Today's Indianapolis Star contains an excellent editorial entitled "Home Oversight Under Too Many Roofs" regarding the need to unify real estate regulation in Indiana. It's an issue that I have addressed other times in the pages:
Yes, Republicans There is Good Regulation - My Experience with the Indiana Title Insurance Industry (9/23/2008)
Real Estate Reform - Why Indiana Needs It (9/16/2008)
I get the impression the Star's editors have some sense of the problem with Indiana's disjointed real estate regulatory effort which led to the editorial. I speak though as someone who was in the middle of that effort. Until September of 2007, I was head of Indiana's Title Insurance Division, a newly-created division to regulate title insurance. We assembled a highly qualified staff with over 100 years of law and title insurance experience.
From the outset our efforts bringing title insurance agents in line were hampered by the multitude of agencies regulating the real estate players. (The Star's editors mention seven of them, but fail to mention federal and state law enforcement and prosecutors we often had to deal with on mortgage fraud issues.) The Secretary of State's office was fairly aggressive at going after mortgage brokers for fraud, but I found that there was often a lack of experience with real estate transactions that hampered their efforts. Because it takes years to fully understand all that is involved in complex real estate transactions, it's not surprising that the high turnover in the SOS leads to a situation where the regulators did not fully comprehend what they were regulating. We found the Attorney General's Office, which regulates realtors and appraisers, to be extremely passive when it came to going after the real estate players they regulate for fraud or unfair competition activities that violated state and federal law. Of those agencies we dealt with at the Title Insurance Division, I found the Department of Financial Institutions to be the best to work with. In addition to DFI's professionalism, the people at that agency had knowledge of the lenders they regulate and a genuine desire to take an active approach to regulation.
Last session the Indiana General Assembly mandated that the real estate regulatory agencies have monthly joint meetings. I was part of those joint meetings before they were mandated by the legislature. They helped only marginally alleviate problems with the disjointed regulatory effort. Often we had to deal with overblown concerns about the propriety of sharing information between state agencies. Then you had looming turf battles that limited our efforts. Even with the meetings, we often learned about regulatory actions taken by other agencies, actions that often implicated title insurance agents in misconduct, after the fact from the pages of the Indianapolis Star or other newspapers.
In my position, I learned a great deal about the real estate regulatory efforts of other states. As far as title insurance regulation in particular, most states do not put their title insurance regulatory efforts under their Departments of Insurance. The reason why is that 80% of title insurance regulation involves the regulation of how the title insurance agent conducts the real estate transaction - the service provided, not the actual insurance product.
While many of those who support reform have been clamoring behind the scenes for a unified real estate regulatory effort, I have yet to find a state that truly made that happen. Here's an idea. Why doesn't Indiana take the lead in putting together a unified state regulatory effort that will offer much more effective and consistent regulation of the real estate industry? The agency should be staffed by people who have actual experience in the real estate industry and who understand the complexities of the real estate transaction. That would allow the industry to be regulated in a comprehensive, consistent manner. That real estate regulatory agency could also lend expertise to county prosecutors who simply do not have the knowledge to prosecute real estate fraud.
Currently the emphasis has been on preserving the status quo of the regulatory structure and simply making a few changes around the edges. That's not going to cut it. Those of us wanting a consolidated regulatory structure for real estate to be demanding that candidates for Governor and Attorney General take a position on this all important issue.
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