Signing Agent or Licensed Professional – You Decide

You never know what will unfold with each transaction. One year after the purchase of a property, the homeowner is now refinancing.  What started as an uncomplicated refinance resulted in the discovery of a gas lien filed by the Philadelphia Gas Works (“PGW”).  And, while investigating the lien, the HUD1 from the purchase transaction revealed total disregard for the rates and regulations as mandated by the Title Insurance Rating Bureau of Pennsylvania (“TIRBOP”). 

Guess who closed the purchase?  Bruce the Notary contracted by an out of state title insurance agency.  Bruce and I have never met.  He may be a nice enough guy.  He yields a pen, a stamp, and a notary commission.  Unfortunately, that is all that is required these days to conduct a real estate settlement in Pennsylvania. 

The fees below as shown on the HUD1 have absolutely no correlation to the filed rates and allowable charges:

Settlement Fee – $800
Notary Fee – $300
Courier Fee – $150
Recording Deed and Mortgage – $450
Release Fee – $300
Title Insurance Premium – $100 ($125,800 lender’s policy)
        $320 ($157,000 owner’s policy)

(See below for the applicable rates and charges)

Now, when I questioned a very nice woman at the title insurance agency in Colorado about the horrific (I did not use this word but surely wanted to) charges on the HUD1, she replied that these were the rates of her underwriter.  I explained to her TIRBOP, that her underwriter is a member of TIRBOP, and that a licensed title insurance agent in Pennsylvania must adhere to the rates mandated by TIRBOP.  In so many words, she replied: “We are a national company and these are our national rates and the rates of our underwriter.”  She also implied that Bruce was the one responsible for conducting the settlement, Bruce the Notary.

The lien is for more than $4,000 and is for gas usage prior to the purchase of the property.  And, even though the lien was filed after the Deed to the insured was recorded, our underwriter is not willing to insure a new first mortgage lien without PGW being paid in full.

The homeowner would like to move forward with the refinance. The nice lady in Colorado suggested that he pay PGW or he hire an attorney to review the policy issued by her office to determine if he is eligible to make a claim under the policy.
I found no exception for gas usage in the policy.

Local title insurance and real estate professionals are very much aware of the need to obtain a certification from PGW.  Bruce is not one of these professionals.

And maybe Bruce is an unfair target.  The real culprit here is the out-of-state title insurance agency with no local presence except for Bruce and signing agents like him.   I am guessing that Bruce has never met the people out West and further has limited understanding of local customs and practices. 

What should have been the charges on the HUD1? 

Settlement Fee – ZERO – unless settlement  is held after hours or at a location other than the agent’s office (it was a FSBO) and notice of the fee was given to the insured in advance of settlement, then maybe $150-$200. 
Notary Fee – $5.00 per acknowledgment.
Courier Fee – out of pocket expense only – $10-$20.
Recording a Deed and Mortgage in Philadelphia – $283.
Recording a Release – $124.50.
The Title Insurance Premium (basic) for an Owner and Lender’s Policy – $1,143.75.

In case you have yet to decide who should be sitting at your settlement table, let me summarize:

The price of doing business with an out of state title insurance agency and Bruce the Notary Signing Agent:  Approximately $600-800 in over charges and a lien.

Using a local, licensed title insurance professional:  Priceless.

No surprise – claims are increasing

From the LandAmerica 1st Quarter 2007 results discussion section:

The provision for policy and contract claims as a percentage of operating revenue was 6.5% in first quarter 2007 compared to 5.6% in first quarter 2006. The increase in the claims provision ratio was primarily due to an increase in the frequency of claims reported which resulted in upward development in policy years 2004 through 2006. Since the Company is subject to liability on claims for an extended time period, slight changes in claims experience for more recent policy years can have a significant effect on the amount of liability required for potential claims.

If you read this and other title insurance blogs, this shouldn’t come as a surprise – the industry is having pay the piper for the problems ignored in the past few years.   Claims have a long tail – it takes years for them to materialize.  Expect to see more reserves and claims going forward.

Also don’t be surprised to see that two of the culprits – sham ABAs and signing agents quickly fall from favor with title insurance underwriters.

GAO Report on Title Insurance is Out

http://www.gao.gov/new.items/d07401.pdf

Haven’t read the detail, but here’s the summary:  Title Insurance is a big mess, it needs fixed, and everyone should help.

 Glad to see our tax dollars helped develop such a comprehensive and insightful recommendation.  Hopefully the full report has more in the way of concrete recommendations.

Fools Rush In

Looks like we’ve moved into a new phase of the foreclosure market.

I received two calls last week from successful bidders on property at sheriff’s sale.  For those not in PA, that’s how the counties manage the sale of properties – usually for unpaid taxes or mortgage foreclosure.

Bothwanted to know if they could purchase title insurance after the sale.  Since a Sheriff’s Deed can take several months to be delivered to the new owner, it’s not a risk most title insurance underwriters would take.   We weren’t able to help them.

What’s noteworthy:

1. Both called AFTER they purchased the property, not before
2. Both freely admitted that they really didn’t really know what they were doing when purchasing a property at sheriff’s sale.

Two thoughts:

1. It’s usually at the end of a cycle when neophytes get involved – remember the cab drivers recommending internet stocks?
2. There will be continued pain for distressed properties and neighborhoods as those who are neither experienced in nor ready for the challenges of turning around these properties assume ownership.

Just in case you only read the headlines

The media is reporting a 0.7% increase in pending sales for February.  Sounds great, unless you read the report.  It’s a 0.7% increase in pending sales as compared to January:

The Pending Home Sales Index,* based on contracts signed in February, stood at 109.3 – down 8.5 percent from February 2006 when it reached 119.4, but is 0.7 percent higher than a downwardly revised reading of 108.5 in January.

Everyone in the industry knows that February should be MUCH BETTER than January, not 0.7% better.   The real story is that pending sales are down 8.5% from last year, which was already a bad year. 

This conscious denial of reality by leaders in the RE industry continues – the statistics show that things are getter worse, not stabilizing. 

Anecdotally – I’m seeing things improve slightly, but I’m seeing more “ugly” deals – problems with title, liens, appraisals coming in too low.  From a title perspective the risk is higher and the returns are lower.