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Show Me Your Qualifications
by Robert Franco  | 2007/05/21
Missouri, the Show Me State, says "Show me your qualifications." Diane Cipa brought Missouri SB 635 to the attention of abstractors in a post entitled 'Hey, abstractors, looks at this.'
Here is an excerpt from the bill:
If the title insurance agent delegates a title search to a third party, the agent must obtain proof that the third party is qualified by the rules and regulations established by the director.
Because Missouri is one of the few states that requires licensing for abstractors, I would presume that a valid license from the state would be presumed to indicate that the abstractor is qualified. However, from what I have heard, Missouri doesn't require a test for abstractors to get the license. It is merely a matter of completing a form and paying a fee.
Missouri currently has legislation that deals with the qualifications of third-party title searchers. I am unable to see how the new bill adds anything meaningful. The current statute, Section 381.115(5) says:
If the title agency or title agent delegates the title search to a third party, such as an abstract company, the agency or agent must first obtain proof that the third party is operating in compliance with rules and regulations established by the director and the third party shall provide the agency or agent and the insurer with access to and the right to copy all accounts and records maintained by the third party with respect to business placed with the title insurer. Proof from the third party may consist of a signed statement indicating compliance, and shall be effective for a three-year period. Each violation of this subsection is a class C violation as that term is defined in section 381.045.
I have been unable to find anything to clarify what exactly the "rules and regulations established by the director" means. The statute very well could have read "If the title insurance agent delegates a title search to a third party, the agent must obtain proof that the third party is duly licensed by the state as a title abstractor." So why doesn't it say that?
Should we presume that an abstractor is qualified if he is licensed by the state? That would make sense. However, because licensing is a simple matter of completing a form and paying a fee I don't know how holding a license would "qualify" one as a title abstractor. In order for licensing to be effective in this regard, there should be a test and some sort of continuing education requirements.
As I have mentioned many times before, this is exactly the problem faced by many title agents in nearly every state. There is no real way to know that an abstractor is qualified unless the agent has a long standing relationship with their abstractors and is well aware of their experience and capabilities.
Every state has a system of regulating the title industry from the top down. That is simply not a good solution to the problem. Regulation needs to be implemented from the bottom up - the title search is the foundation for the title insurance policy. If you don't have meaningful regulation of the title abstractors, there is little point in placing these kinds of regulations higher up the chain.
Simply put, until you have some way to designate who is qualified to produce title evidence, how can you require that the title agents use qualified abstractors?
Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com
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Categories: Abstractors, Missouri Legislation
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Legal vs. Ethical
by Robert Franco | 2007/03/02
There is no doubt that Missouri has seen more than their fair share of problems with title agencies. Several Missouri title agencies have gone out of business due to defalcation, embezzlement, and other non-compliance issues. In October 2006, the Missouri Department of Insurance conducted on-site investigations of at least 31 title agencies. in November 2006, they issued cease and desist orders to 16 of them.
Now, the Missouri House of Representatives has gotten involved with the filing of H.B. 998, submitted by Representative Brian Yates. "Consumers' escrow funds should never be used improperly," Rep. Yates said. "The lack of oversight for these funds cannot be tolerated, especially when consumers are in the midst of finalizing the purchase of a new home and major investment."
The proposed legislation would create tougher accountability standards for the industry. Provisions within these bills include:
- clarifying a duty to fully disclose to consumers separate price information for insurance premium and for the title search and other services
- the prohibition of misuse or commingling of real estate escrow or settlement funds with tight restrictions for deposits and disbursements
- the requirement that title insurance companies actively oversee title agencies writing business on their behalf by conducting annual audits of escrow, underwriting and claims practices
- the prohibition of kickback receipt or payment for referring business and requires full disclosure of affiliated business arrangements
- defining the premium as the risk of loss with necessary expenses and profit from issuing the insurance policies while any other expenses related to title services would be placed in the competitive market
- clarifying standards for licensing and requires continuing education for title agency employees
- clarifying the department’s authority to issue cease and desist orders, injunctions, consumer relief, civil penalties and recovery of investigative costs for violations
I can't imagine that all of these are new, are they? Prohibiting the commingling of funds, paying kickbacks and referral fees, and underwriters requiring annual audits have always been the norm to my knowledge. In any regard, the Missouri bill goes further and it is obviously a desperately needed bill in Missouri.
What I find most interesting is that while legislators are beginning to crack down on the most unethical behavior in the title industry, The American Land Title Association ("ALTA") has abolished its Code of Ethics. Ed Rybczynski attracted a great deal of attention to the missing Code of Ethics on his blog, Title-Opoly: See ALTA's Lost Code of Ethics and ALTA's "ABOLISHED" Code of Ethics. Shortly after the topic hit Title-Opoly, The Title Report ran an article, Former Title Agent, Ex-con Clamors for Code of Ethics (subscription required), in which ALTA explained their position on the code.
However, James R. Maher, ALTA executive vice president, believes strong regulation is the answer. He said ALTA doesn’t currently have a code of ethics. The trade organization abolished the code because it was tied to a never-used grievance process considered ineffective and problematic, Maher said.
“That code had been written many years ago and did not reflect current market practices effectively,” he said. “Given the fact that ours is a regulated industry, it was felt at the time that consumers and competitors, alike, would be better served by an empowered regulator governing market conduct — as opposed to a voluntary membership organization trying to ‘enforce’ a set of high-sounding principles.”
Ed Rybczynski wrote:
Interestingly, James Maher, ALTA’s executive vice president, admits in the article to having abolished a previously existing code of ethics for one of the nations most important professions. I stand corrected as I have repeatedly accused Mr. Maher of simply misplacing the arcane and worthless document.
For the record: The current mood at ALTA is one that favors regulatory empowerment over a prescribed code of professional behavior.
I guess a Code of Ethics just gets in the way of all of the loopholes the RESPA created to allow for the operation of Affiliated Business Arrangements and Joint Ventures. Does this indicate that while HUD made the payment of kickbacks and referral fees legal through changes in the RESPA, it was still unethical under any sensible Code of Ethics that could have been devised?
It does seem very nonsensical to have a meaningful Code of Ethics when the federal government decides to allow the practice of disguising referral fees and kickbacks as "profit sharing." When the line between unethical and illegal is blurred to such a degree, Mr. Maher may just be right... "that code had been written many years ago and did not reflect current market practices effectively." I guess if its legal, but still unethical, you just abolish your Code of Ethics - problem solved.
Sadly, though Missouri has taken positive steps to clean up the title industry in the Show Me State, they still must allow for some of these unethical practices which the RESPA specifically permits. It seems almost too obvious that Missouri lawmakers felt that there was a link between "kickbacks and referral fees" and "affiliated business arrangements" by addressing them together.
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the prohibition of kickback receipt or payment for referring business and requires full disclosure of affiliated business arrangements
Plainly, "the prohibition of kickback receipt or payment for referring business," alone, would have been much more powerful and effective.
Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com
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Categories: Ethics, Land Title Associations, Missouri Legislation, Title Industry
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