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Title insurers get big tax break from state lawmakers

5/9/2014

By Charles Elmore, Palm Beach Post

State legislators slashed taxes 70 percent on title insurance companies in the wake of generous political contributions, but consumers are unlikely to enjoy a dime of savings soon — if ever.

“This is nothing but a windfall for the title insurers,” said state Sen. Tom Lee, R-Brandon.

A state judge ruled the same tax break illegal in September when a major title insurer tried to get it by suing revenue officials. So sympathetic legislators rewrote the law.

If signed by Gov. Rick Scott, the legislation diverts more than $5 million a year from the state treasury and puts it in the pockets of companies including those in the nation’s largest title insurance group, Fidelity National of Jacksonville.

Consumers hoping it translates into rate relief might not want to hold their breath. A state review considering the first change in Florida title insurance rates since 1992 will not affect rates until 2017 at the earliest, state regulators say. Even then, “potential savings are unknown” because tax is just one of many factors involved, said Harvey Bennett, spokesman for the state’s Office of Insurance Regulation.

This is happening because, at the industry’s urging, lawmakers changed the rules for taxing premiums but not for regulating them.

Insurers will be taxed only on the 30 percent of premiums they retain from consumer payments at real estate closings, not the 70 percent title agents get.

Industry lobbyists portrayed it as an issue of “fairness.”

But the agents’ share is still considered part of the premium for purposes of regulating rates. State regulators must go through a cumbersome process to collect data from title agents spread all over the state to change rates. That’s one reason — in addition to effective industry lobbying and a cooperative legislature — why Florida rates have not changed since Bill Clinton was president.

onsumer groups have questioned whether Florida home buyers are being overcharged by hundreds of millions of dollars a year because rates do not reflect, for example, big changes in technology that make checking title records far easier.

Florida has not revised title insurance rates in more than two decades because regulators have been “unable to collect sufficient information,” the state’s Office of Program Policy Analysis and Government Accountability found half a dozen years ago. The report cited a “growing need” to re-examine rates.

Title insurance is designed to guard against problems with records showing who owns a property. It is typically required by mortgage lenders to protect their own financial interests, meaning buyers or sellers are forced to pay for it at nearly every real estate closing in the state.

Lee sponsored a successful amendment that said title insurers in Florida must collectively create 600 new jobs by 2016 or they lose the tax break after that. That would test claims the favorable treatment could attract more insurers to base themselves in Florida.

The tax break also passed under the main budget bill without the jobs requirement, Lee said, though he believes his amendment applies if there’s any question about a conflict.

Florida title costs have come out 5o percent to 80 percent more expensive than those of neighboring states and nearly double those of Iowa, Bankrate.com surveys have found. Some say Florida presents ususual risks for fraud. Yet The Palm Beach Post found Florida title insurance losses amounted to only 9 percent of premiums paid in 2012, compared to 10 percent in Georgia and 15 percent in Alabama.

Title insurers and agents gave more than $500,000 to state politicians including Scott in the 2008 and 2010 election cycles, The Post found, with more than $184,000 going to the state Republican Party.

Fidelity alone has given $150,000 to legislators and groups since losing in court last fall, including $25,000 to an organization set up by state Sen. Wilton Simpson, R-Trilby, who pushed for the bill, the Orlando Sentinel reported.

Officials with the Florida Land Title Association, representing insurers and agents, did not respond Thursday to requests for comment for this story.

“Ideally, I’d like to see any across-the-board reduction in costs passed on the consumer,” said Steve Burgess, the state’s insurance consumer advocate. “I’d like to see it as soon as possible.”