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Who's Watching the Watchers?

By
Real Estate Agent with Integrity Real Estate

Last week, I suggested that real estate agents check up on title companies after closing to make sure that mortgages were paid off.  Why?  Title company executives have been known to "help themselves" to money held in escrow, particularly when business is bad.

See: Is Your Title Company Misbehaving?

Most people don't realize that the title industry is basically unregulated in most states
.   Unregulated as well, are the massive escrow accounts administered by the title companies.  A preliminary federal study released in 2006 revealed a laundry list of startling truths about a misunderstood industry and its primary product, title insurance.  Most startling: title agents are primarily responsible for auditing their own escrow accounts.  It's tantamount to asking the fox to guard the hen house.  The study also found that ridiculously relaxed licensing standards have possibly resulted in an industry of unqualified practitioners. 

The truth about the title industry is frightening: licensing requirements are non-existent in 3 states plus the District of Columbia; 18 states and the District of Columbia do not require a title agent to pass a test to become licenses; only 20 states have an educational requirement as a pre-requisite to licensing.

For the preliminary federal study on the status of the title industry, click here.  For the final report, click here.

An article published in the Springfield Business Journal paints a horrific tale of consumer suffering at the expense of title company malfeasance.  Click here to read article.  Guaranty Title conducted business in Missouri before being shut down last June by its underwriter, LandAmerica. The problem: there's more than $5,000,000 missing from escrow accounts.  While LandAmerica is clearly on the hook for some of the missing funds, it's disputing liability for buyer's deposits held by Guaranty Title for a local developer named Branson Hills Development.

Based on an anonymous tip, Branson's attorney subpoenaed audit reports proving very harmful to LandAmerica.

The report indicates that a routine audit conducted by LandAmerica in April, 2006 found that $600,000 was missing from Guaranty Title escrow accounts at that time.  Several months later, promissory notes were issued by Guaranty Title to LandAmerica to cover part of the missing money.

Why didn't LandAmerica close Guaranty Title's doors upon discovering that escrow funds were missing?

Because Guaranty Title was an enormous company that made a lot of money for its underwriter, LandAmerica, in the form of title insurance premiums.

Why didn't LandAmerica report Guaranty Title's criminal activity to the proper authorities? 

That's the seminal question that casts a shadow of doubt on the integrity of LandAmerica, and possibly the title industry, in 2008.  

It could be said that LandAmerica drove the getaway car used by Guaranty Title to rob a bank.

 
In defense of LandAmerica: the company has a good reputation overall and isn't normally associated with this type of reprehensible behavior.  I hope the company has the courage to step to the plate and publicly dismiss every executive who was involved in the reckless decision making that permitted a rogue title company to continue raping the public.

I want to go a step farther and share my concerns about those of you who collect fees, or soft-dollar perks, for shipping title orders to affiliated title companies.  Don't do it!  It's a business model that's marginally legal, at best, when constructed correctly, but perilous all the same for real estate agents.  In time, your affiliated title company will screw up, overcharge consumers, or steal money and you'll find yourself mortgaging your house to pay for expensive legal representation.  You heard it here!

A special thanks to Diane Cipa for bringing the Springfield Business Journal article to my attention.


Comments (12)

R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

We've had a run of this sort of thing here in Missouri.  Thanks for pointing it out!  

 

Bob Mitchell

ValueList Real Estate Services, Inc.     

Jan 16, 2008 04:42 AM
Fran Gaspari
Patriot Land Transfer, Inc. - Limerick, PA
"The Title Man" - Title Insurance - PA & NJ

Ed,

Great post...don't know where to begin...

First of all, those 30 states that have no educational requirements for obtaining licensing...abominable!

Pennsylvania has a very strict educational requirement as far as CE credits are concerned, but it doesn't seem to have achieved a positive effect...illegal and unethical practices are running rampant in this state, and its stifling competition and consumer protection...'power  steering' is the rule not the exception!!! I've more to say but I'll stay parked...thanks,   Fran

Jan 16, 2008 04:50 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Bob - Thanks!  I'm afraid that Missouri isn't alone in this mess, title company malfeasance is very commonplace at this time.

Fran - I'll stay parked with you.  I don't think this is going to be a well read post because it deals with the title industry.  We'll see.  Our stuff is often pushed to the side.

 

Jan 16, 2008 04:54 AM
Fran Gaspari
Patriot Land Transfer, Inc. - Limerick, PA
"The Title Man" - Title Insurance - PA & NJ

Ed,

Yeah, title insurance...who cares about that boring subject...the smelliest business next to women's perfumes!!! :^) Thanks,   Fran

Jan 16, 2008 05:10 AM
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Ed, Title companies here in California are regulated almost as tightly as banks because they are classified as trust companies.

Some time back you said you would write about ABAs. And what about joint ventures with titile companies?

Bill Roberts

Jan 16, 2008 06:35 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Bill

I've been gingerly leading up to a post about affiliated business.  It's almost time to share my opinionated views on the matter. 

Jan 16, 2008 06:38 AM
Chris Griffith
Downing-Frye Realty, Bonita Springs, FL - Bonita Springs, FL
Bonita Springs Listing Specialist - Agent
I have had a few buyers state their lack of trust for title companies due to the downturned market and regulatory proceedures. 
Jan 16, 2008 06:55 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Chris

Do you feel that the same buyers would be more comfortable closing with a law office? 

 

Jan 16, 2008 07:01 AM
Chris Griffith
Downing-Frye Realty, Bonita Springs, FL - Bonita Springs, FL
Bonita Springs Listing Specialist - Agent
In this area buyers from the northeast, particularly New York ask for an attorney in lieu of a title company. My only closings with an attorney have only been with buyers or sellers from New York, New Jersey.  False sense of trust in al lawyer?  Who knows.  They've been conditioned to use lawyers and they want to do it like they did "back home".  Who knows.
Jan 16, 2008 08:07 AM
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Ed, thanks for this post and I eagerly await your post on affiliated business arrangements. Your welcome anytime to do one on my blog. As you may or may not know I change companies a few weeks, they also have an affiliated business relationship with LandAm. I told them straight up, I would be using my own title company, and they had no problem with that. 

The rep is the office is really good, but I'm staying away.  

Jan 16, 2008 09:25 AM
Greg Knowles Santa Barbara Ca.
Fidelity National Title Group-Santa Barbara - Santa Barbara, CA
Ed, I appreciate your post and I'm sure you knew it would get my attention. You are right, the settlement business is for the most part pretty unregulated across the country. I do find that for the most part the people involved in this business really are terrific people who are honest and have high integrity. Many of those good people are losing their jobs right now for a bunch of reason. The affiliated business arrangement is a big can of worms. Good Luck tackling that one.
Jan 17, 2008 06:13 AM
Dawn Rodriguez
HomeRun Title - Hollywood, FL
HomeRun Title - Title Insurance Company

Ed - Again you have written a great post, although like you and Fran stated, people tend to find our part of this process boring. It is an absolute shame that we deal with millions of dollars on any given day in the escrow account but yet it's a piece of cake to get your license. On the other hand, look how many people have good credit, went to college, got a degree but when they got in front of all that money, the greed kicked in. The temptation. So what really needs to be done to help solve the problem?

Guaranty Title is generating hundreds of thousands of dollars in revenue for LandAmerica so they probably figured either they come up with some arrangement with them or close them down and loose out. With real estate the way it is, I think they are going to try and keep the big guys even if the big guys aren't playing by the rules.

Jan 17, 2008 07:33 AM