In the recent past I have been very pessimistic about the future of the title industry. The last straw for me was probably the announcement that First American, via its TitleSmart product, could "deliver a title qualification, report or commitment protected by full title insurance in less than 60 seconds in 44 states."

I began my career in the title industry as a title examiner in 1993 when we were doing 65 year searches for most every insured transaction. If a title policy was to be issued, we did a full search. I became a licensed title agent in 1997 and soon began to notice the mixed signals I was getting from the underwriters. On one hand, we were encouraged to write refinance transactions with current owner searches. On the other, the underwriters were reporting claims that we needed to avoid which could be traced back to "short searches."

I remember thinking that we would see a shift back to better title evidencing, due to the claims from failing to conduct full searches. However, the opposite happened. The underwriters began to embrace automated searches and "thin title plants."

The title industry is full of these mixed signals, but now they are making their way into the press. ALTA is claiming that not enough of the country's real estate records are automated to make online searching the panacea that some believe it to be. Of course, they have to say that to justify the fees the industry charges. But it just doesn't reconcile with First American's claims that they can deliver a title commitment in less than 1 minute on more than 63 percent of refinance loans in 44 states. This presents an interesting dichotomy.
 

In ALTA's Letter to Steve Forbes, James Maher, the Executive Vice President of ALTA, writes:

 

Mr. Woolley would have his readers believe that conducting a title search is as easy as a Google Search.

There are thousands of counties, parishes and independent cities in the United States. Only a small percentage have automated title files, so in the vast majority of the country, the data retrieval process is still highly manual and paper-based.

In the areas of the country where technology is used, computerized records are maintained in what is called a “title plant.” There is a tremendous capital outlay to set up these facilities, not to mention the cost to maintain them and update records on a daily basis.

In a press release issued by First American, the company announces:

 

[I]ts Lenders Advantage Division has completed development of TitleSmart™—a new technology that delivers insured title commitments in less than 60 seconds.
The instant title information offered by TitleSmart gives mortgage lenders a significant advantage in pursuing refinance loan business. Having the full title facts—including ownership, tax, lien, title conditions and closing fee information—immediately in-hand, rather than waiting the traditional 48 hours to receive that information, increases the lender’s ability to effectively consult clients and efficiently close more loans.

In initial testing, TitleSmart delivered a title qualification or title commitment—protected by full title insurance—in less than 1 minute on more than 63 percent of refinance loans in 44 states. Beta testing will begin this month with two top mortgage lenders, and several other lenders have integrated TitleSmart into their strategic plans for 2007.

Is it really any wonder that Mr. Woolley, of Forbes Magazine, alluded to the fact that on-line searching is a better and cheaper alternative to traditional title searching?

 

The price the average First American customer pays for title insurance has doubled in the past decade to $1,472 - but why? Mistakes are rarer in the automated age, so title insurers pay fewer claims. The cost of searching property records can't account for the discrepancy. Today even a pricey online search costs just $125; many cost just $25.

Mr. Woolley even quotes First American CEO Parker Kennedy as saying "Eventually insurance won't be an important component of the product."

I wonder if Mr. Kennedy has managed to clean the egg off his face after that one. While promoting the latest First American product, he managed to undermine the integrity of the entire title insurance industry. Does anyone want to tell Mr. Kennedy that he should have his public relations department handle press interviews in the future?

And yet, there is hope. I received an email from Lawrence Lacombe, Vice President & Chief Title Officer of Fidelity National Title Company. He recently read my blog entry, You Ain't Seen Nothin' Yet, where I mentioned ALTA's Letter to Steve Forbes, and he thought I would appreciate the letter he sent Forbes as well. I most definitely did.

Mr. Lacombe doesn't mince words in his letter to Forbes. He comes right out with the truth - no marketing or promotion, just the facts. Mr. Lacombe says what ALTA and Mr. Kennedy should have said, but couldn't because they are proponents of online searching and thin-title plants as a new source of revenue.

Here is Mr. Lacombes take on title searches, for example:
 

Title examination is akin to a car buyer holding the original “pink slip”. It is absolutely essential, and it cannot be done by simply visiting a website.

...

The [Forbes] article states that title examination costs the insurer a small amount. The article showcases one company in its efforts to reduce cost. All companies seek to reduce costs in different ways. But most of the work is, in fact, not done at a low fixed cost, and none of the most demanding work is done that way.

The article exaggerates the value of electronic storage of Real Estate Records. Searching on-line will never be an alternative to searching the title insurance company way because of how Real Estate Records have been kept for over a hundred years.

While I am most impressed with Mr. Lacombe's statements about the importance of the human element in the title search process, he makes several other equally valid and important points. He accurately points out that there is much more to the process than issuing a title policy - such as handling loan proceeds, paying off existing mortgages, correcting defects, and reviewing and submitting recordable documents to the County.

When it comes to premiums, Mr. Lacombe readily explains why the cost has risen and that the lenders could change their procedures to lessen the burden on consumers.

 

No title insurance company has doubled its premium. In fact, rates have been lowered in almost all cases. But as home prices rose in the last six years, policy liabilities rose, and higher liabilities bring higher premiums. The volume of claims rose even faster in the last several years than the rate of increase in the numbers of policies written.

The reason that more policies are written during refinance activity is that lenders prefer to rewrite all loan documentation for each and every refinance. If they would simply modify existing loan documents, borrowers would save at least fifty percent in title insurance premium.

And, when it comes to rebates, Mr. Lacombe again tells it like it is.
 

Following a 50-year tradition of trying to stop rebates, the California Land Title Association (CLTA) ten years ago, sponsored SB 997 (Schiff) to create and privately fund a new Anti-Rebate Compliance Unit in the California Department of Insurance. (Insurance Code Section 12414). If rebates occur, they are not made without the demand of the real estate agent or real estate broker in the first place. But you cannot find the California Department of Real Estate or its Realtor members suggesting such enforcement efforts or any other type of sanction for such behavior because rebates benefit them, and they demand rebates even though they make more money than anyone else in the deal makes.

This kind of honesty and integrity is what has been missing on the title insurance scene lately. You can't serve two masters and we are in the title insurance business - not the "selling of American citizens' public records business."

Sure, the process has its flaws, but they can't be addressed simply by pointing fingers at the title industry. The problems that exist are intertwined with lenders and Realtors to an inseparable extent. As an industry, we need to stop sending mixed signals. We can't tout our "extensive process" of protecting the consumer, while behind the scenes promoting hazardous practices of short searches, thin-title plants, and automated title products.

Read Mr. Lacombe's full letter to Forbes. The fact that it was written by a vice president and chief title officer of one of the nation's leading title insurance companies give us all hope for the future of the title industry.

Kudos, Mr. Lacombe. And thank you for telling it like it is.

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com