Nothing has had a greater affect on independent title agents than the explosion of affiliated business arrangements (AfBAs) across the country.  In Ohio, the problem is at epidemic proportions.  However, there is a new controversy brewing on the horizon in Ohio.

For years, the assumption in Ohio has been that lenders, mortgage brokers and realtors could own interests in title insurance agencies and not run afoul of state laws regarding such control.  In fact, the Ohio Department of Insurance (ODI), under previous administrations, has routinely held that co-ownership of a title insurance agency by lenders, mortgage brokers and realtors was not prohibited by Ohio law.  The support for this assertion is O.R.C. Sec. 3953.21(B), which in Ohio title insurance law jargon, is known as the prohibited person statute.  

O.R.C. Sec. 3953.21(B) states that, "no bank ... or other lending institution, ... mortgage brokerage, ... real estate company  or any subsidiaries thereof or any individuals so engaged shall be permitted to act as agent for a title insurance company."

For most folks in a rush to form an AfBA, this looks like a slam dunk.  In fact, the ODI has long held the belief that the term "agent" refers to "title insurance agent".  Therefore, as long as a lender, broker or realtor was not trying to license themselves as actual title agents, they would not run afoul of the statute.  As a result, the ODI never saw this statute as prohibiting lenders, brokers and realtors from "owning" an interest in a title company.

However, literal analysis of the statute does not support the AfBA position and certainly contradicts the ODI's previous view on the subject.  The statute does not say a prohibited party cannot be a title insurance agent.  In fact, the phrase "title insurance agent" is not contained in Sec. 3953.21(B).  Instead, the statute actually says that a prohibited person cannot be an agent of a title insurance company.  The distinction is critical.  The ODI has read and continues to read a definition into the statute that does not exist. 

What does all of this mean?  Quite a bit.  Under Ohio law, a lender, broker or realtor may not be "agents" of title insurance companies.  Surprisingly, there is no definition of "agent" under the title insurance subchapter of insurance in Ohio.  Therefore, you must give the term its common-sense definition in the absence of a specific definition.  Applying the common-sense definition, it is clear that an "agent" is a person who represents a principal in the conduct of business.  Any form of representation will suffice.  Owning a 50% interest in a title insurance company could easily be characterized as "agency".  Therefore, the possibilities are endless.  However, the result is always the same.  A lender, broker or realtor, or any subsidiaries thereof may not be "agents" of title insurance companies.  Any such organization is illegal under Ohio law.  

Theoretically, the ODI could begin revoking the licenses of each and every AfBA that shares ownership with a prohibited person.  If this sounds far-fetched, think again.  The Director has wide discretion to revoke the licenses of any entity that is prohibited under Ohio law, whether having applied for licensure in the past or the present.  If this is the case, any AfBA with a prohibited party could be in jeopardy.

I certainly would not be upset to see AfBAs disappear from the title landscape.  It is well-known that litigation on this issue seems certain.  Maybe I'm just preaching to the choir?  Is there anyone out there who still thinks AfBAs are good for title insurance agents or the title insurance industry overall?

Are there any other independent title agents out there who still care?