LSO puts perks for real estate lawyers under the microscope

The Law Society of Ontario is considering whether to alter the restrictions on real estate lawyers who get fees and other perks paid by certain title insurers.

LSO puts perks for real estate  lawyers under the microscope
Maurizio Romanin says that fees paid by title insurers to lawyers could be viewed as incentives to select some policies over others. Laura Pedersen

The Law Society of Ontario is considering whether to alter the restrictions on real estate lawyers who get fees and other perks paid by certain title insurers.

The law society received 140 submissions during its consultation on the topic, which ended in October 2018, says Treasurer Malcolm Mercer.

Now, the regulator’s Professional Regulation Committee must decide what policies to recommend to Convocation.

Title insurance companies are legally required to get a certificate of title to the property to be insured from a lawyer, according to the LSO’s Professional Regulation Committee Report from June 2018. Some insurers pay lawyers for that service and other work.

Law firms may also “receive payments, gifts or other incentives based on the volume of title insurance placed by the lawyer and lawyers of the law firm,” the law society’s report last year said.

“Law firm staff may receive retail gift cards or ballots based on insurance policy orders for entry into contests with a chance to win prizes such as travel vouchers, or other incentives,” the report said.

The Rules of Professional Conduct that govern the legal profession already specify that lawyers tell their clients that title insurance is not mandatory, as well as providing full disclosure of “all financial dealings” between the law firm and title insurance company, the report said.

But the law society found that about a third of law firms did not disclose the fees in writing to clients, based on audits in 2016 and 2017, the report said.

The tactics that some title insurance companies use to build relationships with some real estate lawyers have already faced scrutiny in the United States, says Maurizio Romanin, a Toronto lawyer who runs a legal technology company and is board chairman of a U.S. title insurance underwriter.

“You shouldn’t really be making a decision on which title insurance underwriter you’re working with because you get free hockey tickets or to go to a Christmas party where the booze is free or on a cruise . . . they stopped that in the pharmaceutical business,” says Romanin, a barrister and solicitor, president of LawyerDoneDeal Corp. and chairman at Attorneys’ Title Guaranty Fund, Inc.

For instance, he says, New York State recently decided to ban the practice, after an investigation by the New York State Department of Financial Services found that “lavish gifts were routinely being offered in anticipation of receiving business from intermediaries such as lawyers, generally unbeknownst to and at the expense of consumers, who ultimately pay higher premiums as a result,” wrote a panel of judges in an appeal decision, Matter of New York State Land Tit. Assn., Inc. v. New York State Dept. of Fin. Servs.

“Some of the people who support this say it is not an incentive, but I disagree — one of the ways that incentives are being provided to lawyers is through a fee that the title insurer is paying the lawyer,” he says.

“Nominally, that is supposed to be for work provided by the lawyer to the title insurer. . . . But what has happened [with the fees] is the title insurance premium ends up costing the consumer more.”

Thornhill, Ont.-based real estate lawyer Alan Silverstein says that, if he gets a reduced rate because of the title insurer he is dealing with, he passes the savings on to his client instead.

“It doesn’t matter what profession you are in, there is always a concern about referral fees. ‘Referral fees’ can be, in some respects, a nice way of saying kickbacks,” says Silverstein.

“Personally, I think what we have in place is fine. If there are problems, there has to be greater enforcement. I don’t know if we have to start prohibiting relationships. Leave it to the lawyer to decide if they want to accept the fee and pass it on to the client or give the client the benefit of the lower fee, which is what I do. If someone is taking it, they have to disclose it, and if they don’t, there are rules in place to deal with that . . . but it is an issue that affects the public, no question about it.”

Romanin, on the other hand, says the issue raises questions about whether the cost of increased enforcement is worth it for the profession.

Mercer says the renewed look at the issue in the real estate bar follows the law society’s examination of referral fees in other areas, such as personal injury.

Last year’s Professional Regulation Committee Report said the issue of title insurance was likely to come before Convocation in late 2018 or early 2019.

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