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Source of Title Blog

Troubled Consumers Want Assurance
by Robert Franco | 2007/08/06 |

There is a great article in the Springfield Business Journal, Veteran Title Agencies Forced to Defend Practices. Basically, it describes the problems that Guaranty Title caused with its defalcation. Consumers want to know that they don't have to worry about getting caught up in a similar mess.

“It doesn’t take long to learn how to steal that money,” Clinkenbeard [general manager of Springfield-based Fidelity Title Agency] said. “It can happen fast.”

In recent weeks, Clinkenbeard and his agents have been reassuring customers that the title insurance industry – like all business sectors – has a small number of bad apples. He said the Guaranty Title scandal has had a chilling effect, especially for homebuyers handing over thousands of dollars in earnest money to Fidelity Title.

“The biggest question we get is, ‘How do I know you guys aren’t going to do this to me?’” Clinkenbeard said. “It’s a bad situation. Fidelity Title shouldn’t have to explain itself.”

That would be a tough question to field for anyone. It's like asking someone if they are lying to you... even if they say "no" how do you know that's not a lie? I don't think any agent would tell their customers that they have been embezzling funds from their escrow and its basically a game of musical chairs. "Let's just try to get your closing done quickly before the music stops."

Though underwriters conduct routine audits of their agents, the results of the audit aren't made public. As the Guaranty defalcation shows, even if their is a serious problem known to the underwriters and the department of insurance, it can be concealed for quite some time.

Is it necessary, at this point, to require title agents to undergo a public auditing process? Once a year agents could have their books audited by a public accounting firm to reassure the public that the company's escrow account is whole. But, what a pain that would be for an agency to submit to every year.

Maybe consumers just need to be reassured that their title company has been well established. Guaranty was founded in 2001 and developed the shortfall in their escrow account by 2006. By contrast, Clinkenbeard said that his agency has been around for nearly a century, through various owners and he purchased the agency from Fidelity, its underwriter, in 1997.

But even this doesn't seem to be a great measure of stability. An established agent could turn on hard times and not every new agent is susceptible to such dishonesty.

Defalcations can really be damaging to the reputation of the industry and have an impact on all agencies. The best way to control the situation is for better oversight by the underwriters and the departments of insurance. When a problem is detected, the agent should be canceled immediately. Or, if the underwriter and DOI believe there was an honest mistake that caused the shortfall, a controller should be placed in the office to straighten things out.

Consumers must have confidence in the title companies that handle their transactions. If the industry is unable to provide it, the regulators might have to consider requiring public audits, which nobody really wants.

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com

Source of Title Blog ::




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Categories: Defalcations, Title Industry

768 words | 2667 views | 6 comments | log in or register to post a comment


As usual, I think most people in th...
As usual, I think most people in the business would agree with you. A couple of responses though:

(a) The biggest hurdle to consumers having confidence in us is the same hurdle for most of our problems: the vast majority of consumers don't understand our product or care what it is. The title insurance premium is just something the lender requires them to pay. If they pay attention to news stories about agent defalcation, all this does it add to their picture of the industry as a whole being a an unnecessary rip-off. How to change that of course is anybody's guess.

(b) Underwriters, although they might not care to admit it publicly, take a kind of kid glove approach to their agents when it comes to auditing. They hate fraud more than we do, but they know that the more they police the activities of their agents (and burden them) the more likely agents are to use a different underwriter. They want to catch the bad agents before things get out of hand, but this is not possible without constant monitoring. Constant monitoring though is just as likely to drive away the good agents with the bad.
 
by David Jenkins | 2007/08/06 | log in or register to post a reply

Good points. Personally, though, I...
Good points. Personally, though, I have never minded our annual audits. They were much more thorough my first few years. I actually sat down with our auditor and discussed his findings. I appreicated the feedback and made a few changes to our proceedures as a result.

Now our audits are usually done via email. I send them copies of our bank statments and reconcilliation records. Of course, we a re a very small agency and there isn't much to our records... escrow accounts always balance.
 
by Robert Franco | 2007/08/06 | log in or register to post a reply

When we formed TCS as a limited par...
When we formed TCS as a limited partnership we decided to have annual audits by an independent CPA. It's not cheap and somewhat time consuming but I think it's worth it to reassure everyone that our accounts are in order. 
by Diane Cipa, General Manager, The Closing Specialists® | 2007/08/06 | log in or register to post a reply

Just to add to the discussion, here...
Just to add to the discussion, here is an interesting wikipedia description of an economic principle that seems to apply in part not only to us but also to the lending industry. The fit is not precise, but some of the same factors are at work.

http://en.wikipedia.org/wiki/The_Market_for_Lemons

The one thing I think we find parallel in our markets is that the consumers really don't know what they are getting in quality until the last minute when the closing happens (or doesn't). And despite our best efforts the consumer will leave closing not knowing that the quality of our service or their lenders is any better or worse than anyone else's because of the nature of the market.

We may hope they come back to us, but I think most will simply perceive that the market is homogeneous as far as quality of service and product goes.
 
by David Jenkins | 2007/08/06 | log in or register to post a reply

That's a really good observation, D...
That's a really good observation, David, and well put.

I think the goal then has to be doing whatever it takes - lawfully and ethically - to make that consumer's experience perceivably better than they expected. Whether it's visually difference - as in company branding - or staff is exceptionally gracious or pleasant or efficiency is noticably good - whatever. I think each company has ot find its forte and play it up.
 
by Diane Cipa | 2007/08/07 | log in or register to post a reply

It's a fine line. On one hand I wou...
It's a fine line. On one hand I would prefer that government take a limited role but that may be because of my inherent mistrust of government. More government regulation means increased costs for everyone involved (at least in my experience). On the other hand you have situations like David mentions where underwriters are reluctant to delve to deeply into their audits for fear of losing business. Of course if the company they are unwilling to fully audit goes belly up they lose that business any way.
I like the independent internal audit idea that Diane mentioned and IMO it is a good way to differentiate yourself and increase consumer confidence. The problem is that most companies will be unwilling to take on this added expense.
IMO it is up to the underwriters to take this issue on otherwise they will lose business and it will eventually lead to government stepping in and taking over, which I am sure the underwriters don't want to happen.
 
by Mark Pilatowski | 2007/08/07 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

 

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