Saturday, November 25, 2006

Forbes Article Regarding Title Insurance

In the Forbes Magazine article dated November 13, 2006 titled, "Inside America's Richest Insurance Racket," the writer, Scott Woolley presents a scathing attack of the title insurance industry. The article contains some true statements, some untrue statements and some misunderstanding of the title industry as a whole.

Some of the responses to the Forbes article were from independent "mom and pop" title agents. Independent agents, throughout the country, work hard to provide quality title services to their customers. It is unfortunate these agents were lumped into what was referred to in the article as a "racket."

As an industry, we can not put our heads in the sand when we know abuses exist but most seem to be committed by the "big boys" and not local independent agents who strive to provide a valuable service.

Highly skilled Abstracters and Examiners spend a considerable amount of time and energy making sure land titles are "clear" by correcting legal descriptions, reviewing chains of title, searching real property, divorce, probate and bankruptcy records before providing a Title Commitment and ultimately a Title Policy. When these professionals perform their jobs effectively then the results are a low claims ratio.

Experienced Escrow Officers work closely with parties to real estate transactions including Real Estate Agents, Lenders, Surveyors, Buyers and Sellers curing title defects, preparing closing statements, closing the transactions and disbursing funds. It is not unusual for Escrow Officers to work late into the evening or on weekends to accommodate a buyer or seller or to prepare for a closing the next day.

To suggest that title companies do not earn their money is both insulting and inaccurate to those who work so hard in an industry they care so much about.

The fees paid for title insurance is relatively small compared to fees paid to real estate agents and mortgage lenders. Particularly when you consider the amount of work we put into researching title and closing transactions.

Even with the latest technology, it requires the expertise of seasoned Title Examiners and Escrow Officer to close a real estate transaction effectively. Other expenses such as rent, office equipment, E & O Insurance, and personnel costs have not gone down but premiums continue to decline.

Mr. Wooley, states, "Sifting through property records to ensure that a title is clear of old claims costs them all of $25 to $125 if the records are digitized." We beg to differ.

When was the last time it cost a title agent $25 to produce a Title Commitment? This barely covers the cost for the typist.

Title agents know $25 to $125 to issue quality Title Commitments are not realistic amounts. To issue a quality product requires a specific skill set and other resources which are not cheap. For example, the cost of leasing or maintaining a "Title Plant" or other databases required to perform a title search can be very expensive.

It doesn't make much sense that people are willing to pay $200 for an extended warranty on a dishwasher but are reluctant to pay $1,000 for a title policy to protect them from title defects on their most valuable asset.

As defenders of the industry we must also be realistic. For example, the reinsurance controversy in Colorado, California, Washington, and New York was an accident waiting for a place to happen. We always thought reinsurance was a tool to spread risk on multimillion dollar transactions and not something to be used for transactions for as little as $150,000.

Industry responses such as, "the laws were not clear", "we thought it was legal", "the other guys were doing it" does not pass the smell test. When homebuilders are selling reinsurance on small transactions and never paying claims then this looks like a kickback and was destined to raise suspicion on the part of regulators.

Unless you just fell off the turnip truck yesterday you know bribes and gifts to real estate agents for referrals exist and have added to the distrust of our industry. Kickbacks had gotten so bad in Texas and so disturbed the Texas Department of Insurance that they instituted Prodedural Rule 53 (P-53) to try to curtail these practices. The jury is still out on whether or not this has made much of a difference.

Mr. Woolley also spoke of the problem with sham title agencies. He said, "Elsewhere many title insurance fronts don't even bother to create a real office. When investigators in Colorado recently sent out letters to the state's 500 title agencies, more than a hundred came back stamped "no such address," and also stated, "Such fronts typically are run by the large title companies but are co-owned by real estate agents and mortgage brokers, who get a cut of the profits."

As proponents of Affiliated Businesses it hurts our industry when "large title companies" operate in this manner. These kind of activities hurt those of us who play by the rules and believe ABAs are good for consumers and the proper way for real estate professionals to participate in the settlement portion of the real estate transaction.

In regards to other abuses, those who have read my previous postings know we have serious problems in Texas with companies using their power to control the market at the expense of independent title agents.

We should look in the mirror and clean up our act first before we start climbing too high on our horses. The Forbes article was critical of our industry but it is up to us to educate the public and give them a better understanding of what we do and the value we add to real estate transactions. In turn, we will reverse the negative impressions either real or perceived.