BILL NUMBER: S7732

SPONSOR: BRISPORT
 
TITLE OF BILL:

An act to amend the insurance law, in relation to prohibiting title
insurance corporations from paying certain claims for fraudulent convey-
ances

 
SUMMARY OF PROVISIONS:

Section one sets forth the title.

Section two amends section 6408 of the insurance law, to add a new
subsection (e), providing restrictions on title insurance payouts in
cases of deed theft.

Section three sets forth the effective date.

 
JUSTIFICATION:

"Deed theft" is the tactic of using fraudulent or misleading tactics to
              

take the title, or deed, to another person's home without the homeown-
er's knowledge or approval. As real estate capital has flooded into
rapidly gentrifying neighborhoods of New York, this tactic has been
increasingly used to separate elderly homeowners and homeowners of
color-especially Black and Brown homeowners-from their homes. In
connection with these schemes, "title insurance" companies play an
important role. Rather than conducting reasonable due diligence, mort-
gage lenders will all too often simply seek "title insurance" to ensure
that they do not suffer any losses, in the event that they are funding
and supporting deed theft. By taking away the option for these lending
institutions to obtain title insurance, this legislation aims to incen-
tivize these lending institutions to conduct reasonable due diligence to
guard against deed theft.

On October 27, 2022, the New York State Senate held a public hearing to
examine the practice of deed theft in New York State, to hear from New
Yorkers who have been victims of deed theft, to examine the failures and
loopholes in New York's existing laws, and to come up with solutions to
these ongoing problems. At that hearing, one of the important themes
that emerged was that lenders and title insurance companies did not
conduct basic due diligence regarding fraudulent schemes to defraud
individuals from title to their homes. For instance, Scott Kohanowski-
the Director of the Homeowner Stability Project at the City Bar Justice
Center-testified to an instance where two senior brothers who had inher-
ited their parents' home were victimized by a straightforward case of
fraud. A fraudster simply impersonated the two brothers-one of whom was
incapacitated in the hospital, and incapable of signing any documents-in
order to sign various documents on behalf of the two brothers. As Mr.
Kohanowski testified, "just a little bit of due diligence" would have
uncovered the underlying fraud.

Another theme that emerged at this hearing was the imbalance of
resources that are introduced once a title insurance company becomes
involved in deed theft litigation; because these title insurance compa-
nies are insuring lenders, they typically don't want a court to enter a
finding that deed theft had occurred, and they have a strong financial
interest to act in a manner that is adverse to the interests of deed
theft victims. Deed theft victims, who are already typically less
sophisticated and have fewer resources, now find themselves litigating
against very sophisticated entities that can use procedural tactics to
outmaneuver them in court. One witness testified that "I cannot afford
an attorney to fight the companies who have a team of lawyers that are
literally dedicated to make us deed theft victims, victims again."

 
PRIOR LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

None.

 
EFFECTIVE DATE:
This act shall take effect on the ninetieth day after it shall have
become a law.