New York AG sues First American for Appraisal Conspiracy

Press Release here.

 In a scheme detailed in numerous e-mails, eAppraiseIT (“EA”), a subsidiary of First American Corporation (NYSE: FAF), caved to pressure from Washington Mutual (“WaMu”) (NYSE: WM) to use a list of preferred “Proven Appraisers” who provided inflated appraisals on homes.  The e-mails also show that executives at EA knew their behavior was illegal, but intentionally broke the law to secure future business with WaMu.

And you can bet it was to secure more title and mortgage processing business:

The Bubble Hits the Title Companies – Stewart Reports a loss

Stewart Title reported their third quarter results today, and posted a loss.  Here’s a footnote to the results:

    (a) The third quarter of 2007 includes pretax charges of $17.1 million ($11.1 million after taxes, or $0.61 per share) related to two large title claims totaling $6.0 million, a reserve adjustment of $7.5 million related to prior policy years and a $3.6 million reserve adjustment for the current policy year.  This quarter also includes a pretax gain on the sale of property of $5.6 million ($2.0 million after minority interests and taxes, or $0.11 per share).

Would have been really ugly without the gain…..

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)

ALTA Principles of Fair Conduct

ALTA has published their Principals of Fair Conduct.   It appears to be a good start.  Let me know what you think.  My thoughts to follow.

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:

Damage Assessment

So the party’s over and it’s time to clean up. What’s the damage?

The land records –clearing title has become a nightmare. Almost every search comes back with an issue. Errors abound and more and more problems will surface. This will be a problem for years to come.

The abstractors – many of the good ones have been driven out of the business by price pressure, or by frustration over demands to cut corners. Years of experience thrown into the shredder. We will feel their loss every time someone has to train a wet behind the ears searcher that there’s more to a title search than printing out the face pages of documents. More frightening, do you know of anyone under the age of 25 who wants to grow up to be an abstractor?

Fast, Cheap or Right?

“You can have it fast, cheap or right – but you can only pick two”

It’s one of my favorite sayings from my years as a consultant.

It highlights the service industry tradeoff between speed, price and quality. We sometimes forget that we can’t have it all.

During the last several years the title industry has been focused on fast and cheap. You couldn’t avoid it. Press releases, marketing copy, ads in trade journals, all shouted: “two day turn around,” “instant commitments,” “lowest cost.”

Busy?

I haven’t posted because we’ve been busy – busier than we’ve been all year – Across the board, all types of deals.

August is historically a slow month and the housing / mortgage markets are supposedly melting. Why the surge in activity?

Last hurrah

Just lucky

Market turning upwards

Who knows

How are you doing?  Here’s a quick survey on your month.  (sorry it’s not embedded – WordPress won’t allow embeded objects)

    

Bad Pennies and Title Agents

Bad Title Agents are like bad pennies – they keep coming back.

If you’ve been in the title business long enough, you’ve heard the story:  A Title Agent bends the rules, overcharges clients, skims money,  or participates in fraud (multiple choice, pick all that apply).  Their underwriter discovers a problem, scratches the surface and decides that they want no more of the relationship.  The relationship is cancelled.  

Game over for the agent? Not even.  No charges are filed, no licenses are revoked, and the bad penny Agent stays in business.   In many cases, it doesn’t even slow them down.

The Agent may only lose one of several underwriters.   Underwriters talk, but they don’t always share. Concerned about litigation, they leave their peers to their own discovery.  There’s no clearing house of agent information and no one is keeping score.  The other underwriters may not even suspect there’s a problem with the agent.

Occasionally another underwriter comes rushing in, knowing of the problem, but deliberately overlooking it.  The bad penny still has a license and a book of business.  If you have the tolerance for risk, why not, there’s money to be made.

And there are underwriters who just don’t want to know – don’t ask, don’t tell.  If you don’t go looking for it, you can’t find it.  The premiums keep flowing.

The details don’t really matter, the result is the same - an entire industry starts to look sleazy.

The title industry needs to weed out the bad pennies and do it now.  There’s been talk about standards (Source of Title, Title-opoly), but standards are empty words unless someone enforces them.  There are those in the industry who have problems with following the rules, let alone moving to the higher plane of standards.  Let’s clean that up first.

Agents and those who care about industry need to take a stand:

Support those who support the industry.  Let the underwriters know that looking the other way isn’t acceptable anymore.  The bad pennies hurt the consumer and hurt the industry.  If your underwriter doesn’t seem interested, vote with your feet – find an underwriter who is interested in protecting the industry. 

Lobby legislators and regulators personally and through our professional organizations to:

End the Secrets.  Allow the underwriters to share information about cancellations for cause without fear of litigation.

Get the Bad Pennies out of our Business.  Revoke the licenses of those involved in misdeeds. Forever. 

Keep them out of Real Estate.  Change or modify the governing laws so that those found guilty of misdeeds cannot practice law, or hold licenses for mortgage, real estate or appraisal.  Otherwise, like cockroaches, they will scurry to a dark corner of the industry and continue business as usual. 

Prosecute.  Insist that those that violate the law be turned over to the authorities and prosecuted to the fullest extent of the law. 

We need to clean up the industry and do it now before someone else comes in and decides to clean it up for us.  We won’t like it.

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.