HOW CAN WE IMPROVE THE TITLE COMPANY INDUSTRY?

Question

I've dealt with good title and bad title companies as I am sure you have. What suggestions do we have to make them better?

Peter Walther · Answer

Title insurance has more than it's share of problems, believe me I know, but it's inaccurate to try to compare policy losses for title insurance to losses suffered by casualty insurers.  Title insurance is based on risk avoidance where other insurance is based on risk assumption, this results in more of a title insurer's costs being front loaded, incurred in searching and examining title.  I believe if you compare profit margins instead you'll find them similar.

I think a Torrens system is fine and would endorse it, but first you'll have to support socialism and then you'll have to explain to thousands of people why they don't have a job anymore.

Devin Redmond · Answer

Curbed ran a short but thought-provoking piece called, Title Insurance is a Scam a few years ago. The basic thesis of their argument is that the industry is highly consolidated amongst four major players and (not surprisingly) the payout ratio for title insurance is by far the worst of all insurance categories. What I found perhaps most interesting is that Iowa (the only state in the country in which title insurance is run by the state instead of for-profit companies) has the lowest average cost of title insurance AND the lowest claim rate in the nation.

Maybe a better title for this thread is simply, How Do We Improve Title Insurance? Reform or eliminate the "company/industry" part of the equation, and we might get closer to an answer.

Peter Walther · Answer

The term "title companies" is a bit nebulous.  Are you asking how to improve title agent's who generally issue the policy or title underwriters who are financially liable for losses recoverable under the policy?

Steve Morris · Answer

What specific issue are you trying to address with title companies?  I do business in OR/WA and TX is different, so am curious.

I do apts, so I do have a short list of title officers since they're more complicated deals (handling pro-rates on funds), but if that officer moved to another title company, I'd follow them.

Title companies are not that different. In OR/WA, the state insurance comm specifies the title insurance rates, so outside of running stuff around fees (a nit) the costs are pretty much the same.

From my perspective, 95% of what title does is handle transactions and acts like Switzerland (ie neutral).  They record title issues (and have specific attys on staff).  They are also a dis-interested party when it comes to escrow funds.  They can only distribute money IF ALL PARTIES AGREE ON IT.

If you want a suggestion, it'd be easy for title companies to get into what CoStar does and it would probably be cheaper.

Steve Morris · Answer

"The owner is whomever the Land Title says is the owner, and any rights in the property must be mentioned on the title. Owners get a 'certificate of title' and the land register for an entire state can be searched easily by interested parties."

That's kinda what happens in the US.  What's diff about AUS?

We give owners more options on how they hold properties (ie corporations instead of just personally) so it may not be a clear path to ownership.  We also record liens for debt and easements (permitted uses of the property by non-owners).

If it took a while to get good title, I'd rather do that then buy it and find out later I've got a problem.

Danny Webber · Answer

I dig the info

Tess L. · Answer

I'm going to throw out a radical suggestion and say that there is really no need for closing companies at all. I'm from Australia, where each State has a mandatory Torrens titling system, whereby being listed in the Land Register is definitive evidence of absolute ownership. All liens, mortgages, easements and other property rights are recorded on title and removed when no longer valid.

Once implemented, it is a really straightforward system. The owner is whomever the Land Title says is the owner, and any rights in the property must be mentioned on the title. Owners get a 'certificate of title' and the land register for an entire state can be searched easily by interested parties.

As far as I can tell, the US has dabbled in the idea and several states have either implemented it in conjunction with the deed recording system (which really reduces effectiveness), or repealed it, or had problems with court judgments invalidating them.

Having just started my real estate investing in about 5 different US States in the last month and a half, it is really surprising how long sorting out the titles and deeds take. I had previously thought closing delays were due to the time required for financing, but I've had cash ready to go each time.

If you add up all the actual expenses of the transfer, and all the time cost (3-8 weeks), it seems to me to be a hugely inefficient and expensive system.

Now, I know the US has lots of political restrictions, and I'm not even going to research why or how the current system has been created or which vested interests it protects. So before I get angry comments, I'm the first to admit that I am a foreigner, and new to real estate investing. My main point is that there is a better system - a conclusive Land Register.

Sorry @Danny Webber, that's probably not where you were going with your question, and I'm not sure how to improve title companies. But as you can tell, I do think that there is a deeper, structural problem with the process as a whole.