Current through all regulations passed and filed through September 16, 2024
(A) Purpose
The purpose of this rule is to establish ownership and
licensing standards for title insurance agents and agencies in accordance with
division (B) of section
3953.21
of the Revised Code, which prohibits certain persons from acting as agents for
a title insurance company.
(B) Authority
This rule is promulgated pursuant to the authority vested in
the superintendent under section
3901.041
of the Revised Code.
(C)
Definitions
As used in this rule:
(1) "Beneficial ownership" means the
effective ownership of any interest in a title insurance agency or the right to
control an ownership interest even though legal ownership may be held in
another person's name.
(2)
"Control," including "controlling," "controlled by," and "under common control
with" means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person, whether through the
ownership of voting securities, by contract other than a commercial contract
for goods or non-management services, or otherwise. Control shall be presumed
to exist if any person, directly or indirectly, owns, controls, holds with the
power to vote, or holds proxies representing fifty per cent or more of the
voting securities or interests of any other person. Control shall also be
presumed to exist between a natural person and an immediate family member.
These presumptions may be rebutted by showing that control does not exist in
fact. The superintendent of insurance may determine that control exists if the
facts support such a determination notwithstanding the absence of a presumption
to that effect.
(3) "Immediate
family member" includes a person's father, mother, stepfather, stepmother,
brother, sister, stepbrother, stepsister, son, daughter, stepson, stepdaughter,
grandparent, grandson, granddaughter, father-in-law, mother-in-law,
brother-in-law, sister-in-law, son-in-law, daughter-in-law, the spouse of any
of the foregoing, and the person's spouse.
(4) "Person" means any natural person or any
business entity as defined in division
(P) of section
3905.01
of the Revised Code.
(5)
"Prohibited person" means a person prohibited from acting as an agent for a
title insurance company pursuant to division (B) of section
3953.21
of the Revised Code, and includes builders and developers.
(6) "RESPA" means the Real Estate Settlement
Procedures Act,
12 U.S.C.
2601 et seq., as amended, and all rules,
regulations and interpretations issued under RESPA, as amended, including but
not limited to 24 C.F.R. Part 3500 and the Statement of Policy 1996-2 Regarding
Sham Controlled Business Arrangements found at 61 Fed. Reg. 29258 et
seq.
(D) No business
entity may be licensed as a title insurance agency where one or more prohibited
persons control the business entity.
(E) A business entity may not become licensed
or remain licensed where the entity is merely a sham arrangement used as a
conduit for inducements or compensation for business payments in violation of
section
3953.26
and/or section
3933.01
of the Revised Code. In determining whether an entity is a sham arrangement,
the superintendent may consider factors similar to those used to determine
whether a controlled business arrangement is a sham arrangement under RESPA,
including, but not limited to:
(1) Does the
new entity have sufficient initial capital and net worth, typical of the
industry, to conduct the title insurance business for which it was created or
is it undercapitalized to do the work it purports to provide?
(2) Is the new entity staffed with its own
employees to perform the services it provides or does the new entity have
"loaned" employees of one of the parents?
(3) Does the new entity manage its own
business affairs or is the new entity being run by one of the
parents?
(4) Does the new entity
have an office for business which is separate from any of the parents? If the
new entity is located at the same business address as one of the parents, does
the new entity pay fair market value rent for the facilities actually
furnished?
(5) Is the new entity
providing substantial services, i.e., the essential functions of the real
estate settlement service, for which it receives a fee?
(6) Does the new entity perform all of the
substantial services itself or does it contract out part of the work? If so,
how much work is contracted out?
(7) If the new entity contracts out some of
its essential functions does it contract services from an independent third
party or from a parent or affiliate of a parent? If the new entity contracts
out work to a parent or to an affiliate of a parent, does the new entity
provide any functions that are of value to the settlement process?
(8) If the new entity contracts out work to
another party, is the party performing any contracted services receiving a
payment for the services or facilities that bears a reasonable relationship to
the value of the goods or services received?
(9) Is the new entity actively competing in
the marketplace for business or does it provide services solely for one or more
of the parents?
(F)
Where a person has a direct or beneficial ownership interest in a business
entity title insurance agent, the only thing of value that can flow from such
an arrangement, other than permissible payments for services rendered, is a
return on ownership interest.
(1) Under this
rule, a return on ownership interest may not include any of the following:
(a) Any payment which has, as a basis of
calculation, no apparent business motive other than distinguishing among
recipients of payments on the basis of the amount of their actual, estimated or
anticipated referrals;
(b) Any
payment which varies according to the relative amount of referrals by different
recipients of similar payments; or
(c) A payment based on an ownership,
partnership or joint venture share which has been adjusted on the basis of
previous relative referrals by recipients of similar payments.
(2) In determining whether a
payment is a return on an ownership interest or an impermissible payment for
the referral of title insurance business, the superintendent may consider
factors similar to those used to determine whether a payment is an
impermissible payment for a referral under RESPA.
(G) A prohibited person may not serve as a
partner, officer, director, or managing member of a title insurance agency, nor
may a prohibited person be involved in the day-today operations of the title
agency.
(H) Severability
If any paragraph, term or provision of this rule is adjudged
invalid for any reason, the judgment shall not affect, impair or invalidate any
other paragraph, term or provision of this rule, but the remaining paragraphs,
terms and provisions shall be and continue in full force and effect.
