Title Plants and Market Activity

Texas Title Industry - 101
The Title Industry in Texas is regulated by the Texas Department of Insurance which also regulates Automobile, Homeowers, Life and Casualty Insurance. Title insurance is only a fraction of the products regulated by the Department. There were approximately $1.5 Billion in Title Pemiums written in the State of Texas in 2005.

Premium rates in Texas are regulated and the basic title premium on a $100,000 sale is $871. In Texas, premiums are earned three ways:

1. Title Evidence
2. Title Examination
3. Closing the Transaction

"Direct" operations are wholly owned Agencies of Underwriter and "Affiliates" are Agencies owned partially (at least 10%) by Underwriters. By law, Underwriters earn 15% and Agents earn 85% of the title premium. If you are both the Underwriter and the Agent then you capture 100% of the premium (plus escrow fees.)

Affiliates and Direct operations represents approximately 60% of all title premiums written in the state. There are 254 counties in Texas and most counties have at least one or two independent agents. This means, the 4 or 5 major Underwriters' Directs and Affiliates operations dwarf the number of premiums generated by independent agents for the entire state.

Title Plants and Market Control

A Title Plant is a 25-Year geographically indexed set of records and other related indexes. By law, to be a licensed Title Agent you must either own or lease access to a title plant, which are expensive to build and maintain.

Direct operations and large independent Agencies have managed over the years to control a large part of the title market (in the Dallas, Houston, Austin and other metro markets) through what are commonly called "Joint Plants." The original concept of a Joint Plant was to share the cost of posting a title plant so the expense to maintain the databases could be reduced in purportion to the number of owners.

Over time, Joint Plants became profit centers, which in itself is not a bad thing, but at the same time Joint Plants became a tool to control the title market in large metropolitan areas. Now they are moving into smaller markets too.

For example, in 2002 if you wanted to be a Title Agent in Harris County, Texas there was only one title plant provider, a "Joint Plant" (owned by the major underwriters and a couple of large independents) and the access fee was approximately $18,000 per month plus other fees. At this cost, you could only be a very large agent to afford plant access. In 2003, a new Title Plant entered the Harris County market and within 30 days the Joint Plant lowered its monthly fee to under $8,000. See Houston Business Journal Article dated September 26, 2003 and follow up story dated October 4, 2003.

In Dallas County, there were two Joint Plants and the upfront cost to become an owner, if allowed, was over $2,000,000 and the monthly fee was over $25,000 per month. Therefore, in Dallas County (population 2.5 M) there were only 14 Title Agents. But, in Collin County, just north of Dallas, (population .5M) there were over 50 Agents. This was the result of reasonable plant fees in Collin County compared to the much higher entry and monthly access fees in Dallas County.

Underwriter owned plants in Dallas county have recently reduced their monthly fee to under $15,000 per month since a new title plant entered the market.

How have the Underwriter Directs and few large Independents Agents managed to control the Dallas County title market for an approximate 25-year period? In short, the owners of these plants kept the cost of access to the plants arbitrarily high. Additionally, the Vendor for the two Joint Plants in Dallas County was also the Vendor for the Dallas County Clerk and were instrumental in keeping others from obtaining the records.

To illustrate, the cost to purchase certain public records, the foundation for a title plant, in Harris County was about $5-10K. But, the cost to purchase the same records in Dallas County was approximately $2.4 Million. Our firm complained to the Attorneys General Office, Open Records Division about this desparity. A part of our complaint was that the Vendor for the County was paying nothing for the records while generating hundreds of thousands of dollars per month and at the same time keeping the records out of the hands of competitors. This is a great untold story.

Nothing was done about this until a new County Clerk took office. When this happended, our firm again requested the records as we had done before. This time, the new County Clerk was told by the County Vendor that they, the Vendor, had a copyright on the public records and how they were organized. This prompted the new Dallas County Clerk to file her own compaint with the Attorney General Open Records Division. As you might expect, the Attorney General let the county Vendor know in a 14 page opinion (framed in my office - our attorney had written a brief in support of the County) that in fact, these records were NOT copyrightable and they must be released to the County Clerk.

End of story, right? Wrong.

This same company turned around and sued the State of Texas Attorneys General's office in a Travis County District Court (which was their legal remedy.) In Texas, we have a saying, "that takes huevos."

Violations of the Texas Open Records Act are a criminal offense and the State had recently gotten it's first criminal indictment. A few weeks later, there was a meeting in Austin between this Vendor and the AG's office and not long after the County was able to release the records.

It took our firm over three years to acquire this information from the county. Since that time, the Vendor has been replaced by the County but remains the Vendor for the Dallas title plants.

If you control the Title Plants (where Title Evidence originates) the Title Examination, the Underwriting and the records from the County Clerk's office then you control the market.

Leveraging Second Best Asset - The Title Plant

Independent Title Agents' greatest asset, after their people, are their Title Plants. It is important, in this information age, for owners of title plants to maximize the value of this asset by fully automating their databases thereby creating greater efficiencies and productivity; and, by strategically making title plant information available to others. (Note: Comments in this article are directed toward Texas Title Agents but may apply to Title Plant owners throughout the country.)

In Texas, Title Plants are regulated by the Texas Department of Insurance under Rule P-12. There are approximately 8 states with title plant laws and Texas is one of them. The definition of Title Plants and the State requirements can be found at: Title Plants.

Plant owners know the blood, sweat and tears that goes into building a title plant. For those who think the information is filed at the courthouse so what's the big deal about a Title Plant? Listen up...

Title Plants are tools Abstracters and Examiners use to research land records more effectively. The plant builder/maintainer indexes all of the documents filed in the courthouse against legal descriptions for the properties when legals are available. So, when the Examiner is running title in a given survey or subdivision all the records pertaining to the land are found in the same part of the plant.

Many plants and title agencies are family owned business passed down through generations. Historically, Title Plants were hand written, "Tract Books" or typed "Index cards." The indexing person for the title company would work at the courthouse for hours transcribing information from the daily recorded documents before the documents were sent off by the county for microfilming or before being bound in books. Since much of the indexing was done in the courthouse County Clerks would sometimes make space available to title companies to complete this task.

Historically, Title Plants were on paper so local Abstract and Title companies installed vaults, similar to bank vaults, to store their records. In fact, our firm leased an office across the street from the Fort Bend County courthouse and we kept our records in the old "Peirson Abstract Company" vault, which was a step back in time.

The obvious concern with tract books and index cards is the risk of loss due to a fire or flood. Tracts Books are usually very large books which take up large amounts of space and only one person can use them at a time. The problem with index cards is sometimes they can be misindexed or go completely missing. Inadvertently, cards may end up in an abstracter's file.

Some plants have already gone through the expense of microfilming or scanning their cards to preserve them which is a great start. Typical progression for older plants is from paper to microfiche (or microfilm) and then to computers or a combination of these.

A Title Plant can either be an ARBed plant or an unARBed plant. Acreage tracts in ARBed plants are assigned an "arbitrary" tract number. An unARBed plant post acreage tracts to the Survey or Abstract Numbers.

There are reasonable arguments to be made for both ARBing and not ARBing. The biggest problem with ARBing is it is very expensive and if a parcel is ARBed to the wrong tract then it will NEVER be found in the plant. In most cases, the persons ARBing are not as skilled as Examiners who can make determinations of the relavance of a instrument relatively quickly. The main drawback of an unARBed plant is it may take longer to search. But, with electronic images, wherein an image can be opened and closed in seconds, this is less of a concern. The time lag was an issue, when documents had to be viewed at the courthouse, or copies were made from microfilm.

There are still Plant owners who think protecting their asset means keeping it to themselves and NOT making the information available to others. If you are the only title plant in a county then you have a "legal" monopoly in the county and until now, keeping data to oneself may have made sense.

But, advances in technology makes it possible to build a quality title plants to compete with a plant in operation for decades. The "new" plant may not be as detailed or go back as far as the one in business for generations but if it meets the state requirements and is sufficient for examining title then it will likely be acceptable to the Underwriters.

Some small county plant owners would like to change the law to increase the number of years a plant must be posted geographically. In my opinion, it doesn't matter if it's a 50 year plant law or 75 year plant law. If competitors wants to build a plant in a county they will do so and you will be loathed to stop them.

Plant owners desiring to protect their assets and generate more revenue may need to look at their Title Plants differently.

This means using the latest technology to convert all data into an electronic format, making information available via the Internet, using contacts from the sale of online data to generate more business for the agency and creating additional revenue by providing data through mulitple sources. The end results may be to make it less economically attractive for competitors to move into a market.

The benefit of historical plant converstions are Preservation, Productivity and Profits.

Preservation - preserve paper plants (cards or tract books) by bringing in an onsite scanning team to:

• Place index cards in proper order
• Create Folders representing current file drawers
• Create Sub Folders representing Surveys and Subdivisions/Section/Block/Lots
• Consult Plant Managers with organizational and scanning questions
• Scan Cards, Tract Books, Maps, Abstracts, Base Files, Run Sheets and Starter Files
• Backup scanned data daily and make available to Abstracters and Examiners immediately
• Save complete sets of data and images on DVDs and store off-site in secure location

An additional benefit to scanning is that all index cards will remain in place and should never again be out of order.

Productivity - in most card plants the title staff is continually getting up to search file drawers to find the records they need. If researchers remain at their desk and navigate the plant from their computers this is a huge time saver. If researchers still want to touch the paper they can simply print hard copies of the pages they need. Time is money and increased productivity among the title staff can not be underestimated.

Profits - many Agents are unwilling to allow Landmen or outside researchers in their facilities because they are legitimately concerned about the lack of care some of these individuals take when handling the records. The solution is to scan the indexes and images and make them available via a computer "kiosk", with no connection to the Internet and without the ability to print. Then, depending upon the oil & gas or other real estate activity in your area, plant owners may be able to generate another revenue stream.

Landmen are usually less concerned about the costs for title plant access as they are in buying leases. So, if you can generate more revenue without risks of loss or damage to your plant then allowing access to landmen may make sense.

Another concern is if there is more than one plant in a county then the competing plant will do just as I've outlined above and you could be left behind.

The biggest complaint we hear from large title operations in metropolitan area when ordering Title Evidence from smaller counties has little to do with the quality of the product, but rather the turn around time. The biggest compaint we here from small county Agents is, once they deliver Title Evidence they do not get paid or they have to fight to get to get paid. By having more accessable electronic title plants these concerns may be reduced or eliminated.

It doesn't make sense for independent Agents who do not get paid by the Underwriter Direct operations for Title Evidence to continue to send the same Underwriters a large number of premiums.

This is an excerpt from an earlier writing:

The Underwriter trend is to build Title Plants in large metropolitan counties and adjacent growing counties. Once established, the underwriters can deny local title agents access to title evidence and underwriting.

Rural agents need to look no future than this map to see what the future holds. Looks like the attack of "The Blob" doesn't it?

Independent Agents are in a strange predicament. The same underwriters who sponsor their licenses at the Department of Insurance are competing against them in their own backyards. Some Agents are reluctant or afraid to voice their objections because they do not want to be dropped or bullied by their Underwriters.

Several companies sell software for title plant posting and conversion such as Hal Systems Corporation and Ultima Corporation, (a Stewart Title Company.) Also, there are several companies who perform the locating and keying function for Title plants such as D. Bellow Associates, Inc. , SLK IT Enabled Services, or Extract Systems. If you are considering using a particular software for posting or outsourcing your keying or land locates function, it is prudent to perform thorough reference checks before deciding on which service to use.

Many times, hard copies may not leave the premises because these are resources being used everyday or are too sensitive to be taken off-site to a production facility. In that case, you may want to consider using a company like Imersion Technologies who can send a crew into the plant to perform the scanning of the data.

The primary focus of our companies, CourthouseDirect.com and Integrity Title Records are to consult with companies considering a large conversion project. We may also serve as a hosting facility and reseller of data. Although, Integrity Title owns Title Plants in major metropolitan areas our goal is not to build plants in every county. We prefer to work with local agent and help them publish their plant online in a secure environment.

CourthouseDirect.com serves as the marketing arm for the information plant owners want to sell. Currently, we have over 350,000 page views, over 30,000 unique visitors and over 12,000 returning visitors per month. We bring customers to local agents through our web portal by the same name.

If as the owner of the title information, you should always remain the gatekeeper and decide who should accesses your data, what data should be made available and at what price.

It requires a monetary investment to mold a paper or microfilm title plant into a concise, online product offering but it can be done. The success of doing so depends mainly on the will of title plant owners and their capacity to look beyond the present.

For those hoping to cash out on their title plant investment, an additional benefit of digitizing your records may be to increase the value of the plant asset so it will be easier to sell.

Note: An [Article] published in the January 3, 2005 Edition of the American Land Title Association online newsletter is informative and more technical in nature but it more or less makes the same arguments that title plants can serve as, "opportunities for revenue growth, higher productivity, enhanced employee satisfaction, and improved customer service."

Feel free to contact me directly with any questions or comments.