NapaValleyRegister.com reported the title theft of an 11 acre tract in California’s lush wine country.

John and Anita Greerty stole identification documents belonging to the real owner of the property.  After entering into three separate sales agreements with legitimate buyers, the criminally motivated duo was able to successfully close on two of the deals before the scheme was revealed. 

Their take was roughly $745,000.

Earlier this week, I wrote a post about Philadelphia’s disturbing problem with fraudulent deed transfers.  Apparently, title theft isn’t limited to any one city or jurisdiction.

McHenry County, Illinois has launched an online service that alerts homeowners if documents containing their names are submitted to county clerks for recordation.  The service clearly targets criminals attempting to record fraudulent deeds to resell or collateralize real property belonging to others.

McHenry County homeowners can opt for a one year subscription for $12.99 or a three year subscription for $29.99.

An article on phillyBurbs.com (The Intelligencer) weighs in on the realities of online title searches.

Edward Gudknecht, Recorder of Deed in Bucks County, PA, raised some interesting points concerning the county’s motives when initiating the automation of its land records: “We wanted to provide this information to the public, save them a trip to the courthouse, we have to keep up with the technology. That’s a shame that (outsourcing) is happening.”

A LandAmerica executive explained that his company offshores “repetitive clerical functions,” but only “after a local searcher has completed the field work, and straightforward public records searches and online retrieval of deed.” 

I happen to agree with the LandAmerica approach to offshoring.

A less than expressive spokeswoman from First American broke the shocking news that the company has “operations worldwide.”

It was Fran Gaspari of Patriot Land Title in Limerick, Pennsylvania who wrapped up the article by sharing the wisdom gleaned from years of experience.

Fran Gaspari on the topic of offshoring title searches:

Unlike other types of insurance that protects someone from things that may happen in the future, title insurance protects property owners against anything that has occurred in the past throughout the chain of title back to William Penn.

If there’s an error in the search, title insurance will still protect the homeowner.

You’re [the homeowner] insured so you shouldn’t stand to lose any money.  You could go through years of litigation because the search your insurance was based on missed a mortgage or a lien.

 

While I’ve heard sporadic reports of fraudulent deed transfers, mostly in underwriting seminars, the Philadelphia Daily News portrays title theft as a minor epidemic in the City of Brotherly Love.  The problem has become so pervasive that a task force has been convened and public hearings scheduled.

An alarming “122 stolen properties” were reported in Philly in 2006 and it’s posited that many cases go unreported.

The elderly are particularly vulnerable to title theft when their homes sit vacant.  The deeds often describe grantees as children or siblings of the grantors to exploit familial transfer tax exemptions.  Not surprisingly, the stolen properties are often quickly resold (flipped) to innocent third parties.

Fraudulent deed transfers present an interesting dilemma because recording clerks typically lack the authority and skills to investigate sophisticated forms of crime.   The creation of databases to tag names shown repeatedly in grantee indexes might provide clues for authorities until fraudsters catch on and start fabricating identities.    Matching the names of grantees against the names of notaries shown in acknowledgments is another thought.  So is the profiling of names that have requested transfer tax exemptions in the past.

Still, recording clerks can only do so much and it’s ridiculous to think that a deed might be unrecordable because of a buyers name.

All in all, it sounds like a problem best prevented by legislation that promises tough prosecution and lengthy prison sentences.

A special thanks to Dave Wirsching for bringing the article to my attention.

 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.
  

Click here to read Lenn’s post.

“I am new to your site - google-alerts linked me to you.  I have 25 years experience as a Searcher/Examiner, primarily from Southern California working for most of the major underwriters.  The Title Industry has undergone tremendous change in those 25 years, probably more so than in any other time in it’s history.  This is true of any industry, and in most cases “change” in necessary and beneficial.  However, in the case of Title Insurance, this practice of outsourcing searching/examining and policy production is not necessary nor is it beneficial.  Those types of positions have traditionally been the training grounds for higher level positions within the industry.  When I came into the industry, all of the Managers and Executives in the Title Companies had worked there way from the entry level jobs.  However, today, fewer and fewer of the Managers and Executives in the Title Industry have that background.  These new Managers and Executives are implementing changes to an Industry that they have very little understanding of, and the effects of those changes have diminished what was once a high quality, low risk product.  Today, title insurance is all about short-sighted “bottom-line” and shareholder profits.  This is an industry that is under more and more scrutiny from regulators and consumer advocacy groups.  Title Insurance is a vital product, considering the amount of money consumers are investing in real estate.  The leadership of the Title Industry, being those Executives that are trying to maximize profits for shareholders, better come to the realization that conservative underwriting practices, which can only be applied by seasoned, experienced professionals, is the only way to plan for future success and longevity.  That cannot be accomplished by outsourcing. 

Okay, I’ll get off the soapbox and let someone else have a turn.  I’m glad to see there are so many other people out there that seem to share my opinions on this issue.”

Key Points as Talking Points:

• The title industry has undergone tremendous change in the past 25 years
• Change is necessary; Change is good
  
• The practice of offshoring title searches and policy production isn’t necessary … nor is it beneficial
• Title searching was once the training grounds for industry execs … it’s no longer true
• The change agents are corporate decision makers who don’t truly understand the industry dynamic
• Title insurance is, or should be, a low risk, high quality product that consumers … and real estate agents … and lenders can trust
• Title insurance is a vital product
• Conservative underwriting practices ensure the industry’s success and longevity
• Offshoring is not the answer to the industry’s profitability and credibility woes

Historically, title agents were presumed to be title experts. Exactly when and how did things change so drastically? When was the last time you heard the phrase “core title services.” The offshoring of title searches has created the potential of a paradigm shift of unparalleled precedence for the title industry … and consumers.

I’ll always remember the day that MdLandRec.Net was launched in January, 2006. It’s a free site that allows anyone who opts for a password to access Maryland’s automated land records. As a professional title searcher, I felt the way a dinosaur might have felt watching a fiery ball crash into the earth’s mantle. Clearly, change was at hand.

At first, I saw the potential of using the site to “set up” searches and the benefits that might accrue to trained, knowledgeable title searchers.

Questions immediately ran through my mind:

• Did the new site offer a glimpse of the future of title searching?
• Could a title search now be completed from home or office with an enormous savings of time and effort?
• Could a title searcher now avoid the need to travel to the courthouse each morning and the expense of parking?
• Was it now possible to apply sound business principals to the task of title searching increasing both efficiency and profitability?

Shortly thereafter, an alternate stream of questions came into focus:

• Would title company employees have the ability to sit at their desks and gather accurate title information by simply entering names and dates into fields on a computer screen?
• Was the traditional role of the title searcher instantly altered?
• Would the need for title searchers be eliminated in the not so distant future?
• Would title insurers encourage the use of “MdLandRec.Net” by agents when preparing commitments and issuing policies?
• Would E&O carriers agree to insure title company employees who perform searches on “MdLandRec.Net”, but otherwise lack abstracting experience?

Before long, it became apparent that my title searching career was in jeopardy. I was receiving far fewer orders than in the past and they were all horribly difficult. At first, I assumed that underwriters had hired experienced title searchers to work from home or a local processing center. Never, did I assume that title plants would be established on foreign soil.

I believe it to be a generally accepted fact that title searches prepared overseas are inferior to those prepared domestically. With that being said: how can we be an industry of experts without a foundation of reliable information to craft our product?

Yesterday, Lenn Harley addressed the dilemma from the perspective of a seasoned real estate agent in a post titled Offshore Abstracts? Is That Anything Like Vicarious Sex? Pay particular attention to the comment stream. Well intended real estate agents assume that the title work they refer is being conducted locally. I hope it’s true, but I have my doubts considering the well documented love affair that exists between title underwriters and their offshore operations.

The development of TitleSmart by First American offers an interesting case study for title insurance executives interested in primary risk avoidance and public policy.  We’ve been programmed to believe that innovation, particularly when driven by technological advancement, will result in efficiencies including cost containment and enhanced customer satisfaction. We feel the need to act quickly to changes of any type in our business environment for fear that an opportunity may escape our grasp. There is, however, a need to consider the unusual nature of the title insurance industry when rapid innovation suddenly appears on your doorstep or your computer screen. Unexpected consequences are a factor when newly unleashed technology directly impacts your customer who is typically a homeowner.  Most importantly, a period of noticeable technological innovation is a que for management to revisit corporate core beliefs and practices.  The fact that TitleSmart exists doesn’t justify the controlled extinction of title agents and abstractors alike. 

Diminishing revenue derived from insurance premiums partnered with any number of other factors will soon result in a new title industry model. Insurers and agents alike have no choice but to re-invent the ineffective channels currently used to obtain title information.  Changes are inevitable for abstractors and title agents with the later profession facing its own complex menu of challenges. Regulatory policy favoring directed business has altered the landscape of the title industry forever. We can expect to see alternative insurance products designed to benefit the consumer with price points determined by calculable risks. Lenders will continue to require title policies for fewer loan products than in the past. Yet, the title industry has traditionally reacted slowly to new concepts in comparison to other industries for good reason.   The sticking point is the title abstract.

An abstractor is essentially an organic search engine who anticipates not only the typographical errors made by title companies, but also the subtle errors commonly made by clerks during the recording process.  Technology hasn’t advanced to the threshold of legitimate substitution for professional skills and human judgment.  A number of questions come to mind:

• Can TitleSmart generate search results identical to those produced by a trained and competent abstractor?
• Can First American and it’s lender clients rely upon TitleSmart for limited searches including current owner searches, two owner searches and run-downs?
• Are search queries employed by TitleSmart intuitive enough to produce accurate results most of the time?

In other words, is it safe to assume that TitleSmart produces final search results that are verifiable, consistent and accurate?   Or, is First American abusing it’s market strength by introducing a knowingly flawed product and factoring anticipated losses into the cost of doing business? 

The abstracting community is not without blame for the blitz by underwriters to create new delivery channels for title information.  Abstractors have managed to exist somehow without group cohesiveness or identity. The content and appearance of work products can vary disturbingly while research parameters are questionable at best. Overall, abstractors have a reputation for ignoring delivery times and being difficult to contact. The fax machine may be the last technological advancement that was universally embraced by the profession. Consider this fact, it’s the year 2007 and the hand written title report remains the accepted norm rather than the exception in a major market like Baltimore.  Future title business will be directed by sophisticated sources with quality control requirements along supply lines.  Yes, the new generation of consumer is a sophisticated source of business with high expectations. It’s 30 years late, but brand accountability is finally a factor for title executives.

My advice to readers: patient observation may prove to be the best method of self preservation during changing times.