eventuality.
Kentucky’s real estate attorneys should see title agent licensing as a vehicle through which to organize their strength and influence. Yes, we are all members of the KBA, and hopefully, members of its Real Estate Section. Yet, at best, we are loosely organized. Because of the general byzantine nature of state bar associations, the KBA does not give the Real Estate Section the authority to adequately represent the interests of real estate attorneys. On the other hand, our regulated partners (bankers, realtors, and insurance agents) are each adequately represented by trade associations able to quickly influence legislation and government agencies on behalf of their members. With title agent licensing, I envision a trade association flourishing on behalf of the title insurance agents. And, importantly, real estate attorneys should end up constituting the super-majority of membership of such a trade association.
Kentucky is the last state in the country without title agent licensing, and seven different states border the Commonwealth. As a result, our real estate attorneys are required to compete with title insurance agents from those border-states, professionals who cross Kentucky’s border with seeming impunity. On the other hand, those states do not grant reciprocity to our title insurance agents, who generally must complete the more formal licensing process. HB 355, as currently written, requires every title insurance agent, whether or not a Kentucky resident, to obtain a license from the Commissioner of the DOI to issue title insurance in Kentucky. Title insurance licensing will grant our title agents reciprocity in most border-states.
Another reason to pass a title agent licensing bill is to discourage dishonest practices and ensure consistency throughout the industry in Kentucky. Unlike lay title insurance agents, real estate attorneys are regulated by the KBA. In past discussions with it, the DOI is contemplating regulations for title insurance agents that adopt requirements similar to those already now regulating real estate attorneys, e.g., continuing education, escrow account reconciliation, investigations and the ability to suspend licenses and levy fines. With title agent licensing, the DOI would adopt the best practices of our industry and apply those uniformly across the Commonwealth. In the future, real estate attorneys and lay title agents would have similar burdens and similar levels of professional accountability.
Lastly, title agent licensing has nothing to do with codifying the unauthorized practice of law. Since the Kentucky Supreme Court handed down its infamous decision in Countrywide Home Loans, Inc. v. Kentucky Bar Association, real estate attorneys, for the most part, have taken a laissez-faire attitude toward unauthorized practices of law. While Countrywide upheld the right of lay closing agents to conduct closings, the Court was adamant that these agents cannot dispense legal advice or otherwise provide legal services. Yet we have taken no material steps to report violations to the KBA for investigation and enforcement of the unauthorized practice of law. That is our failure. We need to commence immediately with a significant and substantial program that enforces existing laws related to the unauthorized practice of law. Recognizing the authority of the KBA to investigate the unauthorized practice of law, HB 355 specifically prohibits the DOI from trying to regulate the area.
It is understandable that many real estate attorneys are wringing their hands at the thought of title agent licensing. It creates unknown risks for an industry that prides itself on reducing risks. And, while title agent licensing is not a panacea for all the difficulties facing real estate attorneys, it is possible that such a step will give us the tools to make a leap forward so that we are no longer 20 years behind the times.