Well it must have been a bad omen, or maybe karma, if you believe in such things. The same day I posted Title Agents As Collections Agents, a post about the responsibilities of title agents to pay creditors when liens are missed, it happened to us. I received a call from a client to notify me that one of our examiners missed a judgment lien. We checked it out at the courthouse and sure enough... it was there.

We had done a filing for the client. We had not done the previous search, but they sent us a preliminary judicial report to update from. After the effective date of the search, and a few months prior to our update and filing, a credit card company had filed a lien in the approximate amount of $1,800. We pulled the examiner's notes and she did do an update, but some how missed the lien. Perhaps a typo when she entered the name in the computer, we really don't know.

This examiner has been with me for about 5 years and this is the first time she has missed something that caused a loss. Mistakes happen. As I wrote in my previous post, "everyone makes mistakes. Anyone who tells you that they have never missed anything is either lying or they just started yesterday." It is difficult to be upset with the examiner - none of us are perfect; certainly not I. But, this has put us in an unfortunate situation.

Unfortunately, this was a deed in lieu of foreclosure. Had the foreclosure actually gone through, the creditor would not have gotten paid at all. But, at the time, everyone was under the assumption that the only lien was the bank holding the mortgage and a deed in lieu is quicker and easier for everyone. I presume if we had reported the lien, we would have been instructed not to file the deed and the foreclosure would have resumed.

The client called to inform me that they spoke with the attorney representing the credit card company and they are willing to accept $1,200 to pay it off. However, I have a slight problem with that. It definitely has to be made right for the client and the homeowner, but if we pay the lien, and it is simply released, the debtor gets off scott free. That just doesn't seem right to me. So, I asked if they would accept the $1,200 and assign the lien to me. Then I could partially release it as to this property. It is probably not collectible, but at least it will still show up the debtors credit report and if they ever buy another home, I could refile it. Its a long shot, but it would make me feel better. Unfortunately, the attorney for the credit card company said no... they would only accept a payoff and release the lien.

I have two problems with this - first, the creditor would have received nothing if the foreclosure had taken place; and, second, the debtor gets a $1,800 windfall. Everyone makes out really well here, except us, of course. I get to pay it off and will have nothing to show for it.

I am going to take my own advice from Title Agents As Collections Agents: "the only course of action that makes sense is to pay it." The difference here is that we were not the title agent, we did not collect any premium or ancillary closing fees. We were merely providing abstracting services: we charged $25 to update and file the deed.

I'm not trying to abdicate any responsibility in the matter. We missed it, we caused the problem and we need to fix it. But it does bring up a couple of other issues. First, it wasn't always like this. Abstractors have never been well compensated for the potential liability they incur. Clients in the past, who do charge considerably more, and, were in a better position to absorb the occasional loss have done so.

After sharing my predicament with a good friend, he told me a story about a $4,000 lien one of his abstractors had missed many years ago. He had arranged to make payments to the creditor and when his client found out about it, they told him that they would take care of it. They said, "you don't make enough money to pay that, let us take care of it." That was certainly very kind and generous of his client, and would probably be seen as silly today. But, we used to be on the same team. The clients realized that examiners were bound to make mistakes, they chose good examiners to reduce that risk, but they accepted the fact that it could happen. If an examiner was sloppy and too prone to these kinds of errors, they would find another one.

And that leads me to my second issue - abstracting just isn't profitable anymore. Especially when dealing with foreclosures and preliminary judicial work. The homeowners in danger of foreclosure are the ones who are most likely to have liens, and when you do more of this type of work, you are bound to miss one sooner or later. It is inevitable. If you do a lot of work with consumers who are already in default, the odds of missing something are much higher.

While I am just going to pay this off, because it is our responsibility to take care of the client and the homeowner, I have decided to stop doing preliminary judicial work. The slim profit margin just isn't worth the risk.

We billed this client approximately $5,000 last year and I'm sure that this $1,200 is more than the profit we made. Considering that it could have been even worse, it could have been $12,000, it just doesn't make sense to continue to subject ourselves to this kind of liability. Nobody should be expected to incur that kind of liability for a $25 fee.

There are no hard feelings toward this particular client; they have always been pleasant to work with and paid on time. I certainly don't blame them for looking to us to fix our mistakes. It is a simple recognition that we aren't being compensated for the potential liability we incur and it only makes good business sense to discontinue the relationship.

I view this as being similar to an insurance company who drops an insured once a claim is filed. The difference is that the insurance company was at least charging a premium that reflected the risk. In retrospect, it was probably a poor decision to ever agree to do preliminary judicial work without insisting on compensation in proportion to the risk. Of course, we all know that would never happen. Abstractors are a dime a dozen. There is always another one there ready to take the work for what amounts to a nominal fee.

While my decision today only pertains to preliminary judicial work, I am also thinking about the fees we charge and the liability we incur for our residential and commercial work. Perhaps the time to address that problem is now, before anything happens.

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