A “Risk Management
Realtors and mortgage brokers are warned that they will be prosecuted for RECEIVING title insurance company payola
A “Risk Management
Rain City Guide
Your Guide to the Seattle Real Estate Market
A “Risk Management
Jillayne,
I just had a sticky wicket not fixable because Title wasn’t our regular. I’m contacting the Listing Agent to get her to use her pull.
We use the same Title and Escrow for a reason. It’s to have CLOUT when the client NEEDS us to have clout. You can’t do that one on one. It takes the threat of possibly losing volume, sometimes from a whole office, to pull of some hairy situations for our clients.
No. Not worth losing clout to pacify some none existent accusation of wrong doing. We do what we do for a reason, and it ain’t cause we are getting anything from Title OR Escrow.
Sometimes people have to respect that we know what we are doing and have a really, really good reason why we do it that way. We can’t change everything we do because of suspicious people thinking we have some underhanded reason of doing it this way.
Jillayne, I 100% agree with Ardell. No one I know uses anyone regularly because they ‘get something’ in return, other than consistently good service. Yes, there are those that ‘get and take’, but I don’t know those people, nor have respect for them.
Just using a company or any service provider regularly isn’t something that can or should be legislated. Last I heard, it was still a free country that we live in.
I know plenty of agents who use the a title company because their company/broker bought into a title company…but, like Jillayne says, you won’t see their comments here. It’s a simple fact it happens. I’ve been told by agents that they use the “preferred title company” because it will keep their desk fees and other costs down. Even back when I was in title (brokers having ownership interest in title companies was just beginning when I left title for mortgage) I would have agents I worked with ask me to send listing packages in blank envelopes because their broker would grill them for not using the company shop. Some agents wised up and left those brokers…many remain.
Jillayne, re: “some title reps are so young that they have never known a world where selling skills were actually used in the title insurance industry.”…I just had to laugh! I think I was the youngest (or first young) rep Chicago Title/King County ever had! I was 21 when I became a title rep…this after I worked in the cust serv/title units for 3 years (I attended “Safeco U”).
I remember a trainer we had on staff for presentations tell a rep (to his dismay) that I was the future…I’m sure he was thinking young, dumb-blond. What he didn’t give me credit for was that I had more years of title experience than many of other title reps (few if none who had worked in a title unit or knew how to read a title policy).
I can’t believe some of the title reps that call on our office…I don’t even want to go there…maybe I’m a critic, because like YOU Jillayne, been there done that!
Hi Ardell,
I am a lot like you in that I will fight like hell to use my preferred vendors because I know the consequences of loyalty benefit myself, my customers, AND ALSO the vendor. Obviously you have nothing to worry about with this new law. 🙂
Real estate agents who work for a broker that holds a controlling interest in an affiliated business (AfBA) such as a title company, an escrow company, or an affiliated mortgage company would be wise to consider the consequences of ONLY sending business to their broker’s preferred vendors.
The consequences of a state and then possible HUD fine are not pleasant and should be considered.
One of the hallmarks of a sham AfBA (or shell company) is that the affiliated company ONLY receives business from it’s parent company.
Realtors, this means title reps who work for title companies owned by Windermere, John L Scott, and Coldwell Banker Bain should be sending their title reps out to call on Re/Max, Century 21, and Lake and Company. When those title reps call on you, instead of shunning them because they’re owned by your competition, consider that they are complying with RESPA when making their sales calls. For more background, consider this HUD memo:
http://www.hud.gov/offices/hsg/sfh/res/res0607c.cfm
This is off-topic, but I am just wondering which RCG threads we should be using to discuss changing mortgage qualifications and standards? Rhonda’s posting on rates would be a great place for this, but she always has the comments closed.
In particular, I am wondering if there is any truth to the rumour that BofA has now listed King County as a “declining” market, and tightened lending criteria as a result.
I am sorry to hijack this thread, but I just don’t know where the correct place for these discussions on RCG are.
Sniglet,
You can write a “guest post”. Just email me a post and I’ll post it from “guest author Sniglet”. I don’t know what Sniglet means, but it makes me think of Winnie the Pooh 🙂
As we come out of our death and rebirth cycle – collectively as the real estate industry – my hope is that the point of sale for title insurance will be more transparent and consumer will shop for services that serve their self interests and not that of the lender or the Realtor.
Many long term relationships, even those not based upon kickbacks or gift, are based upon a willingness and ability to move a deal smoothly to closing. That can be good or bad for the consumer. It may mean that the title insurance provider is an expert and does a superb job. Conversely, it may mean that they perform little if any examination and overlook and pass on items that may cause problems for consumers in the future.
It’s hard to know the difference, but consumers should beware and make their own decisions before placing the title order.
Re number 6, I’d be happy to guest post as well. Maybe then I could keep my comments shorter and more “on topic” as a result! 🙂
I had a borrower call me and tell me that his loan was declined at BOA because of a King county declining market policy (limiting his financing to 90%, instead of 95% as he had planned). I have not verified this w/ BOA, as they pulled out of wholesale in 2008.
Notably, HSBC recently LIFTED it’s declining market restriction. I cannot think of ANY other lender that has defined KC as declining at this moment.
So is it, or isn’t it a declining market? Depends on each lender’s risk tolerance.
I agree with Ardell’s first post here: You pick the title and escrow because of the job they do. For example, we no longer use a particular title company because of the way they treated us on a minor lien item that they agreed wasn’t even a lien. And if that company is selected by a listing agent, we’ll happily pay a cancellation fee just to not subject our client to their mistakes and/or excuses.
The same for escrow. Working with an escrow you are not familiar with is a high anxiety situation.
And BTW, I’m rather upset about these changes–not because they are changes, but because I never got the benefits of the old system, other than not being charged for preliminary titles (which was also something I got back in my attorney days). Well, I did get a hot dog or two out of our title rep, and although they were good I don’t think the value of those exceeded $25.00. 😉
Back on topic:
From the loan originator perspective, title companies (strictly speaking title insurance here) are not highly differentiated. Not much of a difference in price or service, so I tend to go with what is reasonably priced and offers good service.
We do not get to choose title or escrow on purchase transactions, only on refinances. Refinances earn only half of the revenue for a title company as purchases, since purchases involve essentially two transactions, so title companies tend to focus their marketing efforts more intently on realtors.
I have never received any gifts of much value from a Title Rep: a lunch, some doughnuts, some calendars, free advice, etc. This is what I would call typical of any vendor seeking business. Much less of that lately, and the company that gets most of my title business (for low cost and consistently good service) has had to lay off both title reps that served my office.
There are a couple of free services that title companies often provide that may go away, and I will miss. Many have comp search engines that pull county records and compile them in useful ways. I may have to find a replacement, or do without.
Sad.
Another example of legislation and regulation run amok. We shall see how it turns out.
Still on topic.
Jillayne, you do not mention in your article why it is that title companies do not vary much in price for title insurance. We have covered it in comments, but I think it would be a good article.
Since insurance regulations hamper the ability of title companies to differentiate themselves effectively on price, and there is little to differentiate one from another on title services, many chose to differentiate themselves by the distribution of “goodies”.
This is not good for the market or consumer, and really not so good for the middleman either. If someone were to ask me if I would prefer to receive a “free” gift of tickets to a ball game, or direct revenue (no, not from payola, but from increased business resulting from providing lower costs), I would definitely prefer the revenue.
Bear in mind, I am ONLY referring to title insurance service and cost, not escrow services and costs, which in most cases should be evaluated separately.
I would suggest that we allow title insurance companies to more effectively differentiate on price, and pass the benefit around.
Of course, hoping for this to be the result of carefully crafted legislation or regualtion is really hoping for too much.
I can dream can’t I ? 🙂
I disagree Roger. Although I am in Oregon, things aren’t alot different. All Landamerica companies (that would be Transnation, Commonwealth and Lawyers have a Superior Service Guarantee. I believe the guarantee says something like….”if for any reason the service is not what you think it should be….your escrow fee will be refunded to you.” That means if loan docs are late, the communication is not good, there is an error in calculations, people are rude, there are delays…
In the beginning we were terrified that we’d have many many SSG claims….but we don’t. Surprisingly, sometimes we offer to pay an SSG claim because docs were ladt or something else the principle doesn’t perceive to be our fault, and they demur.
It also helps soften the instance where there is an error or omission (for instance the title department misses taxes) we offer the SSG but ask the owner or borrower to pay their rightful obligation.
This is what fries me……Realtors or Loan Officers/Brokers who demand that we eat the taxes etc. or they won’t bring us any more business. Can you see where this might be considered a “thing of value” under RESPA?
Sniglet, I almost opened rates for comments and may do so next week. We have a couple of recent posts that cover guidelines changes and declining markets that may be appropriate for that discussion….
Sniglet, here’s a post that I wrote on WaMU calling our area “soft” http://www.raincityguide.com/2008/02/11/were-not-in-a-declining-marketwere-just-soft/
Sniglet, here’s the post I was thinking might be appropriate on WaMU declaring our area “soft” http://www.raincityguide.com/2008/02/11/were-not-in-a-declining-marketwere-just-soft/
Roger, no more desk calendars for you from your title rep! The most revenue for title companies is a purchase with title and escrow and agents have the most opportunity to direct where title and and escrow go…as a lender, we are on the back burner as far as revenue is concerned.
When I was a title rep (paid commission) my priority was to work with
(1) agents who would direct title and escrow
(2) agents who would direct title or escrow
(3) lenders who did refi’s w/escrow
I mostly worked with agents because I preferred them over lender, not just because it paid better; I found agents to be more professional in general.
BTW I think that a good aspect of this law is that it may create more competion which should result as a benefit for the consumer.
What will title companies do w/all their marketing revenue? It will probably offset losses due to less business.
I’ve suspected that once they get beyond being fined, that the new rules will lead to increased profits for title companies rather than lower prices. Not too many people pick title companies based on price, so I just don’t see them competing that way.
Now let’s analyze Kary’s suspicions using some of Rhonda’s, Ardell’s and Roger’s experiences.
We can make an overall general assumption that Realtors and lenders direct the majority of title insurance business, and not consumers, and title companies are chosen based on service and not necessarily lower rates.
Why is it that we chose service over rates?
Roger says one reason is because title insurance rates do not vary all that much.
Why is that?
And if it’s true that most title insurance companies are chosen because of service and not give-aways, and that there is zero pressure from affiliated business company owners on agents and loan originators, then why is it that we have this new law?
Are we to assume that Senators Weinstein, Delvin, Haugen, and Shin pulled this law out of their butts? I don’t think so.
This new law came from the title insurance companies themselves working in tandem with the insurance commissioner, in order to try and level the playing field, control skyrocketing marketing costs in a down market, and to be proactive about limiting their liability under the office of the insurance commissioner.
If it truly is about service, now the title companies must compete where it matters: service and price.
I still believe the payola will continue, people. It will just move further underground into deeper and darker places where the insurance commissioner and title company competitors can’t see it.
Let me give you an example. A title rep could be paid a “salary” but really that’s their former marketing budget. Now the title rep continues to subsidize a Realtor’s or LO’s business in exchange for orders, but it’s harder for the Insurance Commissioner to track. This is one of the reasons we have this new law; so that the RECIPIENT can be fined.
Here’s another example. A title rep who use to pay for an agent’s, say, printing and mailing by giving the agent a check each month now just pays the printing company directly. When audited, the title company tells the insurance commissioner, “Well, that expense was to print our own company marketing.”
Once again, the recipient is now on the hook….if caught.
It is sad that an industry chose to place a liability burden on its customers to help regulate itself.
What I HOPE to see is that the title companies will take the money that they’ll be saving and put it back into the development of their people.
Nancy:
What do you disagree with me on? I’d be happy to engage and respond, but I’m not sure what we disagree on. Is it my opinion that there is little differentiation in price and and service between companies that provide TITLE insurance?
PLEASE, do not confuse title insurance with escrow service, they are entirely different services and line items. I believe there is a great difference in price and service in escrow services, and always carefully evaluate that balance, to best serve my client.
Another thought came to mind regarding the possibility change in current law.
Does it say that when a transaction fails to close (for whatever reasons), that a fee is owed to the title company, and that fee must be paid? By whom?
And lastly, for now, I would say that I lean toward selection of title and escrow based on cost/price, for service that is needed. That is, I am slightly more cost conscious, than service conscious.
This is because in 90% or more of the loans I do, I gaurantee non-recurring closing costs not to exceed my estimates, which means that careful shopping for services is important to my bottom line.
This is reflective of my general bias that loan costs matter more than loan rates, in most instances, as the average loan does not stay in place long enought to justify the opposite strategy.
Roger, back when I worked at Transamerica (now Transantion) we had an escrow guarantee that if the client was unhappy for any reason, we would refund their portion of the escrow fee. It was a way for agents to be able to sell using the escrow company to their client. Title companies are always after the escrow biz…
Jillayne wrote: “This new law came from the title insurance companies themselves working in tandem with the insurance commissioner, in order to try and level the playing field, control skyrocketing marketing costs in a down market, and to be proactive about limiting their liability under the office of the insurance commissioner.”
Isn’t that consistent with what I said–that they’ll just be making more money?
Jillayne,
For me it really depends on the client and how easy or difficult their situation is.
Say someone has an 800 credit score and 40% downpayment, is salaried at a job they have held for five years, etc… I don’t care what lender they use.
Say we’re selling a house with no weird easements or liens and the payoffs are well under the sale price. I don’t care which Title Company they use.
I always care what escrow they use 🙂 ALWAYS. Escrow is the most important part of what we do, as far as I’m concerned. I don’t care if it costs $50 more. Just tell me and I’ll pay it or match it. A good client should NOT fight with their agent over which escow over a few bucks. Never having worked with that escrow company, or working with a bad one, is not worth it! Your agent can be limited in how much they can assist you if they are dealing with “a foreign” escrow company where they know no one. You pay the agent a lot, don’t diminish their effectiveness and how well they can do their job for you, by switching escrows on them.
You also don’t choose home inspector by cost. Saving a few bucks is not worth it.
In defense of agents who “take” things from Title Companies, I have never heard an agent ask for something from a Title Company. It’s always the Title Companies wanting to come to an office meeting to tell the agents what they can give them or do for them. So if you stop the Title Reps from offering stuff…this problem gets “nipped in the bud” as they say.
Hi Kary,
That is absolutely consistent. We agree.
Kary, Roger has to watch title insurance company rate schedules because of his own service guarantee.
Do you think one of the reasons title insurance rates are currently not very competitive is because Realtors do not have to pay the owners or lenders policy premium? Not sayin’, just wondering.
Jillayne,
if you think about it, this is no different than punishing the “Johns” who seek the services of prostitutes.
Roger,
Now that I think of it, it’s probably the difference in states that caused me to think we disagree. We do not have independent escrow in Oregon so I tend to think of them as one service provider.
But, that being said, it sure does pay to ask about miscellaneous fees which are not the title premium or escrow fee. If you aren’t an educated shopper you could end up paying more even though the premium and fee were the same or lower.
I’ve had an on-going discussion with a title rep in the area about how I typically spread the business we do between 2 local (but national reach) title companies. Originally, when I got in the industry I started using the firm that was first put in front of me and whose rep I liked, and believed had a good business head on her shoulders. She is no longer in the industry and now has become an agent.
What made me start spreading my business around for ordering preliminary title was a transaction where my clients were forced to use the other company, including their escrow division. It ended up being a very difficult transaction and I was so impressed with how the title/escrow firm handled it that I decided it was worth giving them additional business. So, after that I split my business.
Both of the firms I use regularly have given me and my clients lots of assistance over the past many years and continue to “earn” my business by being good at what they do versus giving me anything such as tchotkes. In fact, I can’t stand the give-away stuff many of these folks have tried to provide over the years. Other than sticky notes and note pads, I could care less about the other materials. Heck, the majority of the marketing materials they produce are not something I want my name on. Maybe by removing the cheesy stuff they’ll get agents to step up their game on higher quality marketing materials.
A third major firm gets very little of my business mostly because of negative service I have received from them. Sorry, but when escrow services suck, I tend to take it out also on the title service – even though I know they’re separate line items/services. Negative association, I guess.
#21. They are planning on cracking down on fees for cancelled transactions as I read in a different posting of this info.
Some of the other warnings we have been receiving have to do with upcoming laws on stricter scrutiny and penalties on mortgage fraud. I wrote a post on my own blog about it, but any agent that is a Realtor getting the Friday legal QA will have this in their inbox from this weekend.
years ago we had to pay $54.25 for cancelled prelim policies, that was no problem. not sure why this new law is coming about? Self-promotion/Recognition for some new lawmakers who read the old legislation and decided it had been ignored is my guess. Basically ignored because there isn’t really much of a problem.
I fully agree with Ardell that choosing an escrow service is very important. They can make, or break, a transaction. And here in Washington state, we can generally choose independent (not affiliated directly with a title comany) escrow services, if we wish.
I honestly do not think they are overpaid, in general, considering the pressures they operate under, and they are no doubt struggling in the current environment of fewer transactions.
I do take issue with escrow double billing reconveyances (charging from $120 to $150 each, even when the payoff states that the bank is ALSO charging to remove the lien from title), but I am hearing that a few of them are changing their policies in this regard, to the benefit of the consumer.
Now, the costs of title insurance…that is another matter, for another day.
I agree with Ardell that escrow is important however I don’t see eye to eye on the lack of importance of the Mortgage Professional regardless of how qualified the buyer is.
I would rank the loan originator equally as important as the real estate agent. 😉
For example, I received a purchase and sale this weekend from a couple that I started working with in early spring. They actually selected me BEFORE their agent. I locked their rate on Saturday…they made this decision based on advice and information that I provided them. And I was available. A credit union, banker or any loan originator not looking out for their clients, might not have locked their buyer in.
So far today, they are ahead 0.125% in rate alone and it’s not even 9am on Monday (when a credit union or bank would be open for service).
I’d say pick your loan originator and real estate agent carefully…regardless of what your credit score and down payment abilities are.
Jillayne, it’s my understanding that Bruce Roberts from DOL has decided it’s okay for agents “to receive” as long as they don’t exceed the $25 limit.
From WAR: “Title Insurance Inducements: $25 Limit Per Year Remains In Effect Washington REALTOR® representatives confirmed with the Department of Licensing, that real estate licensees may continue to receive up to $25 per year of “things of value” from title insurers and/or their agents. Following passage of SSB 6847 this year, the Real Estate License Law was amended and administrative rules will be implemented to clarify what will be permissible in the future. The Office of the Insurance Commissioner, which regulates the title insurance industry, and the Department of Financial Institutions, which regulates mortgage brokers and independent escrow agents, will also be developing rules addressing the referral of business to title insurance companies.
The Department of Licensing will provide more information, direction and recommended procedures to real estate licensees on these issues over the next few weeks. Not only will they post the information on their program website and ListServ, but they will also forward the information to us so that we can publish in the Friday Facts.
Under this new law, the Department of Licensing has authority to take disciplinary action against real estate licensees who violate this provision and accept things of value in excess of the $25 annual limitation.”
Ardell,
I remember very well the free flowing goodies from title company reps (I am not an agent and this was pure observation). Relocation companies, real estate brokers/agents, and mortgage companies all had preferred title companies.
In the Midwest, at least in Illinois and Wisconsin, the Seller can chose their title company…little known fact among sellers, because traditionally their attorney chose the title company to get some of that payola you talk about.
But sometimes those dolla bills come to an end, and those title companies do to- Infamous stories are Attorney’s National Title Network.
I lost my favorite Title Guy. Jesse James Draeger of Ticor. He was tops. I never wanted anything from him except his mind. He was always there for you when the chips were down. Did the Title Reviews and did them well. He moved down to Vancouver area…Fidelity Title, I think.
Anyone who runs into him, tell him we said Hi and he comes with our highest possible recommendation. I was hoping he would marry one of my daughters 🙂
I came across this little study recently, about title insurance issues nationally. It short enough, and worth the reading.
http://www.consumerfed.org/pdfs/title_insurance_testimony042606.pdf
It shows that title insurance is generally overpriced (and why it is overpriced), though it varies greatly by state. I will try and find a state to state comparison. WA state seems reasonable in comparison to some other state’s title insurance costs.
I also came across this tidbit from WA state commish, that aleady said it was illegal for title companies to pay inducements or kickbacks, date Nov 2006.
The only change, as I understand it, is to now punish the recipients of those kickbacks.
I thought there was already a RESPA law that punished someone for receiving those kickbacks.
While I might rant occasionally against excessive regulatory interference in the market place, title insurance cost regulations clearly benefit the consumer.
Look at the title insurance costs for the same product (title insurance only), in some states that lack the regulatory pressures of WA state.
Ouch.
Here is a coherent argument in favor of the Iowa system, with it’s lower title insurance costs. Highly readable. I’m sure there are valid arguments against the position of adopting such a system in WA state, wouldn’t know if they would outweigh the benefits.
Certainly, there is no powerful lobby to promote that system, and a very powerful one to oppose it, which most likely means it is a non-starter.
http://www.iowabar.org/MiscDoc.nsf/2b85a4ea12f4bfac8625669d006e27ab/3260df54a8f7f5fa86256cb80070ee4f/$FILE/Title%20insurance%202.pdf
It’s gives a comparative figure of Iowa title costs vs national costs. I have not been able to find a recent comparative study of title costs by state.
For background on title insurance nationally, this wiki article is reasonably good.
http://en.wikipedia.org/wiki/Title_insurance
OK, I cannot devote any more time to this…back to renumerative work! 🙂
I am only an amatuer researcher, and my other hobbies are much more fun!
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General speaking, Yes, this new bill will help somewhat to balance the competitive field withing the title insurance industry. Personally do not have experience receiving inducements or knowing of someone receiving them.
It is clear that if the rules of Law are taken for whom its intended, I will say that RESPA is taken a good role for Brokers/LO’s and Real State for the most part.
I consider that this bill is more related to those with dual interest on the title insurance industry and the rest of the Real State profesionals with such interest in title insurance companies. Personally, I belive on working with the title insurance company that delivers rather than its “extra benefits”.
Also, aparently, the commercail part of the real state was not covered in a previous bill and I hope that this one will take care of it. How effective its implementation will be?, let’s the time to point the true on that.
I sure that much thought, and work has gone into the consideration for the reason why this new law was needed . I also think that there were debates on the pos and cons,and one can argue one way or the other. But the issue is now a dead horse the new law is in effect . and state regulators will begin enforcesment soon!
I believe that the majority of people in question did not take inducements but, I also believe that some did . This enforcement will create uniformity and will eliminate misundersstandings . The law must be respected because as stated in the article , a law that is not enforced is like not having a law at all.
For those that have a good working relatioship with title companies and do all business there with out taking enducements , I believe you have nothingb to worry about .
Re comments 39 and 41, technically most listing agents have something to worry about, because getting a title company to bill you a cancellation fee is the PITA (as is keeping track of them yourself). Many of the title companies still have not learned regarding that part of the business.