No easy fight: Group wants title insurance biz opened to competition

While much of the attention in the state capitol this session has revolved around bills involving bathrooms, so-called sanctuary cities, school vouchers and union dues, Doug Deason has taken up a decidedly less headline-grabbing cause: title insurance reform.

It may not have the sex appeal, but it certainly has the passion of the Texas title insurance industry, which has poured money into campaign coffers and lobbyists in a bid to halt Deason's quest.

The Dallas businessman and philanthropist says he simply wants to bring competition to the little-known title insurance industry. The argument he offers - more competition means better service and better prices for consumers - is the kind Republican politicians live on.

Making that argument, however, to a Legislature full of lawyers, some of whom do title work or own title companies, means Deason and the new nonprofit he chairs, Texans for Free Enterprise, have a heavy load to lift.

"We don't mean to imply this is some kind of evil industry," said Deason, whose business background is in commercial real estate. "They give a really good, quality service. The point is, it's not competitive. They claim to compete for service, but they should be giving great service at a great price."

At a cost that easily can run to over $1,000, title insurance is intended to protect homeowners and businesses from losses in a real estate purchase, such as unknown liens or unpaid property taxes. The job of the title insurance agent is to find defects in the title that need to be fixed before the deal closes. Although Texas does not mandate title insurance, lenders require it to protect their interests.

The seller traditionally pays for the buyer's policy in Texas, though that can be a point of negotiation.

For decades, the state Department of Insurance has set the premium rates charged by all title agencies. That, Deason said, has created a profitable enterprise that enables its supporters to make campaign contributions and deploy lobbyists at the Capitol. It also means Texans pay some of the highest prices in the country, he said, a contention disputed by the state's industry trade group.

Texans for Free Enterprise wants to allow title companies to propose their own rates for approval by the state.

Doing so, Deason said, would open the field to competition on prices, resulting in lower costs for consumers.

To press its case, Texans for Free Enterprise has hired four lobbyists, including ex-lawmaker Bill Hammond, the former chief executive officer of the Texas Association of Business.

Lawyer legislators

The trade group for the title industry, the Texas Land Title Association, is fighting Deason's efforts and is confident it will prevail. The group says Texas' rates are competitive with other big states that have similar real estate markets.

The group has warned legislators that Deason's proposal would cause many title agencies - which are in nearly all of the state's 254 counties - to close and "reward large corporations and well-heeled individuals at the expense of small business and average home buyers.

"Attempts to alter the title insurance market in Texas will result in less competition, increased risk, and a sharp rise in the cost of homeowners' title rates," said James Dudley, president of the land title association.

Previous efforts to deregulate title insurance pricing have failed because of intense lobbying by the title insurance industry. Another factor is that several lawmakers own title agencies, work for title insurance companies or are lawyers who do title work.

The Houston Chronicle analyzed personal financial statements filed with the state Ethics Commission. The analysis found that of the 181 legislators in the House and Senate, at least seven own title agencies, work for title insurance companies or are lawyers who do title work. They include Rep. Rodney Anderson, R-Grand Prairie; Rep. Drew Darby, R-San Angelo; Rep. Joe Deshotel, D-Beaumont, and Rep. Eddie Rodriguez, D-Austin.

At least 55 legislators are lawyers, but are not required to disclose their clients or list what types of law they practice. It is unclear how many of them do title work.

The Texas Constitution requires legislators to disclose any "personal or private interest in any measure or bill, proposed, or pending before the Legislature," and they are barred from voting on it.

However, legislators have interpreted that provision as requiring recusal only if a bill affects their interest more than every other legislator. As a result, lawmakers with financial stakes in the title insurance industry would not have to abstain on bills requiring price competition for title insurance.

Texas is an outlier

Texas and Florida are the only states with a fixed-rate system for title insurance.

In Texas, rates are based on the policy amount, typically the purchase price of the property. The price of a policy for a $150,000 home, for example, is $1,152.

Texans for Free Enterprise cites 2016 research by the University of Texas at Austin's LBJ School of Public Affairs that concluded Texas has significantly higher prices than states that allow more competition, adding up to $1,663 for the average purchaser of policies of $1 million or less.

Only the total title charges in California, Connecticut, New Jersey and New York are higher than the total charges in Texas, the study found.

The Texas Land Title Association offers its own research comparing the total cost of title insurance and closing in Texas with five states similar in population and real estate volume. They are Arizona, California, Florida, Illinois, and New York.

The trade group examined the costs a consumer has to pay for all the different functions of title insurance: labor to perform the legal search of the records, labor to conduct an examination and analysis of those records, time spent to clear any defects, production and issuance of the policy, the insurance underwriting process to assume the risk, the closing process and escrow.

"When the cost of all those functions are combined and compared, Texas has the least expensive out-the-door cost of the six states," the trade group said, putting the amount paid for title insurance for a $155,000 home in Texas at $1,850, and $3,327 in California.

Comparing states based on rates is difficult because premiums cover different things, said Birny Birnbaum, director of the Austin-based Center for Economic Justice.

In Texas, the title insurance premium covers the title search, abstract, policy and some closing work. In other states, the premium pays only for the policy and there are additional fees for the title search, abstract, and closing work, Birnbaum said. Birnbaum predicted that Texas residents and businesses would not see more competition or lower prices if lawmakers approve the bill backed by Texans for Free Enterprise.

He cited New Mexico, where the state in 2009 set a ceiling on rates but gave title agents the option to offer lower prices. In general, they have not done so.

Deason's campaign is the latest in an often-bitter battle over attempts to overhaul the title insurance industry in Texas.

In 2016, the Texas Association of Business and the Texas Public Policy Foundation, an Austin-based conservative think tank, announced their support for "comprehensive reform" to the state's title insurance market.

Last September, however, title insurers and bankers who are members of the Texas Association of Business convinced the board of directors to remove the issue from its legislative agenda for this year's session.

Two months later, Justin Keener, a lobbyist who worked last year for the business association, filed the formation document for Texans for Free Enterprise with the state. The group hired Hammond as executive director.

Lobbying money

The intensity of the clash between Deason's group and the title insurance industry also can be found in campaign finance reports filed with the state Ethics Commission.

Deason has contributed $12,500 to Gov. Greg Abbott's campaign fund and $3,000 to Lt. Gov. Dan Patrick since 2014. Deason's father, Darwin - a Dallas businessman - has contributed $200,000 to Abbott, $125,000 to Patrick, and $35,000 to House Speaker Joe Straus, R-San Antonio, since 2013.

In the run-up to the legislative session, the political action committee of the Texas Land Title Association last September contributed $50,000 to Abbott. Previously, the group had given $29,500 to his campaigns for governor and attorney general dating to 2002, according to campaign records.

Last December, the title association PAC contributed $35,000 to Straus' campaign fund. The PAC also gave Straus $15,000 in February 2016. Before last year, the group had contributed $11,000 to him. The PAC also contributed $2,000 last October to Patrick, raising the total since 2006 to $30,500.

The land title association has 21 lobbyists.

In an op-ed earlier this month in the Austin Business Journal, Dudley referred to Texans for Free Enterprise as a "special interest group" that could put "our state's safe system" in jeopardy and shift higher costs to residential homebuyers.

Deason rejected that, saying he is confident that a majority of lawmakers will support a bill requiring price competition.

"The prices charged in Texas are higher across the board, from a $200,000 house to a $150 million resort," said Deason. "Competition will create better pricing across the board. It's going to be the guys who are lazy or don't understand how to provide quality service who are going to go out of business."