FEATURE ARTICLE, DECEMBER 2004

IT'S ELECTRIC: TITLE INSURANCE
Through electronic settlement services, title insurers are responding to the needs of a global real estate market.
Steve Ahn

The increasing development of Internet technology has evolved in conjunction with a global approach to investment in commercial real estate. As information is disseminated in real time, efficiencies and economies of scale have developed, allowing for faster transactions in much greater numbers.

The title insurance industry, often characterized as a commodified service, has traditionally catered to the commercial real estate industry with premium closing, title underwriting and business development service functions. The relationship-building and service approach has been the foundation of success for title insurers for years. However, as the surplus of market capital continues to generate demand among investors for more qualified income properties, a new order of service needs and demands has been shifted to title insurers.

Centralized Title/Closing Services

The ability to place orders in a centralized location with a single point-of-contact has become a premium for national and large regional real estate investors. To satisfy liquidity and yield requirements, diversified acquisitions have become commonplace. This trend is due in part to the need to blend the higher yields available in secondary and/or subordinate markets with the yields of properties located in premium markets, as well as resorting to these secondary markets to fill demand.

Multi-state, multi-site transactions have become more prevalent, along with the need to issue policies and manage complex closings from a single location. As a result, national title service units have grown in significance as more streamlined service is demanded of transaction coordinators, asset managers, acquisition/disposition directors and attorneys.

Given the complexity of coordinating and communicating with regional title offices, a title company’s ability to understand the specific state title statutes and regulatory restrictions, and integrate the closings into one seamless effort has become more appreciated and expected by the institutional investment community. Working closely with a true national title office reveals the added value such a title insurer provides.

Electronic Closing Functions

In the residential real estate industry, electronically assisted platforms for closing and title document retrieval functions are receiving significant attention and media coverage. In contrast, much less fanfare has attended the commercial real estate industry’s transition from hands-on and direct participation with a client to a greater use of electronic settlement services.

Title companies, for example, now offer Web-based settlement service products that can be accessed via subscriptions, allowing a client to electronically order and retrieve title documents, as well as organize communications, tasks and scheduling of one or more transactions. Online transaction management systems combine the benefit of contact software such as Outlook and Act with file-sharing, document-scanning and management capabilities.

Some of these systems have recently added electronic signing capabilities, which significantly speed up the closing process by enabling participants prior to the actual closing meeting to sign, at their leisure, loan and other documents that do not require a notary or witnessed signature (applicable only in recording jurisdictions that permit electronic signatures).

For documents requiring a notary signature — typically about one-third of the closing documents — notaries can electronically sign in and notarize all necessary signatures. With today’s online transaction management systems, a title company can create for its client one neat, secure, digital file containing all documents, including post-closing documents, contacts, conversation logs and tasks. All parties to the transaction can be added to the file, and the client can dictate who sees what documents, conversations and tasks.

Standard boilerplate documents, contacts and other pertinent information can be included on every electronic order as well. Auto-response e-mails can be used to automatically communicate task status to participants and to trigger specific actions associated with transaction events. If the electronic transaction management platform is designed for flexibility, it can be used in a very “light” capacity (order and retrieval of title documents) or extensively (contact, organization and document retrieval).

The necessary security firewall requirements can be satisfied, even with national lending organizations, which have the most stringent requirements among the cadre of institutional clients for the online transaction management product. Another benefit is that some Web-based transaction management systems provided by title companies can be customized to include the lender’s or investor’s corporate logo and branding statements, and the participant can embed the transaction management system into its Web site if desired.

One-Stop Shop

More and more investors have discovered the inherent benefits of using a “one-stop shop” for title ordering and closing functions. The single point-of-contact concept has become invaluable in an investment environment where speed of information, quality of service and mitigation of costs are at a premium, especially in multi-site and multi-jurisdiction transactions.

Now, the shift of power sits with those who provide and those who use electronically-based document retrieval, closing and title platforms. The millennium is here and with it the technology wave to benefit real estate players with title services needs.

Steve Ahn is vice president of National Title Services for Stewart Title Guaranty in San Diego.


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