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48 Comments on In House Agent Owned Title Companies
Not a good idea, too many "franchises" are jumping on the bandwagon and are asking for trouble. One of our local agencies uses their own company and if the agents do not use them, they have to wait for a longer period of time to receive their commission check, not fair to the agents or the buyers. I believe there are various court cases across the country already addressing this situation, I don't want to be part of that!
I say if you can pull it off legally, compete well in the marketplace (for your customer's sake) and create a service level that you are seeking in your transactions, more power to you. And Lenn's right, there's money in it too if this can be accomplished.
Here's the thing though, what do you want to bet that a lot of those folks in Denver (or anywhere else for that matter) are walking themselves into a web of legal problems. Here's the test you have to meet:
The ten factors HUD considers when assessing an affiliated business arrangement for legitimacy include:
In order to determine whether affiliated businesses are properly limiting their financial gains to the "return of an ownership interest," HUD also considers whether:
So first of all, make sure you aren't stepping on a legal land mine. Then, make sure your pricing isn't garbage (more often than not, these "vertically integrated" outfits are a rip off on price). Lastly, and this is just a personal preference, don't give the title company a similar name to your brokerage and your mortgage company and so on. I've never understood that. If the title company drops the ball (and it will happen), your brand will be damaged as well.
If you can do all this and close more than 33 transactions a month, you'll have a nice supplemental income and new business.
On a side note, title companies are really feeling a pinch right now so be wary of any strategic offers and make sure to have your own counsel evaluate the legitimacy of any proposed relationship.
P.S. AFBA's with a mortgage company is RESPA suicide
Some of the managers and owners of my agency also have part ownership in a local title company.
I choose to use a variety of title companies, but gravitate to one of them which happens NOT to be the affiliated one...
We have never been pressured in any way to use them, and we are a large agency.
We do however have a representative from that title co. say a few words each sales meeting. Some people use them exclusivley- but not all.
Wendi,
Nice post and interesting comment thread...Read between the lines of Lenn's on point comment, and you will find many abuses to 'fair competition' and ethical real estate conveyancing exist...!!!
Compromising the consumer's best interest and blurring the lines of representation are the greatest evils in 'one stop shopping' entities...
The bulk of our title referrals come from over 40 years experience in the business while never being compromised by affiliated business arrangements, more correctly know as controlled business agreements...
Informed and educated consumers realize this, and ethical real estate professionals insist on this...!!!
Thanks, Fran
I don't think I would be comfortable with this. It would be hard to get your clients to understand that you wouldn't be benifiting from recommending your own inhouse closing company.
Wendi, I agree. we have a Tiltle Comapny located in our building but not owned by our company. So some agents use them and some don't. It's a good setup.
Evening Wendi, Yhere is an advantage to being able to keep control of the many facets involved in any transaction. Bottom line for me is being able to offer more than one service provider.
If the in house title company or lender is dealing with your own cllients, fine. But, do you really think that if an agent is working for Real Estate Company A they are going to bring their sellers up to see your title company in the offices of Real Estate Company B?
We had a local company try this. As far as I know, the only ones who used them for title closings were their own agents. I believe it is unrealistic to think that Company B will recommend a title company that is located within the offices of Real Estate Company A. And at least here, you have to disclose your affliation with the title company. And you have to make it clear that the seller can use whomever they want.
In my case, it was a matter of continuing to use the providers I had used for years. But I am sure that many other companies and their agents were not comfortable with saying "Let's let the title company up at Real Estate Are Us handle this for you. Too much to ask.
Too many people are grabbing for a bit too much in my opinion. And that goes for title companies, lenders, some agents, and certainly a lot of brokers. The day will come when we will have to PAY to sell properties for customers.
This has been going on for years in many markets; some also have lenders.
It makes me a little sick to my tummy, because I don't like monsters.
At the end of the day it is up to your client and you should be telling them that. Suggest checking with a few places but offer your in house as well.
Wendy, this has been a fascinating read. Both your post and all of the comments have been an education into the opinions of real estate professionals on the subject of AfBAs.
Here in our market, this has been a reality for years. And, for all of those years I have seen the obvious conflict of interest. For example, the state regulating agency requires, as a minimum satisfaction of RESPA requirement (#6 in Charles Dailey's comment #30) that the affiliated "title agent" must conduct the title examination and make the decision as to whether to insure the loan.
Now, let's take a look at this. If the state has its way, the mortgage broker or real estate broker has the power to waive exceptions (outstanding liens or any other clouds on title) that might otherwise kill the deal. Show of hands, affiliated "title agents", how many of you have ever refused to insure one of your own deals? But, if the brokers don't perform those services, they are running afoul of the state regulators. Hmmm...What to do?
The reality here seems to be that the underwriters that have marketed these arrangements to the brokers do all of the work and make the title clearance decisions. The broker does little aside from signing the title commitment (or preliminary title report) and collecting the premium (minus the remittance to the underwriter) and collecting endorsement fees (which few independent agents even charge for anymore around here). The underwriter will collect its share of the premium and additional fees for its services performes (title search fee, etc.). The consumer puts cookies into the hands of all of the hands that get into the cookie jar.
There are many nuggets of nonsense in the new HUD rules for RESPA. But, if borrowers really do wind up shopping for settlement services, I don't see how the bottom line of the AfBA price can compare to that of the independent agents or underwriter direct operations. Too many hands in the cookie jar, not enough cookies.
I'm no fan of in-house title Wendi. My title professionals are an important part of my team. Most transactions are routine, but when we have trouble on one; I need their archives, their experience and their reserves to make sure it is handled properly.
Plus, who do you want insuring the transaction? A national title company or your broker? Seriously, think about that one.
As a rule I stay away from affiliates, especially title companies.
Most of the companies here in Ann Arbor have them. If they don't have one right in the office they give their business to one of two.
Lenn, is right it is Profit.
I have used the inhouse one recently on short sales. When I need a HUD1 right away, I can walk down the hall and knock on the door and get it quickly. But, I don't use it exclusively.
Evrything must be disclosed to both the buyer and sellers.
They have a choice and I follow their instructions. Some have a preference to one I don't care to use, but I do it with a smile on my face as it is their house and their insurance.
There will always be conflicts in the real estate business. The only answer is educated buyers and sellers that can just say NO!
Wendi,
I forgot to mention last time, . . . outstanding post and congratulations on your feature.
Patrick (39) makes some great points. People who are either doing this or looking into doing this should also consider this - the new good faith estimate has some consequences that need to be taken into consideration. It was designed to create a price pressure on lenders to the point where they would make sure that their vendor's prices were solid. And, in this regard, it worked.
Rest assured, most loan officers either have already or will be soon looking around for cheaper alternatives to the vendors they are currently using. This applies to credit report vendors, flood cert vendors, appraisal vendors and title companies. I was disclosing fees from a title company that had an afba with a brokerage. Now I'm not and I'm saving my borrowers an average of 461 dollars per transaction just on title fees alone. Belive me, I'm not the only loan officer doing this.
So, if you set one of these up, it won't be a matter of saying, "this is the title company we usually use" or something like that. The customer will already have a good faith estimate with title fees that are correst and most likely low. That customer will ask what the fees will before ordering title this year. If you're going to set one up, make sure you can compete with that.
I agree with you Charles that we are going to see our lenders more and more involved in the decision making for the consumer in regard to the loan process (and ultimately title). I've seen a shift with my customers already and I believe that if your fees (in any part of the transaction) are not fair an reasonable, it will affect your business. Service is a very important piece, and I'm also wondering how/if lenders will agree to these types of title companies insuring their transactions. In the past, I don't think it was as much of an issue.
Dawn, I agree with you on the REO business (a separate issue) that demanding certain title providers that made for a very bad situation for us all for a large segment of the resale business. The high handed manner of the banks and disrespect they show other professionals in this business is very unsettling and on a national level, I wish someone would look into it further. I believe there must be kickback arrangements very "high up" that most of us on a local level are unaware of.
I want to thank everyone so much for their feedback on my post. I found it so informative and encouraging to see the beliefs and opinions of so many people on this topic. I think it's great that most value service and stability, first and foremost, in their title providers. I also find it fantastic that most are more interested in recommending what's best for the consumer rather than worrying about recommending a title provider that's the "best" for the profit of the company.
I do wish that companies with affiliated arrangements would not "keep out" competition. We do not get that luxury in the dog eat dog world of title company to title company competition to "exclude" the competition. Fair market competition between title companies allows the Realtor, and the consumer to have choices with no "steering for profit" involved. Choices are then made by good quality of product, price and service.
Managing brokers should not put undue pressure on their agents to use the in house services and independent business professionals (REALTORS) should be able to think independently and be informed on good and bad in the industry (not just what is pressure fed to them). Title companies are there to protect the consumer and the lender and we should be held accountable for quality of product and service (this means ALL types).
A problem many title companies are encountering now that the Afba's have been in vogue for a few years are truly bad clouds of title and flaws that are difficult or impossible to clean up. These inexperienced agencies are doing a poor job of facilitating the release of mortgages/involuntary liens, losing documents for recordings (this happens a lot), not keeping good records, incorrectly vesting people in title, "overwriting" title problems and more. What does that mean? LOTS of exceptions, delay of closing or loss of insurability. And, who is really going to pay escrow losses when the agency "messes" up? It's not going to be the underwriter! It'll be those who are accepting the profits (or in these cases, the losses). It is a cost of doing business in the title world and most Afba's cannot afford a good title research system, so clouds/flaws of title are getting missed. And, in our short sale/foreclosures/title flaw filled market, this should make anyone with a buyer very, very uneasy.
I think there's going to be a big, fat class action lawsuit that's going to come screaming to the forefront some day if we don't clean up our act in this regard. There IS a place for an affiliated business arrangement if it is done correctly AND the follow the rules, regulations, ALTA standars, etc. that other title professionals provide. Someday, I hope we get back to doing business cleanly and ethiclly again.
This is an interesting discussion, and I think that Charles makes a lot of good and thoughtful points around this whole situation.
I couldn't agree with you more - Here is what I posted today on this topic here on Activerain as well as some other sites:
Showing Realtors a Better Alternative to 'In-House' Title Companies
It's a numbers game - the more Realtors I talk to every day the more I hear the shared frustrations of their 'In-House' Title Companies from customer service issues to rising fees.
The re-occuring trend I'm hearing is that the Broker of the office is 'forcing' (for lack of a better word) the agents to use the in-house services whether it be mortgage, title, home owners insurance, etc and Realtors are growing uneasy with it. The customer service is the main issue I'm hearing with complaints like:
I am confused as to why Realtors continue to use these services when it is reflecting on them as professionals to their customers/clients (buyers and sellers) - not on the title company to the end consumers. Now, don't get me wrong - I have heard positives as well and even strong relationships formed within in-house but more and more I am hearing today about the other side of that.
Am I wrong to say that the Real Estate Agent is the boss? The Broker should treat the agent as such since they are bringing in the business and paying for the office essentially. Why force services that do not connect with or work well with the agents? If it works it works - if it doesn't - so be it... The Agents will build relationships with title companies throughout their careers in terms of better service, referrals, networking, etc... The in-house has 100 agents in the office - how are they to make time and effort to do so?
In closing (my favorite word) - My goal for 2011 is to show Realtors a better alternative to in-house title companies - Franklin Title Agency
Thank you for your time and I would love to hear (see) your feedback on this,
Keith Stonehouse
Vice President, Franklin Title Agency
http://www.franklintitleagency.com
Founder, Michigan Realtor Masterminds
http://www.michigiganrealtormasterminds.groupsite.com
Facebook
http://www.facebook.com/keithstonehouse
As an independent title agent I agree wholeheartedly with all of the comments made here by those who think that AfBA's are a problem in our industry and particularly those who think the consumer is the one who really is taking a huge risk.
It is interesting to note that there is proposed legislation before the Congress now to amend Section 1411 of the Dodd-Frank Wall Street Reform as it relates to Qualified Residential Mortgages (QRMs) and the use of affiliates.
A QRM designation on a loan is the standard upon which Mortgage lenders need to hang their hat. By obtaining the QRM designation, the lender is not made to comply with the risk retention provisions of Dodd-Frank. Under that provision, if the total points and fees paid by a borrower in connection with the mortgage exceed 3% of the total loan amount the loan does not qualify as a QRM. The 3% cap INCLUDES title and settlement fees if the lender uses their affiliates to provide those services.
The lenders who are involved in AfBA's are crying foul claiming that because the 3% includes title and settlement related fees if an affiliated is used, they are being discriminated against.
They claim that affiliated title and title-related fees are competitive in cost to non-affiliated title and title related fees. They further state that many mortgage lenders would discontinue offering either mortgage or affiliated title services in the low to moderate income market because that is where the 3% would be most likely to be felt.
They are recommending to the FHFA that legislation be passed to exempt affiliated companies from having to inlude the title related fees into the 3%.
I would urge you all to contact your local representative and tell him/her that you are against any legislative addendums to Dodd-Frank specific to this subject matter. It is in your best interest and that of your buyer as well.