Lawmakers likely to OK title insurance panel

While the Colorado Legislature appears to be on track to approve legislation creating a Title Insurance Commission within the Division of Insurance before this legislative session ends on May 6, stakeholders in the wrangling over construction defects probably will have to wait at least another year before any changes to existing statutes pass through the Legislature.

Action on title insurance seems likely. On April 22, the Colorado Senate’s Business, Labor and Technology Committee approved Senate Bill 15-210 by an 8-1 vote, sending the bill to the Senate Finance Committee. The bill is a response to the Legislature’s increasing awareness of consumer problems related to misappropriation of funds held in escrow by title insurance entities. It would create a seven-member commission charged with improving regulation of title insurance entities.  Under the bill, the commission, together with the commissioner of the DOI, would propose and concur in title-insurance-specific rules and would concur in disciplinary actions related to regulation of title insurance entities.

The commission would consist of three members who are employees of title companies that maintain a physical location in Colorado, three members who are employees of title insurance agents and who also are resident licensed title producers in Colorado, and one member who is a representative of the public at large and who is not engaged in the business of title insurance.  The members would serve four-year terms.

Billions of dollars pass through title insurance entity escrow accounts each year in Colorado alone. Recent high-profile cases, including that of Richard Talley, the chief executive of American Title Services who committed suicide last year upon the discovery of his embezzlement of roughly $2 million in client escrow funds, have motivated the Legislature to draft a bill to increase supervision over the title insurance industry in Colorado. SB 15-210 might have enough support to reach Gov. John Hickenlooper’s desk after working its way through the Senate and House.

But prospects died for any construction-defects legislation. The Republican-controlled Senate passed SB 15-177 on April 14, and that bill was introduced in the House. However, although it passed in the Senate by a 24-11 vote, the bill was perceived by many to be too favorable to builders and detrimental to home owners and owner associations. It was killed April 27 by the House’s State, Veterans and Military Affairs Committee on a 6-5 party-line vote.

SB 15-177 would have established certain prerequisites to the authority of owner associations to resolve disputes involving alleged construction defects. The bill would have required mediation or arbitration in any construction defect claim, specifying that such mediation or arbitration must be before a neutral third party, must take place in the judicial district where the subject community is located, and must take place even if the governing documents of the owner association don’t require it.

The bill also would have required owner associations to provide extensive notice to the owners prior to commencing construction-defects actions, and then to obtain approval of a majority of the owners in the association before taking any action to address alleged defects. The notice an owner association would have had to provide included disclosures of projected costs and duration of any such legal action, and disclosures of potential detrimental effects of such legal action (such as adverse effects on the market value of involved properties, difficulties obtaining loans and discouragement of potential buyers of affected units).

Predictably, stakeholders on the owner and owner association side of such legislation were opposed to the increased hurdles SB 15-177 would create. Other bills to address the construction-defects conundrum may be introduced, but with time running short in this session, mutually-agreeable legislation is unlikely. As the stakeholders said last year, this issue will be back again next year.

Daniel W. Jones, an attorney for Coan, Payton & Payne LLC at the Greeley office, can be reached at djones@cp2law.com or 970-339-3500.

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