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The Dirty Little Secret in the Title Industry

Tens, even hundreds, of millions of dollars pass through title company escrow accounts each month. The money technically belongs to consumers in the form of purchase money funds, seller proceeds, payoff funds, or refinance loan proceeds. The title company is simply the guardian of the funds. The questions at hand: Who is retaining the interest earned on escrow accounts? Is it the title company? Have buyers and sellers received a disclosure explaining that the title company is earning substantial additional fees? The interest retained by a single title company at the end of the year can be staggering as you will soon learn.

In a broader sense, I'm referring to any office, other than a law office, that routinely holds funds involved in a real estate transaction. The legal profession dealt with the issue years ago by creating ethical guidelines requiring that law offices direct the funds to trusts established to benefit impoverished classes. At the same time, the title industry has been somewhat successful in avoiding public scrutiny by keeping this matter a secret. The state of Maryland passed legislation nearly 20 years that created housing trusts funded solely by the interest on title company escrow accounts. Noncompliance means the loss of a license.

I recently learned that title agents in the states of Colorado, Michigan, and Illinois can legally retain escrow account interest amounts. There may be numerous other states as well. I just haven't had the chance to do the research and thought the issue important enough to immediately bring it to your attention.

Abuse is a very real possibility when title companies have a financial incentive to hold funds longer than necessary. Tim Killcoyne, the owner of Town & Country Title Services in Denver, CO, wrote a very informative article for Title-opoly. I encourage all of you to take the time to read it thoroughly. Tim raises the possibility of title companies intentionally adding excessive daily interest to seller's payoff amounts. In Maryland, we had the problem of title companies holding FHA payoffs until the very end of the month and then sending them in too late or not at all due to forgetfulness. It's a very real problem that needs to be addressed. As a practical reality, payoff funds can be wired shortly after closing.

Using testimony provided at legislative hearings in Colorado this year, Tim estimates that the largest title company in the state is earning 22.5 million dollars annually in interest earned on escrow accounts. That number isn't a typo and, worse still, isn't disclosed on any settlement statement.

Real estate agents need to analyze the payoff numbers presented by title companies at closing. It's not enough to trust someone that you do business with. You need to know the facts about any particular transaction.

My suggestions to avoid abuse:

Ask for a copy of the payoff statement and determine if excessive interest was added.
Question the closer if more than 1 or 2 days worth of interest is collected in the payoff. Special consideration has to be given to weekends and legal holidays. A special note: FHA policy requires that interest is collected in 30 day blocks on payoffs. Consider this fact when scheduling closings and don't allow the title company to hold the funds for the sole purpose of collecting undisclosed interest income.
Request that the payoff funds be wired as quickly as possible to save money for your seller. To do anything other than wire funds in 2007 is absurd.
Demand confirmation that the funds have been wired and received by the lender being paid off.
Provide a copy of the confirmation to your seller and keep a copy in your file.

I'm not comfortable publicly questioning title industry practices. In this instance, it's matter of conscience because we're talking about undisclosed fees and abuse of money that belongs to others. I also don't typically use click thru's on Active Rain. Forgive me this one time by Clicking here to read Tim Killcoyne's post on Title-opoly. I'm not trying to drive traffic to the site. Tim's article is too lengthy to include in this post, but it's very well written and a must read. You might want to pay attention to the comment thread. Title agents are starting to weigh in.

FYI: My next post will be of a less serious nature. I was meme'd yesterday ... more than once.

Posted by Ed Rybczynski on 05/22/2007 10:19 AM

Comments (123)

title insurance industry, title industry

123 Comments on The Dirty Little Secret in the Title Industry

MAY

2007

Hi Ed,

Not sure I'm off subject but I see this concern a lot..the payoff is always different at the table and the title companies base it on compounded int-erst and the date the payoff was actually called in usually good first mid or end of month. As far as escrow money held...we are going thru a dispute right now and the buyer thinks my client has the money..they do not understand it is held in an escrow with the title company and yes I am aware of the interest baring account thing too.

Ed,

Great posting and this is something I have never really put much thought into and you have helped me see this. I have always been very aware of the concept of the "floating loan", and who keeps the interest - thanks for bringing this to light regarding title companies - also, nice title!

Michael

Neal

Thanks for commenting. It's appreciated.

The answer may be found in COMPENSATING BALANCES.....

Great topic Ed!

I haven't seen any foul play with the escrow companies I've used as of yet...But I certainly look out for my clients best interests and ask questions when such grey areas pop up...

Are you stating that escrow companies put funds into interest bearing accounts and keep the returns?

Scott

Michael

I'm glad that you've enjoyed the post and it's title.

Hi Roberta

There's no link to "compensating balances" in your comment. Is it a prior post?

Hi Ed, In Massachusetts closing are handled by attorneys. In turn, attorneys are required to deposit client funds in separate financial accounts (IOLTA). Interest from these accounts accrues to the Board of Baroverseers which distributes the money to various charties. Client money can also be deposited into separate accounts with interest payable to the client.

Glenn Mauk, PE, PLS,Esq.

Real Estate Broker

Attorney

Professional Civil Engineer

Professional Land Surveyor

Scott

Yes, I'm referring specifically to title companies maintaining interest bearing escrow accounts and keeping the interest ... possibly without anyone's consent or knowledge. It's illegal in some states and is a serious concern in the states where the practice hasn't been regulated.

Glen

Thanks for clarifying practices in Massachusetts. IOLTA is a great example of properly directed interest income earned on escrow accounts. We do the same thing in Maryland. In this day of consumer advocacy, I was shocked to learn that any title agent would retain interest from an escrow account when Tim first brought it to my attention.

Ed,

Thank you very much for this information. Somewhere along the line I had been told no interest was earned by the title company or anyone. I thought it was strange to have that much money sitting around doing nothing.

1. Great post..... food for thought

2. The click-thrus will make your site more popular..... he reason we are all here.

Doreen

You're very welcome. I'm glad that you've found the post useful. I'm not certain of practices or specific regulations in the state of Arizona. You're right about it being a lot of money to have sitting around. The numbers are staggering.

Tom

Thanks my friend. I still owe you a phone call from last week and will get to it as soon as possible.

Hi Ed, Now isn't this a great topic. It's actually not something I would have thought of but now that you bring it up I can definitely see where this would be an area for potential abuse. I guess I have some research and studying to do. Thanks.

I always kind of figured that the title companies did this. I hadn't thought of the opportunities for abuse though. Here in the St. Louis real estate market, the title company's fight one another tooth and nail and title quotes are a fraction of what I've seen in different markets. I assume that if this source of revenue drys up that they'll have to start charging more for the actual title insurance??

Bob Mitchell

ValueList

Bryant

Let me know what you come up with. I'm doing a little fishing myself to see which states have regulations in place. It's to believe that something like this could be missed.

Bob

You're right about increased charges. I'm ok with any charge that properly disclosed. The interest on escrow accounts being a secret is what bothers me.

Hi Ed - very interesting topic, and not one I had thought about or even knew existed to think about. I do know there is another dirty little secret involving title companies that I plan to write about before too long.

I'm not sure what the laws are here in NH or Maine regarding interest-bearing accounts with titile companies. I do know what they are for real estate companies. I'll have to look into this and just see how it really is handled here. I'll come back with another comment when I do find out.

Thanks for this post - an eye-opener!
Ann

Ed: Compensating balances are one of the better kept secrets in the financial services industries. Monies held for others in non-interest bearing accounts are eligible for compensating balance "benefits" from the bank to the depositor. Those benefits might be lower borrowing rates or free banking services. Lower borrowing rates would usually be the most attractive feature.

For starters:

http://www.answers.com/topic/compensating-balance-in-accounting

This is probably the best-kept secret of all!

Ann

I'll look forward to hearing back from you.

Roberta

Thanks for sharing the term. I hadn't heard of it before and will make a note. In the case of title companies, I'm talking about hard dollars above and beyond bank fees. You make a good point about lower borrowing rates. The whole scenario is disturbing.

Great post Ed on a topic we usually just breeze by to get our commission check. Most clients go through the settlement process in total confusion. It is our fiduciary duty to help them see what they are paying and why. Then there is materiality. Is this material to the clients decision to buy or sell?

In CA, at least for property management trust accounts, the funds must be held in a non-interest bearing trust account. I believe it is the same for escrow accounts. Guess who makes the money in that case? The bank. They can turn around and loan it out at what, 10X deposits right now? That is called free money. Dang, I should be a bank.

In Michigan escrow funds must be kept in non-interest bearing accounts by law. It was only recently that title company's or anyone but the broker could hold the funds.

Ed,

Great post. I created my own computer form to calculate those interest payoff at closing to the penny for buyers. And I have no problem asking questions when the numbers differ from mine. Your post made me realize that I also need to pay attention to interest for the Sellers.

Check out :

http://www.agentfreebies.com/ClosingSellerFees.htm

http://www.agentfreebies.com/ClosingBuyerFees.htm

The problem is that a lot of agents out there are intimidated by the calculations of the daily interest proration. This number is often fudged or overlooked in the Net Sheets or estimates.

Mario

Keith

Great talking points in your comments. Thanks for bringing them up.

John

Thanks for sharing the practices in CA. I would fervently oppose banks keeping the interest income earned on escrow accounts.

Terry

I have to disagree respectfully about title agents in Michigan and non-interest bearing accounts. Title agents there are legally retaining the interest earned on escrow accounts. I know it for a fact.

Mario

Good point about payoff statements being overly complicated. It's particularly murky with adjustable rate products and loans with pre-payment penalties.

That is one of the issues in Florida Real Estate Broker training. I went over that and it was a pretty big debate in class.

Currently, there is a huge push toward Real Estate Companies NOT handling escrow anymore. Even if it means using in house title, it is less of a liability to the Real Estate company and it is paying off as you just don't see that many people hitting the blotter these days over comingling.

Great post. I just sent it to my regular title company. Maybe now they'll be nudged a little more to join AR.

smiley on PC

David

Great points. I think we're going to see very strict guidelines nationwide before long. My opinion: A CPA should be involved in a 3 way reconciliation of escrow accounts. The whole issue of holding large sums of money that belong to others is very serious in the long run.

Lisa

I love it. Like you, I can't understand why every title agent isn't already playing in the rain.

Hmmmmm, keeping the interest and not disclosing it is pretty bad. Not disclosing it, donating the monies to charity and taking the write off, is just as bad. If a clients money earned interest, the interest on that money should pass back to the client. If the client chooses to donate that money to charity it is their perogative and their write-off.

Laurie

Interesting perspective. I like it.

Ed,

Keeping the money and donating it to charity doesn't make them a hero. Advertising that they are donating it to charity will make them a hero to the less informed and possibly get them out of some hot water with consumers and regulating committees. However, it is just as bad, it is not their money to donate and they are laughing all the way to the back because they get the write off which is more valuable when you do not have to declare the income, because it is not income to them, they are acting as escrow.

So how do you feel about them being able to take the write off against their actual earnings without declaring the income?

What a racket!

Laurie

Another great point about the possibility of a write-off. It's the lack of disclosure and lack of options for the consumer that bothers me the most.

Geeze I WISH I had this 'problem'.

...the owner of the largest title agency in the state said his company typically has "in excess of $100million" on overnight deposit. He testified that if his company was not allowed to earn interest on the float he would have to raise title premiums and closing fees, as the interest "subsidizes" his operations.

If in fact his statements were true (he also stated that his company had an 18% market share) this would indicate overnight holdings by Colorado title agencies in excess of one-half billion dollars, resulting in interest of $22.5mm per year at the current rate of 4.5%.

$100,000,000 of overnight deposits and 18% of the market!!! Wowzers.....and they needed the money to SUBSIDIZE operations? Dude should be put in prison. By subsidizing his company, he would then be able undercut his competition. Sounds like the 'Big Boys' playing a serious game. Yes, the 'Mom& Pop' shops have money in escrow also - but even setting up a sweep account has a significant bank fee I believe.

Rob

Great! Great! Great! You hit the nail on the head from the standpoint of competitiveness. The big players are able to subsidize operations and create an unequal playing field for smaller companies. This issue has a number of very complex dimensions. I was hoping that the title folks would weigh in.

I'm on the rain, and there's no secrets here!! Of course I realize that things are done differently all over the US. Interesting post and comments, this is not an issue in my area. We offer buyers the option of an interest bearing account to hold their funds until close.

Ed, thanks for steping up.....Michigan has specific guidelines for escrow accounts by real estate brokers, non-interest bearing. The title side has been an issue for a long time. Makes ya want to own a title company! I will watch the funds a bit closer now. I have used the same person for years but that does not mean corporate policy that she uses does not dictate something should be looked at!

Geez Ed...

It's always something in this business. This is really really bad.

I don't know about others but I get tired of seeing this cr-p going on in this industry.

Thanks for bringing this to our attention :)

TLW...ROAR!

Ed - This is a GREAT post. I'm definately putting this as one of my favorites on my Cicerone's Favorites Last Week! Very informative!

Ed,

Interesting Topic! Here in Indiana, the Broker holds the escrow, non-interest bearing. When I was in AZ, the client had the option of an interest bearing account, but the fees for the account did not usually justify opening one.

If I understand correctly, you are indicating a Title Company could hold the funds for an extra day, thereby increasing their profit and charging the client an extra days interest? Something to look for!

Brad

Thanks for your insight. First American is my favorite title insurer by far.

Gary

I appreciate your candor. It's nice to meet you and thanks for stopping by.

TLW

This one was hard for me to write because of my deep ties to the title industry. I made enemies today, but it had to be done. I sleep now. I didn't for many years. Thanks for commenting. The support proferred by you and Bryant has meant a great deal to me.

Tony

I always appreciate your comments. Thank you for stopping by.

Paula

Thanks for adding the benefit of your experience. I really appreciate it.

The matter of title companies holding FHA funds reminded me of a title company that tried to collect an extra month's interest from one of my sellers because, as he said, "The law provides that unless the lender is noticed 30 days before settlement that the loan is going to be paid, they may charge another month interest.

We were settling on the 27th of the month and plenty of time to get the payoff by the 1nd which is what is required.

I showed him the letter where the seller had given 30 days notice although that requirement hasn't been necessary for about 10 years. However, I believe in the "i" and "t" thing, I still send notice.

Needless to say, his face was very red. Wonder what he was going to do with that extra months interest???????

Lenn

Great example of the abuse that takes place with payoff amounts at closing. Another real estate agent may not have detected the problem or had the courage to take a stand. Thank you for sharing your experience. Consumers are being taken advantage of daily.

I have never thought about this but you make an excellent point, thanks for sharing this with us

Paul

I'm glad that you find this post helpful. Please let me know if you have any questions.

This is great info. they will also sit on our paychecks if we don't hang around for the funding.

Ethan

That's a great point. Thank you for commenting.

Ed, I did not know about this, I guess I need to ask some questions about how this process works in Connecticut. Thanks.

George

Let me know about Connecticut. I've found that the New England states normally play by an ethical set of rules.

Hi Ed... another great post and food for thought. You would think with all of that interest, we could knock off some of those junk fees.

Beth....may I ask what Junk fees you find annoying? We (Bertrum Settlements) 'pride ' ourselves as NOT nickel & diming clients.

Ed..... "Consumers are being taken advantage of daily." We see that from Title companies, Realtors and Mortgage brokers. It's not right. BUT - I DO believe it's the minority. Am I wrong in your opinion?

Some people think Oil companies for example are taking advantage of the consumer. Some think mechanics do. ALMOST EVERY REALTOR AND MORTGAGE BROKER thinks car salespeople do (I disagree BTW)....

So not to digress..... do you think Title companies as a majority (numbers of companies) are the BLATANT 'criminals' (this is not a law issue , but more of ethics) here?

Ed,

Any projections on how much extra money this puts in the coffers of the title company industry?

Very eye opening post, Ed...Thanks. To my fellow agents who commented above from Michigan, ...it is now very understandable why so many brokers now seek to own a title company. With the light of candor & revelation being so brightly shone on our industry, it continues to be amazing how easily perceived indiscretions create dark shadows to eclipse our best efforts.

Diane - many have 'no interest' accounts for their escrow. Just an FYI. Perhaps part of the question is how much the BANKS make.

Ed pointed out one of the BIG players who I believe should be arrested. Most Title companies (that I know), disperse as quickly as possible to meet client needs, and CERTAINLY are not using any 'extra' (?) monies to subsidize their business model.

In any case, the question can certainly be asked to the Title company. I have NO idea why this thread was called the 'Dirty Little Secret'. I like Ed's posts and totally respect him. And he has a valid premise. However, WHO doesn't know about float money? It's been in ALL of our lives since the first payroll check took 3 days to clear.

Secret? Or lack of understanding of how BANKS and MONEY work?

I hope all states can resolve the issue... but to assume all Title companies are DELAYING monies payed ..for a profit / revenue center....is naive. It's like saying all Brokers ripped off clients with 100% subprime predator lending. NOT.

And all Realtors scam clients with using ABA Title companies (which really annoys me). Are all Realtor clients BEST served by the fees and service of their 'in-house' Title company? NO, NO, NO.

Bottom line...there are some bad apples.... in all parts of the industry.

Disclose, Disclose, Disclose...works for me!

Great post! I had assumed that the interest was distributed to the parties involved in the transactions, but I guess this is not the case. I like Laurie Manny's idea, makes sense.

MAY

2007

Beth

We'll see major reform in the title industry before too long. Over the past year the Government Accountability Office (GAO) conducted a study of the title industry that was released last month. Many of the most serious problems have finally been exposed. Escrow abuse is one of them. I don't want to start ranting about title company fees because I could go on for days. The industry's price structure is ludicrous and not based on costs, competition, or anything else that makes sense. It's basically a free for all ... make what you can ... when you can. It will have to stop before long. The feds are now watching along with state regulators, consumer advocacy groups, and the media.

Diane

I don't have a clue of the aggregate collected nationally. My guess is that no one does. The title industry has a tradition of secrecy.

Rob

I intentionally named this post "The Dirty Little Secret" because the name is both descriptive and appropriate. Consumers are being deceived daily and it's a practice that has to stop. I don't care what anyone makes ... I just want to know about it upfront so that I can make an informed decision as a consumer. That's the point.

I happen to think that many title industry practices are improper and derived from poor business practices. We need stricter licensing requirements and serious education requirements. How many title agents do you know who can do a 3 way reconciliation by hand? I can, because I was taught the business in the 80's when things were done correctly. We need reform quickly because the title industry is in serious trouble right now. The feds , state regulators, class action litigators, and the media are going to have a feeding frenzy.

Lola

Very well said. The truth is a splendid thing. It's just plain wrong to mess with other people's money.

Joan

Beautifully said. Disclosure is the key in all things consumer related.

Ana

Thanks for "weighing in" on the topic.

Ed, I enjoyed this blog (and I assume it will continue today). I agree there needs to be standards. I'm REALLY surprised so many do not realize that money 'floats'.

I would assume (assume) that some Realtors get their commission check from their owner/agency. There is a time-period from check disbursement TO the Realtor FROM the Realtor Owner as the owner sits on it overnight (longer?)...collecting interest which the Realtor does not get. If my assumption is correct - then I'm at a total loss as to the education system in the United States.

As you and others have pointed out, there are states that have addressed the escrow issue in some manner, so it being a 'secret' is somewhat a stretch. Non-interest bearing accounts are not new either in dealing with escrow.

I think the real key here is the ABUSE that SOME Title companies have incorporated into their business model. Similar to Realtors leading clients to their higher fee ABA Title companies to obtain kickbacks.

We will soon see direct disbursements into individual accounts as technology moves forward and people/companies are more comfortable with providing account numbers. (Even today - I know a LOT of people that as individuals still want a paper check as opposed to direct deposit ... which has been around for .....mucho years. Heck, Many individuals pay their bills still using checks as opposed to on-line banking).

Good blog. (I still think the name of it is misleading :^) )

Rob

Thanks for "weighing in" again today. I really appreciate it.

Ed,

Something that we rarely think about. Title firms probably rake in a good chunk annually with this interest growth. Some states have stronger laws than others, so it obviously depends.

There was a statewide audit of some title companies a few years ago and interest earned on escrow accounts was a big item in the audit. Yes, they do make tons of money on the funds that flow through them. By the way, some of the title companies got "dinged" for charging customers for services that they got for free from the banks because of their large balances.

Esko

Thanks for commenting.

Bettina

Your comments are great. Thank you for sharing.

MAY

2007

I am impressed with the level of interest and commentary here! There are so many things to comment on, but I think first I should respond to Rob Robertson. As the author of the original article on Ed's blog "Title-opoly" and as the president of an AfBA, I find the finger pointing at AfBAs disturbing. One needs to understand that in this state, rates are "file and use". So what I charge is the same as what any other agency using the same underwriter charges regardless of an AfBA relationship. The post has less to do with relationship and more to do with disclosure. If a company can earn money on overnights at a level that exceeds compensating balances, it will (we dont). So the temptation to earn more by keeping money longer is in direct proportion to the amount of money held. This is the reference to "dirty little secret".
Some years ago, I was in partnership with a man who had been relatively high in the Chicago Title organization. He said that while CT had not made a profit on its title operations in the prior year (I think 1989) it had made over $60mm in trust interest using national overnight sweeps. Think scale here, you will get a clearer picture of the issue.

Tim

Thanks for commenting. I can substantiate your comment about a title company making more from interest on escrows than from direct operations. It was the case in MD years ago with very large players.

Ed,

I think this is great that there are so many people finding this an interesting and eye-opening topic, and I think it also touches on something much deeper in our industry. Part of the reason corruption and "shady" dealings are still so easy to get away with is the lack of properly educated people who can pinpoint these dealings and say, "Now hold on a minute here, this doesn't look right."

Thanks for doing your part to shed light on these issues!

Andy

I'm really happy to have a venue like Active Rain to raise serious concerns. Your comments are great. Please visit again soon.

Tim, when I refer to AfBA's - I am referring to service fees BEYOND the insurance. In PA, the Title Insurance is regulated, and EVERY Title Company must use the same rate (Regardless of Underwriter)..

The ADDITIONS however, can vary greatly on fees for after hours closings, out of area/way off site closings, Weekend closings, epackage charges, perhaps Fed Ex/Wiring fees, and any crap I've seen other companies add into the Hud 1100 line.

So Tim - are you saying EVERY TITLE COMPANY in your state has EXACTLY the same rates beyond the insurance itself? So the client is always best served or should I say EQUALLY served FINANCIALLY by their Realtor - in using the Title AfBA tied to the Realtor?. (not discussing service here.....discussing money).

Just a question.

TIm - I just do not understand this statement of fact you propose.

"If a company can earn money on overnights at a level that exceeds compensating balances, it will.."

You are making a serious ethics charge at all Title Companies. That's your opinion, and that's why we have ActiveRain. I disagree with your broad brush.

Rob

I normally avoid esoteric questions about the title industry in Colorado because it's model is much different than you and I are used to. Colorado has 500 active title companies while Maryland has 10 times that number. I find that many title companies in Colorado are very large, technically advanced, affiliated with a source of business, and some times jointly or wholly owned by a title insurer.

I have to add that Maryland did away with interest earned on escrows for title companies nearly 20 years ago. Rob, I feel like I'm stating facts more than painting with a broad brush. Something had to be done in Maryland because the abuse was wide-spread. What entitles a title company to undisclosed interest on escrow accounts? Law offices can't do it. Like you say it's a dispute that's not easily resolved.

Ed, I appreciate the comment. I too think the abuse needs to be addressed. At least we are in agreement there.

I was confused with Tim's comment that implies that IF a Title Company can get away with earned interest of escrow monies above bank fees... they will. (I quoted his words in a previous comment). I disagree. I do not believe there is some hidden agenda of companies like mine, of which there are many, who delay payments, etc... as a revenue stream.

We are in the business of providing Title Insurance. The requirement of Title Insurance is dictated by the lenders to the borrowers. As a Title Company, we wish to provide Title Insurance with the best service we can. Disbursing funds as quickly as possible is an UPSIDE to referral business. Holding onto funds would simply result in lost business.

Why would I want a business model that loses business?

Rob

I'm sure that we would agree on everything if sitting face to face. I'm glad to see a number of title people actively participating on Active Rain.

Ed, you're probably right.

I'm not here as the 'defender of all Title companies'... but the comments were getting WAY ahead of SOME of the realities.

Have a great day.

Rob

I don't subscribe to "The Legal Description".so I only see tidbits in emails. Any idea where this is 'going'?

"Eager to respond to the concerns raised in the GAO's report on the title insurance industry, state insurance regulators have encountered an unexpected obstacle in their ongoing efforts to resolve many of the problems plaguing the industry. While many of the GAO's criticisms of state regulators could have been vetted through NAIC's Title Insurance Working Group's efforts to revise the Title Insurers and Title Insurance Agents Model Acts, this discussion has been thwarted by new procedures the NAIC recently established to approve Model Law proposals. Find out how the working group plans to tackle these challenges and how it will affect the agenda for its Summer National Meeting next week."

Rob

I suspect that underwriters are going oppose joint ventures before long due to the GAO findings. That's my feeling at this point.

Rob

I suspect that underwriters are going oppose joint ventures before long due to the GAO findings. That's my feeling at this point.

Ed, I noticed you didn't post this in some of the Title Groups.... you might want to do a search for those groups...join them....edit your initial blog to post it IN those groups. just a thought.

http://activerain.com/groups/titleandescrow

http://activerain.com/groups/VirtualEscrow

MAY

2007

Rob

I'll take a look at the groups. Thanks for the suggestion.

I hope Tim has a chance to respond to my questions. I realize he's blogging away on his own site.

Rob

I didn't realize that Tim had a blog. Do you have a link to share?

Oh, sorry Ed - I am confused (seriously)...... I thought when I replied to someone named Tim..he had a site.

So you can help me with the ABA question and the business model point I made.

===============

"I was confused with Tim's comment that implies that IF a Title Company can get away with earned interest of escrow monies above bank fees... they will. (I quoted his words in a previous comment). I disagree. I do not believe there is some hidden agenda of companies like mine, of which there are many, who delay payments, etc... as a revenue stream.

Why would I want a business model that loses business?"

==================

Just a question.

Rob

I'll send Tim and email to let him know of your question. Also, I entered this post in both of the groups that you suggested.

Here everything is on the HUD. How much the RE Pro makes, how much the Mortgage Broker makes, how the MB earns on the back side. But the title company does not have to disclose how much their share of everything is.

Not good, though, but nobody cares...

If nobody cared , we would not be having this discussion. I have no problem with disclosure of what a Title company makes...heck, the fees are on the HUD. I think however, that many people are getting the impression that it is in a Title companies best interest to delay payment, when in fact that makes NO sense unless a Realtor is getting a kickback (ABA type, RESPA 'approved')

There is NO upside to me holding money when business models are made through referrals....of which are gained by (partially by) dispersing monies as quickly as possible.

As a Realtor / Mortgage Broker...why would you NOT want your money ASAP? If you are not getting it because 'your' Title company is delaying disbursement....why use them?

MAY

2007

Which part of the Hud is confusing and not reviewed at closing? I ALWAYS tell Realtors and Mortgage Brokers to 'watch out' for item 1100.... that's where some garbage can be put in.

=============

1100. Title Charges: Title charges may cover a variety of services performed by title companies and others. Your particular settlement may not include all of the items below or may include others not listed.

1101. Settlement or Closing Fee: This fee is paid to the settlement agent or escrow holder. Responsibility for payment of this fee should be negotiated between the seller and the buyer.

1102-1104. Abstract of Title Search, Title Examination, Title Insurance Binder: The charges on these lines cover the costs of the title search and examination.

1105. Document Preparation: This is a separate fee that some lenders or title companies charge to cover their costs of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.

1106. Notary Fee: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them.

1107. Attorney's Fees: You may be required to pay for legal services provided to the lender, such as an examination of the title binder. Occasionally, the seller will agree in the agreement of sale to pay part of this fee. The cost of your attorney and/or the seller's attorney may also appear here. If an attorney's involvement is required by the lender, the fee will appear on this part of the form, or on lines 1111, 1112 or 1113.

1108. Title Insurance: The total cost of owner's and lender's title insurance is shown here.

1109. Lender's Title Insurance: The cost of the lender's policy is shown here.

1110. Owner's (Buyer's) Title Insurance: The cost of the owner's policy is shown here.

1100. TITLE CHARGES
1101. Settlement or closing fee to
1102. Abstract or title search to
1103. Title examination to
1104. Title insurance binder to
1105. Document preparation to
1106. Notary fees to
1107. Attorney's fees to
(includes above items numbers; )
1108. Title Insurance to
(includes above items numbers; )
1109. Lender's coverage $
1110. Owner's coverage $
1111.
1112.
1113.

This isn't rocket science. If you are using an ABA for kickback purposes, then you should not be complaining or questioning. If you are using a Title company that is delaying payment....you should change companies.

Axel

I agree that undisclosed fees collected by a title company aren't a good situation. However, I'm sure that the public would care about a single company earning 20 plus million dollars annually from undisclosed interest on escrow accounts. I'd say we're talking scandal at that point. Thanks for commenting.

Rob

Reading your comments this morning brought still another question to mind. We both know that all title insurers have direct operations competing against agents. I'd love to know how much interest is earned by each underwriter annually. I'm certain that we'll never hear that number.

Bizzillions I would imagine, versus a smidgen for 'mom & pop" shop.

Rob

That's exactly what I'm thinking. I feel badly for small title operations right now and this is just another example of an unfair advantage in favor of large players.

Ed and Peekin' (Rob)

Do either of you realize how much you have taught me in the last few days? :)

TLW...ROAR!

Well thank you TLW. That's very kind of you to say. I was hoping for more input from the title community on Active Rain. Rob really stepped to the plate on this one and represented his company and his industry very well. I know an honest and knowlegable title guy when I meet one.

Input is elusive on AR ...

However...Please know that there are many people like me who read every last word on a post like this :)

TLW

Again, you flatter me and I love every last bit of it. Thank you.

MAY

2007

Great post - I'll check into this.

Jack

MAY

2007

Jack

Thank you. Please get back to me.

Dearest TLW... please flatter me (I'm over to your right, tall tree)

Ed - Normally I would have expected input from at least two additional Title companies - but perhaps, just perhaps, this subject is like a hot potato. (Realtors refuse to enter an AfBA discussion on AR I believe for the same reasons).

It's very difficult for people and companies to look in the mirror and MAKE SURE they are playing the game the RIGHT way, not just per the RULES.

I've enjoyed the subject. I'm sure we'll be hearing more from the government in months to come.

Rob

Thanks for "weighing in" the way that you did. I'm certain that the Active Rain community recognizes you as a concerned and serious professional.

Not to sound like a total moron, but Rob mentioned something about an AfBA discussion, what exactly does that entail?

I think posts of this nature are vital to the growth of every aspect of the industry. I would love to see one on Mortgage Companies, Lord knows there are hacks in my chosen profession.

MAY

2007

Rob - the genesis of my article was testimony in front of the Colorado Business and Labor Affairs House Committee wherein the owner of the largest title company said he made money on his overnights and that the funds made this way subsidizes his rates and fees (although he is an agency, he owns his own underwriter). I discussed a way that title companies can increase their float time to increase their profitability which I find objectionable due to the undisclosed nature of that activity.
It seems odd to me (perhaps it shouldnt) that you are the second person from Pennsyvania who keeps trying to turn this into a referendum on AfBAs when in fact it is something more germane to fair treatment of consumers. I can only surmise that the marketplace in Pennsyvania is much different than the one here in Colorado. Our regulators have clearly accepted the propriety of AfBAs and provided guidelines (there are no clear guidelines on the interest question I was discussing).
So, although it is not directly what I was trying to address, I will answer your question regarding rates and fees.
1) An underwriter (who may have multiple agents in the same county) will file PREMIUM (rates). Since there is no clear actuarial definition of how this number can be arrived at, when one of the underwriters for the big two agencies (the underwriters being FATCO and ORT) files an increase, most other underwriters will shortly do the same (within a few dollars) - "competition" being the most often cited reason. Every agent for that underwriter must use the same premium and deviation charges.
2) FEES are then filed by the agents for the closing activities, nearly all of which are provided by title agencies. Again, agencies will look at each others charges and file accordingly. And again, the market dominating companies pretty much command what everyone else files.
This being said, all charges must be "reasonable" (however that would be determined) and at least cover the cost of providing them. This is what makes the subsidy comment so revealing.
AfBAs are in no better position to charge more than so-called "traditional" agencies and in fact have reason to charge less (my company does). Traditional companies, again according to earlier Legislative testimony, spend between 25 and 30% of their budgets on MARKETING, something an AfBA does not. Here is the secret to the AfBA success - you can capture a market for less to no marketing expense and thereby provide service at more competitive pricing. Several empirical studies have shown this to be true.
I trust this answers your question - I am available by email or phone should you wish more discussion.

One more thing - PREMIUM in Colorado is "all-inclusive". It covers the risk and all activities to mininmize that. There are no charges for the search, the exam etc as there are in other parts of the country. The FEES filed by agents cover the closing, disbursement and recording of the transaction.

Wow - when did this discussion change subjects? I think both the original issue of interest on escrows and ABAs are worthy subjects.

Both strike directly at the core issue of CONFLICTS OF INTEREST.

I'm alittle under water today with titles, but I'd love to hear more on the subject and will tune in.

Remember, anytime you put your interests in the position of competing with those of the consumer you are serving, you expose your human frailty. Better to cushion your business practices with safeguards so you won't have to make those hard choices.

I'd much rather let my bank benefit from the float than have to think about the escrow account as a profit center.

JUN

2007

All good information.

Carolin Benjamin
Bob and Carolin Benjamin - The Benjamin Team
Keller Williams Integrity First Realty
Gold Canyon Arizona

JUL

2007

I'm not sure what title companies you are used to dealing with, but that type of account is an in and out account that is a non-interest bearing account. It would be illegal to be collecting interest on those types of funds.

Lisa

Escrow practices vary greatly from state to state. In most states, title companies, are permitted to retain the interest earned on escrow accounts. In many instances, there's no requirement to disclose to consumers. Theoretically, funds should quickly clear escrow, but in practice it's simply not the case.

On the subject of escrow accounts, PA title insurers should check their unclaimed property status. The Dept. of Treasury is focusing on escheat compliance in title insurance. They've met with at least one underwriter and a few agents.

JUL

2008

In the state of Mississippi, it is illegal to have an escrow account that draws interest and the amount that is required to pay off the current mortgage is taken from the payoff and will include a per diem or "interest per day" according to the instructions given on the payoff!

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