Opening Titles and Closing Remarks

The holidays are over, the visiting relatives safely on their way and the Indianapolis Colts . . . well, let's just say I won't be distracted too much by football the next eight months. So, I am back at it.

Over the next few days, I'll be posting about recent and expected changes in the real estate closing and title insurance world. Today, let's wrap up the most significant industry consolidation in the history of title insurance.

Lawyers Title & Commonwealth Title sold to Fidelity

Just before Christmas, Fidelity completed their acquisition of Lawyers Title and Commonwealth Title from the bankrupt LandAmerica. Matt Carter at Inman Real Estate News wrote several great articles if you want gory details. I come away with two lasting impressions of this debacle.

The failure of LandAmerica underscores the importance of carefully managing OPM (other people's money). LandAmerica's 1031 Tax Deferred business invested client assets in high yielding auction rate securities. When that market collapsed early last year, LandAmerica lost access to their client's money and eventually lost control of their company. The desire to skim a little extra income off OPM, led to the near bankruptcy of two of the oldest title insurers in the country. The irony here is that title underwriters, and many state regulators, rightfully require title agents to apply a higher standard of care to OPM than to the agent's own money. LandAmerica stupidly refused to accept that same standard themselves and paid the ultimate price.

The resulting concentration of 75 percent of the national title distribution system in just two companies, Fidelity and First American, bears close scrutiny as the consolidation plays out. Will these two companies, both sharing the goal of improving profitability, be able to dictate pricing and service levels to their clients without fear of a competitive environment? How will these companies use this market position to leverage new regulatory rules to their advantage? If this business combination becomes abusive, I will not be surprised to see the FTC revisit the situation in a few years.

All in all, a sorry situation that did not need to happen.

Stop back in a couple of days to learn about how falling interest rates and the resulting dramatic increase in title orders may affect your next closing.

Happy New Year and best wishes for a successful 2009!

This is a final reminder that if you purchased a property in Indiana in 2008, there are only four days left (until December 30^th, since most county offices will be closed on the 24^th, 26^th and the 31^st) to file for your Homestead and other credits with your County Auditor. If you are living in the property as your principle residence, you are entitled to a Homestead credit.

Run - don't walk to the Auditor's office.

This credit will save you hundreds and possibly several thousands of dollars on next year's real estate taxes. At this late date do this in person. Don't trust the mail.

If you already filed for your credits, find your receipt and keep it in a safe place. In the event of a mix-up, the burden of proof will be on you to prove that you filed. Don't expect the County to cut you any slack. They won't. 

A couple of weeks ago we mailed Homestead Tax Credit reminders to each of our purchasers during the past year, about 800 in total. We received more than one-dozen calls from folks who had forgotten to file or not realized that they should file. All were quite appreciative that we took the time to remind them. I confess though, my primary motivation in doing the mailing is to avoid unpleasant phone calls after the tax bills come out next spring.

Our Closers explain this in every closing. There are usually two or three forms signed wherein the Buyer acknowledges that we've told them. Yet, human nature being what it is, people don't hear us or don't follow through.

When the tax bill comes, it's too late.

So don't wait any longer. Missing out on this will cost you plenty in extra real estate taxes.

Indiana Real Estate or Mortgage professionals please feel free to republish this post for your clients.

The bankruptcy induced fire sale of the LandAmerica title insurance underwriters to Fidelity National is becoming more complicated. Matt Carter at Inman News updated the story Friday. You can read the entire article here.

The unsecured creditors of LandAmerica are raising questions about the valuation given the title underwriters in the deal with Fidelity. Don't be surprised by that development. Once Fidelity cancelled the original deal, LandAmerica's status as a going concern became tenuous at best. Fidelity jumped on that opportunity to pick up the plum assets with few of the liabilities. The bankruptcy of LandAmerica probably makes the deal easier for the Federal Trade Commission to approve, as well.

Another development is that Stewart Title reportedly made an offer for the underwriting companies with the Nebraska Insurance Department that is the first regulator that must approve any deal. I personally favor a Stewart acquisition. Having about 85 percent of the national title insurance distribution system split roughly equally between three companies is preferable to having two companies control 75 percent of the market. Three large companies create more competition for good title agents and their clients. Three large companies also make it less likely that Fidelity and First American (two companies that mostly hate each other but now have common business objectives) could impose their will on the market place unchallenged.

Its being widely reported this morning that a condition of Fidelity's offer is that the acquisition of Lawyers Title and Commonwealth Title must be approved by December 22^nd. So the coming week is potentially the most important week in the history of title insurance.

Finally, I can't resist quoting Ted Chandler, Chairman and CEO of LandAmerica when announcing the bankruptcy filing and sale to Fidelity. "I am deeply disappointed over the need to file for bankruptcy protection . . . However, this sale . . . to Fidelity National . . . offers our stakeholders the best result available in this brutal real estate, credit and capital market environment."

As part of this deal, Fidelity reportedly agreed to assume the liability of $45 million in deferred compensation owed the management of LandAmerica.

Way to look out for your "stakeholders", Ted.

Don't forget to wish your employees "Happy Holidays."

It's not unusual for a client who just recently bought or refinanced their property (like even just a month or two ago) to be back in my office for another real estate closing because they're either flipping that property or maybe refinancing their mortgage because rates came down. When we're in the closing room looking over the settlement statement for their new transaction, I occasionally get some variation of this question.

"I just bought title insurance ____ months/years ago (fill in the blank), why do I need it again. "

Answer: If you are buying a property, you want to know that the seller actually owns it, right? If you are lending money and taking back a mortgage on property as security, you want to know that the borrower actually owns the security, right? And you want some reasonable proof of that, too. So the seller or borrower says to you "I can't prove that I own the property now, but I have this title insurance policy that says I owned it as of six months ago when I did my last deal." Doesn't quite give you all the warm and fuzzy assurances you'd like does it?

A title policy only insures the title up to the date of the policy, not beyond it. When you sell or mortgage the property later (even a day later), you need to prove to the buyer or lender that you still own the property. A title company will do another search of all the public records starting from the old policy date if they have a copy. The title company makes sure that you still own the property, and that since the last policy date you haven't incurred any new liens, forgotten to pay your taxes or been sued, among dozens of other things. Then you can complete your new transaction with a new, up to date title policy.

Give the title company a copy of your old title policy when the order is placed. Don't forget to ask about any short term or reissue rate discounts that are often available. Because you were just there recently, the Title Company's job is easier. Most will reflect that in what they charge you on your new deal.

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 This post is the first in what I plan to make an ongoing series of simple answers to the kinds of questions people from outside the industry often ask. If you're a realtor® or lender I hope these posts will prove helpful in explaining things to your clients. I will be tagging them as "Ask the Title Guy", so when you stop back, you'll know exactly where to look. And if you have a question you'd like me to address either leave a comment or email me directly.

Images purchased http://www.123rf.com/

No, we're not trying to be the boss of you, but at least 25 percent of our real estate closings involve a question of authority. That is, does each of the parties sitting in my closing room have the authority to complete their part of the transaction?

If a party at a closing is an individual with a valid I.D. and isn't acting crazy, stoned or otherwise impaired, we assume that they can properly complete their end of the transaction. But often, a party to a closing is not an individual. It may be a corporation, a trust, or someone acting in a fiduciary capacity. What then? Well, our suspicious and untrusting title instincts kick in; we look them in the eye and slowly ask "show me your authority . . . please."

Individual stockholders own corporations. Individuals grant power to trustees and attorneys in fact. Executors represent the interests of individual heirs and devisees. Individuals are at the root of all these entities. A title company must establish that those individuals have properly granted their authority to whoever is going to complete the transaction.

We might require a resolution from a corporation's board of directors. We might want to examine the powers of the trustee clause of the trust agreement. In the case of an estate, we may need a court order. All of this establishes the authority of every individual participating in the transaction.

And once we've established who is the boss of you, we can ensure (and insure) that all of the closing documents are properly executed and enforceable.

Images purchased http://www.123rf.com/

Update November 26^th: The Wall Street Journal is reporting this morning that Fidelity will buy Lawyers Title and Commonwealth Title. Also, LandAmerica and its 1031 Exchange Company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. (thanks to Dave Wirshing)

In the short term, this is a good thing. Yesterday when national lenders reportedly stopped accepting LandAmerica policies, they were essentially dead in the water. Financial stability should no longer be a concern. Although there appeared little chance that LandAmerica's title underwriters would end up in regulatory reorganization, removing the specter of doubt about their financial condition benefits the entire title industry.

Long term, there are many uncertainties for title agents and their customers. I raised some of those questions in an earlier post which you can read here.

I am not surprised that Fidelity called off its acquisition of LandAmerica last Friday. Whether the continued deterioration of the market, undisclosed skeletons in the closet (under reserved claims) or just part of a Bill Foley master plan to permanently weaken a major competitor and cherry pick the leftovers, there were just too many possible problems for this merger to succeed.

LandAmerica's insurance company subsidiaries, Lawyers Title, Commonwealth Title and the others will probably remain in business as a result of the close regulatory environment in which they operate. But they will be smaller.

The holding company has financing and cash flow problems. According to reports it may well end up in bankruptcy. A bankruptcy proceeding would offer Fidelity, First American and others the opportunity to acquire the good assets without any or few of the corresponding liabilities. Acquiring bits and pieces may please insurance regulators and garner less Federal Trade Commission attention as well.

I am paying attention to what happens with LandAmerica's commercial business. Reports are that it is unable to access $290 million of invested assets relating to its 1031 exchange business and is exiting that line. Exchange business is closely tied to the still profitable commercial title business. I have to wonder whether this development essentially eliminates LandAmerica as a player in the big deals. The reinsurance market is also likely to be affected.

What the effect of the failed merger will be on title agents is also uncertain. Those agents that only represent LandAmerica companies may have a problem finding another underwriter in the current environment. Long term, not having two companies control 75 percent of the distribution channel for title insurance, will benefit title agents and their clients.

In the short term the title business is going to be further stressed as regulators, rating agencies and customers evaluate the situation and its effect on the title business.

"Huh?"

Deer in the headlights look. "Why would I want to do that?!?" "That's the silliest thing I've ever heard." A slight tilt of the head followed by a slowly uttered and cautious ". . . right."

If you've ever tried to sell someone on joining Twitter, you've probably encounter one or more of these reactions. What are you doing to get past them, close the deal, and get a friend or associate to sign up and begin launching your network?

The adult population here in Bloomington is in the early adopter stages of social media. A few professionals are on LinkedIn but mostly as a place to park their resume. Recently, Facebook is coming on strong within the real estate community. Most of the local Peeps though are either IT professionals or Indiana University students in the Informatics Department.

I'm enjoying Twitter even though I've few Bloomington based followers. Until a local network blossoms though, Twitter will be primarily recreational. I know it will take off eventually. I want to help hurry it along.

This minimum user environment is not unique, I'm sure. I'd like to hear from Active Rainers whose networks are now past this incubation phase. How did it happen? Was there a trigger for getting people over the hump, signed up and tweeting?

When I talk with friends and clients it's no different than any other sales problem. Identify the objection and remove it. Well the objection seems to be either it's silly or there's no one I know using it or what a waste of time.

Sharing my vision of the potential of Twitter is often met with a blank stare and a ". . . yeah . . . let me get back to you on that."

What is the catalyst that launched your network? What is that one benefit that turned a prospect into a Peep?

Thank you for sharing.

And if you want to follow me, that's OK too! http://twitter.com/johnbethell

Images purchased http://www.123rf.com/

Did you ever have one of those days where people and systems conspire to provide a really bad customer service experience? One that becomes a black hole of indifference sucking all your enthusiasm into a vortex of helplessness from which nothing escapes.

Welcome to my world yesterday. 

My journey into the void began early. I inconvenienced the inhabitants of a national bread, coffee, lunch and treats chains by wanting to purchase a "coffee to go" for ten and about a dozen assorted pastries. Feeling guilty for tying up the long line of caffeine and calorie seekers forming behind me I realized that the manager assigned only one of the six or seven employees to work the register. At least the treats were tasty. 

Later, not recognizing the approaching darkness, I decide to deal with an error message showing up in my payroll software. After entering information twice into online forms, the company finally grants me access to the treasured customer service telephone number.

The automated system asks for the same information before transferring me to a tech support group. The tech support voice system informs me that they are all too busy to help me anytime soon, and then advises me to check their web page. Surprisingly, a techie answered the phone only 30 seconds later and not surprisingly offers a $200 upgrade as the only solution to my problem. (This company recovered by responding to my anguished Twitter post and actually helping me. Cool!) 

Blindly going where no man had ever gone before, I travel out to the regional mall to acquire a gift card for an employee anniversary.  Four people are in the mall office. None are empowered to sell me a gift card. The anointed employee "would return in an hour and so should I." I went to a bank instead. 

My journey reminded me of an important lesson. Many poor customer service experiences are as a result of poor management, training and chosen customer service models. 

Managers choose to put employees into situations for which they are not trained or coached. Managers choose the preferred client interface with their company. Managers choose to ignore likely scenarios that may affect the ability of customers to get what they want. 

I renewed my vow to not be that kind of manager. I will train my employees. I will not steal time from clients to make my job easier. I will anticipate what may go wrong. I will be Ahead of the Curve!

My clients will not be sucked into the vortex!

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 Image courtesy http://www.123rf.com/

Steve Dalton commented on my last post that sometimes "title companies get in the way" of closing legitimate real estate purchases and refinances.

Title companies are at the bottom of the hill that is a real estate transaction.

And guess what? It all rolls down hill. Delays, misunderstandings, mistakes, and last minute stipulations get compressed as the closing date looms. And since the title company is the last one that generally has to do anything prior to closing, I'm not surprised, and even expect, that clients may feel that we get in the way from time to time.

What may seem as needless meddling in the consummation of the sale or refinance is usually the title company trying to resolve conflicting instructions received from one or more of the parties to the transaction.

Common conflicts between the Purchase Agreement and the Lender's Closing Instructions revolve around the Buyer's net cash back or net cash to close being outside the Lender's permitted tolerance, handling inspection and repair credits, and how the Seller's contribution towards closing cost is defined and set out on the HUD-1. In Indiana, the Purchase Agreement often requires prorating taxes in a way that is simply not possible given the inherent one to two year lag time of tax assessments.

We resolve all the conflicting instructions by requiring written clarifications and Amendments to the Purchase Agreement, Closing Instructions or Title Commitment.  If this process seems to you to be getting in the way of a closing, it's probably our fault for not explaining this correctly.

Just like you, we don't get paid unless the deal closes. Why would we want to make things needlessly difficult? We don't. All we're trying to do is resolve the conflicts so that we can close the transaction without compromising our fiduciary responsibilities to all the parties.

There's always a reason behind what a title company may require. If we don't explain it sufficiently keep asking until you understand. Sometimes, you can clear up a misunderstanding that will make things easier or even eliminate the requirement. As always, good communication is the key to a successful closing experience for you and your clients.

Good communication helps us dodge that rock at the bottom of the hill, too. For which we are eternally grateful.

Photo courtesy of Free Digital Photos. Net