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KEEPING UP WITH
TITLE INSURANCE
Two significant trends in the title insurance industry
have recently appeared in the West.
Dale Puhl
When it comes to the title insurance industry, trends often
appear in the western United States first because this area
has commonly taken the lead for new title services. Additionally,
the West has a number of cities undergoing tremendous growth.
At present, there are two major trends in the West.
The latest trend is the bundling of services offered by major
title underwriters and their agents. Bundling is a new effort
by underwriters to acquire ancillary companies with services
such as appraisal, flood insurance, credit reporting, loan-related
services and home warranty plans. The point of the bundling
trend is to offer customers one-stop service to save them time
and money.
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Puhl |
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The second major trend we are witnessing in the West is a growing
number of affiliated business arrangements (ABA). Settlement
companies, attorneys, real estate brokerages and lenders enter
into joint venture agreements with title insurance underwriters
and agents to facilitate better service to the customers and
allow joint venture partners to be more profitable as a result
of increased volume.
The most recent and distressing issue for the title insurance
industry is the sudden collapse of the refinance market. The
collapse seemed to happen simultaneously with a slight increase
in residential interest rates, yet those same interest rates
have now dropped down to where they were 6 months ago. Despite
this, there has been a dearth of interest by consumers/borrowers
to refinance properties. It appears that the immediate reaction
of lenders to the collapse was to devote their energies to developing
relationships with real estate agents in order to garner new
loan business from resale activity. Many loan officers are developing
team approaches to real estate by partnering with hazard insurance
agents. Again, this team setup provides the one-stop advantage
for real estate agents, allowing them to spend significantly
less time dealing individually with the different members of
the team.
Although the industry has faced a number of new challenges throughout
2003, the most common obstacles for title insurers may not necessarily
deal with title insurance specifically, but with the zoning,
planning or facilitation of off-site development. These issues
often slow the ability to close a transaction. There are title
endorsements available to ensure properties have a particular
type of zoning, but a great deal of research must take place
before an endorsement can be issued.
Because attorneys play a larger role in commercial transactions,
the title insurance company must spend numerous hours examining
legal documents. In a typical residential transaction, most
documents are prepared by a title insurer’s escrow staff.
Despite these hindrances, certain actions can help ease the
process. The first step is to hire a good team of experts in
all the fields necessary to complete a successful commercial
transaction. In other words, not all attorneys are good commercial
real estate attorneys and not all appraisers are good commercial
real estate appraisers. Hiring the best civil engineers, marketing
teams and zoning consultants can make for a successful transaction.
Cost savings will result from using these experts, whereas using
ineffective and inexperienced vendors can lead to mistakes that
delay pre-development.
Even with the best in the industry, some transactions remain
challenging. A common problem that creates a difficult closing
and complicates insurance issues is the parceling of commercial
properties. In many areas, the planning and zoning departments
are overburdened, which causes huge delays in the approval process
for splitting parcels. Additionally, the type of legal vesting
of the owner/borrower may create delays. For example, trusts,
limited liability companies and other types of business structures
may need a significant amount of research time to determine
if the parties’ executing documents have proper authority
from their entity. Many of the supporting documents are lengthy
and detailed, causing the title insurance examiners and title
officers to devote significant hours to determine the sufficiency
of the documents.
As developers look to save time and money, alternative products
have threatened the title insurance industry in the West in
the past year. It is not likely, though, that title insurance
will ever be replaced; it will always play a significant role
in standard residential and commercial resale as well as in
new construction activities. However, many large national lenders
are accepting evidences of title with significantly lower liabilities
by title insurers in refinance and equity loan activities. These
title insurance products have a low cost and can be produced
within a 24- to 48-hour period. It is too soon to determine
if the lack of insurance or limited liability will cause any
increased loss for lenders.
Current building trends in the western U.S. solidify the need
for title insurance. The prominence of master-planned communities
has caused developers to create closer relationships with title
insurance underwriters and agents, the important aspect being
the entry of the title insurance firm into the development process
at a very early stage. Title insurance companies can fulfill
a large number of requirements for accurate and rapid development
of the property
As 2003 comes to a close, we look forward to a new year with
great economic promise. Many high growth areas, including Phoenix,
Las Vegas, Southern California and Salt Lake City, will continue
to make significant progress. The only foreseeable limitation
to this growth will be the availability of land. In many areas
of the West, commercial developers have found it necessary to
scale down projects due to high land costs. For example, a multifamily
developer may have to raise rents for apartment units to compensate
for increasing land prices. This may make the project less marketable
or increase the amount of time necessary to lease the entire
project.
With regard to other issues in the West, California will face
unique challenges in first quarter 2004. Any time there is significant
upheaval within government, the ability of commercial developers
to economically and expeditiously complete projects is hindered.
These developers may find more favorable conditions in adjoining
states such as Arizona or Nevada.
Federal government issues like the new Department of Housing
and Urban Development and Real Estate Settlement Procedures
Act regulations always play an important role in the efforts
of title insurance underwriters and agents to maintain reasonable
risk factors. The title insurance industry must always maintain
a high level of watchfulness for the new regulations coming
from Washington, D.C. Significant dollars are expended by the
industry to protect not only the rights of the consumer, but
also to maintain a cost-controlled environment in real estate
closings.
Dale Puhl is president and chief executive officer of Southwest
Title Company in Las Vegas
©2003 France Publications, Inc. Duplication
or reproduction of this article not permitted without authorization
from France Publications, Inc. For information on reprints of
this article contact Barbara
Sherer at (630) 554-6054.
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