INCOME IS NOT PROFIT!!!!

I’ve seen it again, and I can’t stand it anymore. The fourth estate has again declared that normal accounting rules don’t apply to title insurance agents. At least once a month I’ll see something similar to this in the press:

“Resnick also charges that, unlike property and casualty insurance companies that pay out an average of 70 percent of what they collect in claims, title insurance companies pay only a maximum of $125 for the title check and an average of $74 in claims, leaving them a profit of more than 90 percent, the lawsuit says.” (emphasis added)

Integrity Counts

Back in March, John Corey asked a question on what to avoid in Real Estate Transactions.  Since his post,  I became increasingly conscious of my day-to-day interactions with others – the good, the bad and the ugly.

It reinforced what I’ve always believed.  Integrity counts.

People are amazingly consistent.  Good people usually behave well in all aspects of their lives, while the not-so-good ones tend to behave badly all the time.   Those who treat their employees, clients, and partners badly also seem to be the same ones that break, bend, or mutilate the rules. 

What is integrity? The link above provides the standard definition.  I’d like to borrow from Supreme Court Justice Potter Stewart’s famous quote – “I know it when I see it.”  But how do you find it?  When I build new relationships, here’s how I do it:

Rely on referrals.  If someone you trust recommends someone, then you are pointed in the right direction. 

See what they say publicly.   The Internet is a great tool to find out what people think and how they act.  Check out their web presence(s).  What does it say?  More importantly – what doesn’t it say?  Look for a clear articulation of values and a business philosophy similar to your own.

Look for a trail of satisfaction.  Do you hear good things about them from others in the industry and community?   Do clients and colleagues go the extra mile to say good things about them publicly? 

Observe how they treat others. Do they treat their employees well?  How do they treat their vendors?  Others?

The title business has evolved into two distinct business models – Client Focused and Transaction Focused.  The agency’s operating model can have a dramatic impact on your experience. I’ll follow up with another post that explains the service models and how they impact the client experience.

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.

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.

A View from the Trenches

I’d like to welcome my wife, Francine, as a contributor to Clearing Title.   She’s been providing me with editorial support since I started blogging (she’s much better than the built-in spell and grammar checkers).  Now she’s been bit by the blogging bug too.

Francine spends much of her time at the settlement table and clearing up “nasty” title issues.  This gives her a unique perspective not only on issues impacting the industry, but impacting individuals at the settlement table, as well.

Look forward to some interesting posts from the trenches.