Professional Liability Carriers Taking a Stand

Independent contractors/Signing Agents are a tool typically used by out of state lenders and title insurance providers. It is my opinion that they are not the right tool for an insured transaction.

There is a limited market for the services of an independent contractor with extensive industry experience and their use should be limited to uninsured transactions. I do not question the time and effort expended by these contractors; however, the mere ability to complete a Notary Acknowledgment does not qualify someone to meet with the consumer.

And the E&O providers must have the same thought, after all, they are privy to the claims that you and I might otherwise never hear of. No longer interested in the risk, the E&O providers are raising the bar. We recently received our application for the renewal of our professional liability coverage (E & O), and we were offered the following options:

Signing Agents in for a long Summer?

I had a very interesting call last week.   The call was from a “national” title insurance agency, operating in another part of Pennsylvania.  It’s the sort of operation that is licensed in multiple states, runs a boiler-room operation, and closes deals with notary signing agents.

Recently, while interviewing to fill an open position we spoke to several “refugees” from a local variant of this set-up. To answer interview questions, they went to great lengths to describe the work environment and operating practices.    It was an education in a part of the industry that no one seems to talk about.   And now I know why.

These operators (notice I didn’t say agents) exploit the reciprocal title licensing agreements between states to set up a high volume, low cost, high risk operation.  To keep costs down, they regularly cut corners in places most title insurance agents wouldn’t even consider.  Because errors in title and conveyancing can take years to be discovered, they can run some time before the music stops. 

Back to the call – the lender for a transaction insisted that any notary signing agent for carry $500,000 of E&O insurance.

Surprise – they couldn’t find any signing agents with that sort of coverage.  They asked if I would close the deal in my office and I’d receive the signing agent fee.  My “not interested” seemed to make the caller a little angry.

I have no intention of risking my license and reputation to further someone else’s shaky business model.  Don’t get sucked in by the lure of seemingly easy money.  If a deal ever came unwound, and many of these will, the powers that be will look for the licensee closest to the settlement table.

I’ve heard from E&O insurers that one of their greatest claim sources are operations using signing agents.  Could it be that lenders have figured it out as well? 

It could be a very long summer for the signing agents.

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.

Out of State Title Agents – Bad for the Consumer

Great example yesterday of why “going national” is bad for the consumer:

I received a call from a lender in Florida, closing a deal in Philadelphia and using a title agent based in Maryland.  He suspected that his client was being overcharged for title insurance and asked if, as a favor, would I provide a rate quote.  Always curious to see what’s going on in the market, I agreed.

The Maryland agent had prepared a HUD-1. He read the line items and amounts to me. After a few moments it was clear that the title agent had entirely misapplied the title insurance rates.  It looked like they were using a MD fee structure and a PA title rate.  In PA the rate is all-inclusive – search, binder, document preparation and abstract are all included in the filed rate.  The agent had not only charged separately for the items that should be included, but their charges were astronomical.  Charging $495 for a title search – on what planet?   Maybe it was embossed in gold.

The misapplication of the rate structure resulted in an overcharge to the consumer of over $1,500.   If it weren’t for a diligent lender, the consumer would have been none the wiser and $1,500 poorer.

I asked for the name of the agent (just curious).   Some quick research showed them to be what I refer to as a “title chop shop.”  They are set up to maximize production, licensed in multiple states, and use signing agents to close the deals.  

It is easy to obtain a title insurance license (honestly the bar isn’t that high) and most software “supports” the rate tables in any state.  That should not mean you are qualified to business in that state.  There’s just too much local variation.

These chop-shop agent setups are just plain bad for the consumer – consumers expect to get a quality product and fair treatment from an entity that is licensed to do business in their state.  In fact, there is no benefit to the consumer in this arrangement.   The transactions I’ve seen (and I’ve seen a few) all have higher charges, lower service, and unconscionable error rates. 

Licensing isn’t the problem, it’s the signing services. If it weren’t for the availability of signing services, the above situation couldn’t happen.  Title agents who wished to expand  to a new area would have to open a branch to service that area.   Branch personnel would be familiar with the local market. Consumers would get fair pricing and quality service. Eliminating signing services eliminates the problem.