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FTC Conducts Workshop On State Law RestrictionsOn Internet Legal/Settlement Services

October 11, 2002

Panelists Focus on State Insurance Laws and Bar Rules as Possible Inhibitions to New Types of Settlement Services

On October 9, the Federal Trade Commission, as part of an ongoing series of workshops on how possible anticompetitive practices may be restricting competition on the Internet, conducted a workshop on the provision of legal and settlement services. In fact, the workshop also addressed potential barriers to the provision of such services by non-lawyers and unlicensed providers outside the Internet context. Another workshop on October 10 addressed impediments posed by state laws to e-commerce in real estate brokerage, mortgage lending and full implementation of the federal E-sign legislation.Click here to view and or download a PDF of the prepared statements of the speakers at the two sessions.

Speakers at the October 9 workshop included Thomas K. Lammert, Jr., General Counsel of National Real Estate Information Services, and Prof. Joyce Palomar, who focused their comments on title and real estate settlement services. Other panelists addressed the provision of legal documents, analysis, and advice through the Internet and how state bar restrictions may be inhibiting the provision of such assistance to low and middle-class consumers who may not otherwise be able to afford a lawyer.

Mr. Lammert, whose company is a leading provider of title insurance, title information, real estate appraisals, and other settlement services, commented that in many instances, "state laws . . . prevent or impede non-local, out-of-state and national competition as well as competition from non-professionals." He was also critical of state unauthorized practice provisions, characterizing them as "a major obstacle to competition in residential real estate settlement services. . . . These unauthorized practice of law provisions limit competition from title companies, vendor management companies, realtors, lenders and notaries. These service providers are often innovative and less expensive than lawyers."

With regard to state laws requiring the ownership or use of a title plant, Mr. Lammert stated that these laws "have taken public information and made it available only through private businesses. Moreover, by requiring that the provider of title services own title information through a plant, these states effectively bar many providers from the market." He concluded his presentation by noting that these and other state laws "serve to protect entrenched concerns - licensed appraisers, lawyers, and investors in title plants - without a demonstrated public benefit."

Prof. Palomar addressed several types of state regulation of real estate settlement services that impact the ability of others to provide such services over the Internet or otherwise:

  • state unauthorized practice of law rules that define the practice of law to include examination of titles, preparation of deeds and mortgages, and closing of transactions;
  • insurance regulations in the majority of states that require title insurers to be monoline insurers; and
  • insurance regulations that prohibit the issuance of a title insurance policy unless an examination of title has been performed.

Observing that the fact that these regulations have an anti-competitive effect and pose a barrier to entry should not mean that they should automatically be denounced, Prof. Palomar went on to provide a brief examination of the underlying purposes and objectives these regulations were intended to serve and concluded that any discussion of whether these limitations should be modified or repealed should be undertaken only on the basis of empirical evidence "to determine whether today these rules protect the public from harm sufficient to warrant their continuation.

Noting that title companies are understandably concerned about the impact on their revenues and ability to serve customers in other transactions if, in refinance transactions, lenders self-insure their title risks or mortgage insurers offer protection against tile risks on a casualty basis, she observed that the loss of the title insurance industry and its ability to facilitate real estate transactions would be a "fearsome possibility" but asked "is it reality?" She concluded: "We cannot assume the correctness of dire warnings from industries that fear losing a competitive advantage if a regulation is removed; yet, at the same time, the risk to commerce involving development or use of land is too great to assume that the regulations are no longer needed, without empirical study and proof."

At the October 10 workshop, Darren Ross, Director of Electronic Commerce at Stewart Information Services, discussed various barriers to e-commerce in mortgage transactions. Other panelists discussed the difficulties state licensing laws pose to the Internet activities of mortgage lenders and brokers.

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