The St. Cloud Times reported today that six Minnesota title companies were shut down by state authorities.

From the article:

The [commerce] department said in a news release on Tuesday that Premier Title Insurance Agency created and controlled “sham” affiliated businesses and paid kickbacks or other valuable items to partners for referrals of real estate closings and title insurance businesses. Fake businesses were set up with real estate agents, mortgage originators and developers to get around state and federal laws. The laws prohibit compensation for a referral for real estate settlement.

I often discuss the similarities between the title and the medical industries.  It would behoove title professionals to first study and then make practical application of many of the best practices employed by medical offices, hospitals, etc.

For example, consider the professional demeanor of physicians.  They are trained to spend roughly eighteen minutes with patients during a typical office visit.  Apparently, this specific time allotment is adequate to discuss, diagnose, and prescribe medication for most common ailments.  Compare an office visit with a doctor to a real estate closing.  Both are rituals designed to initially create trust and then accomplish an important and serious task in a limited period of time.  It’s not a stretch to say that the average doctor is better qualified than the average settlement officer due to professional standards dictated by the medical profession.  Let’s not ignore the aspect of financial compensation.  Doctors aren’t known to routinely give their services away for free.

The expediency and proficiency with which doctors make diagnosis is something for the title profession to consider as well.  Two licensed physicians, each examining patients with similar profiles and symptoms, are likely to prescribe identical, or nearly identical, treatments. 

Could similar opinions be predicted of two title examiners reviewing an abstract containing a title defect?  Maybe; maybe not!  That’s the problem.

The prominence of the medical profession, which has deservedly attained the status of a social institution, is derived from a fanaticism with selection and training.  Sadly, the title industry can’t decide what to do about anything. 

Interestingly, I’ve learned that there are other similarities between the two industries that speak to an unattractive side of human nature.

From an email sent by a Title-opoly reader:

Someday I need to contribute an article comparing the “for-profit” health care industry with the title insurance industry.  While the economic size of the two industries are in totally different magnitudes, the business practices and challenges facing each are so very similar.

When you examine health care off-shoring practices (radiology reports being pre-screened in India overnight for example), record keeping practices (patients being forced to transport among physicians their radiology files), and the ever-increasing ethics rules applying to physicians (entertaining, meals, honorariums from pharmaceutical firms, equipment ownership prohibitions, etc.), the comparisons are striking. 

 

Just two  weeks ago a prominent private university hospital  in … banned vendors from providing meals and marketing materials (ink pens, etc.) to staff physicians but medial samples can still be provided (“I can give some Viagra samples but no ink pens or meals/educational lunches!”)

 

 As many of you know, the Los Angeles Times followed in the footsteps of Forbes Magazine, this week, by pointing fingers at questionable title industry practices.  The media suspects that there are skeletons in the title industry’s collective closet and is trying desperately to find them by stabbing in the dark.  We’ve all heard the litany of renowned evils by now: the title industry is anti-competitive; title insurance is grotesquely overpriced; excessive premiums are used to fund lavish events for real estate agents, etc.

The article, written by Scott Wilson, was informative, yet flawed in that it relied primarily on the regular, and safe, sources included in every expose of the title industry.

For example:  “Title companies put a lot of time and effort into building and maintaining databases of public records that are used to conduct a title search,” said a First American executive, ” even though automation has helped speed up title searches … workers still have to look over documents turned up in a title search and decide what actions to take.”  The carefully crafted statement, though innately truthful, was misleading in that it didn’t go far enough.  

I applaud the efforts of the Los Angeles Times to educate readers, but there’s so much that could have been included in the article, yet wasn’t.

What Scott Wilson’s readers don’t know:

• an increasing number of title searches are performed by inexperienced, cheap laborers relying on potentially incomplete sources of data maintained anywhere other than on domestic soil. 
• most industry insiders believe that offshored title searches have resulted in elevated claims ratios and a rising tide of nightmarish claims experiences for consumers.
  
• a consumer-centric business model would immediately encourage much needed competitiveness in the title industry.
  
• title insurers have abandoned quality standards without regard for public policy. 
• individual states regulate the threshold of entry into the title industry and have been visibly reckless while setting standards. 
• many title agents lack the training to properly identify and mitigate title related risks.
• title companies are typically entrusted with the management of massive escrow accounts without regular audits by qualified, independent examiners.
  

If you could scan the entire American economy for money that is thrown away —  gift cards never redeemed, home gyms never used, etc. — one of the biggest piles you would find is the title insurance industry. Sixteen billion a year — that’s nearly double the size of what Hollywood movies gross in a year  in American theaters.

Be sure to read an interview with Scott Wilson on the Marketplace.

My advice to reporters with aspirations of exposing the darkest secrets of the title industry:

• That which you seek can’t be found in Santa Ana, Jacksonville, Houston, or Richmond. 
• The words spoken by oligopolists smitten with dreams of market domination make for great sound bytes, but are intentionally cloaked by ambiguities.
• Take to the streets to interview the “rank and file” of a once great and still crucial industry to learn the truth.
• Title insurance itself isn’t the problem.
  
• Look to the deterioration of protocol behind the scenes as the greatest threat to consumers.
  

From yesterday’s post on Spending Smart:

But title insurance is a seedy business that gouges consumers.  In fact, insurers regularly collude by illegally paying kickbacks to agents or brokers to get business.

The $17 billion title insurance industry is dominated by four major players who compete fiercely.  But that competition results in higher prices for consumers, not lower.