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Source of Title Blog

Collecting Abstract Fees Upfront
by Robert Franco | 2007/12/12 |

Should abstract fees be collected upfront like appraisal fees? Diane Cipa believes so. In a recent post on the Source of Title forums, Diane announced her crusade to change the way the industry charges consumers.

I refuse to stiff an abstractor if a transaction does not close. I expect the buyer/borrower to foot the bill and so I am on a crusade trying to get the industry to collect a fee up front to cover abstract and lien letters or at the very least collect cancellation fees.

I have found that mortgage lenders and real estate agents understand what an appraiser does and they understand that the appraiser's work must be paid. It's a pass-through fee. They just don't get it that your work is largely the same.


I wholeheartedly agree with her that if an abstractor is engaged to provide a title search and they do so, they should be paid for it. That just seems to be so obvious that it really should be beyond the need for discussion. Unfortunately, it is a real problem in this business... not all of those ordering title searches think they should have to pay their abstractor if their deal falls through - shame on them.

However, I see some major differences between appraisals and title searches.

Source of Title Blog ::


First, the appraisal is always performed by an independent appraiser. Unless, of course, you are talking about First American, Washington Mutual, and eAppraiseIT; which is why the New York Attorney General has sued First American.

Not all abstracts are performed by independent title abstractors. Many are still done by in-house, employee abstractors. That is how we do the majority of our title searches for our closings. In those cases, we are NOT talking about a fee that is to be paid to an independent third party for services they performed. If the abstractor is paid an hourly rate, which they would presumably be paid regardless of whether they did the search or not, how much should be collected for the title search? Should they be collecting what they normally charge for an exam fee? If so, that would be much more than the cost, or even what an independent abstractor would have charged for the search.

Second, the appraisal is necessary to determine whether or not the borrower can even get a loan. Rarely does the loan depend on a clear title search - the purpose of the title search is to find out if there are any defects so they can be corrected as a part of the closing process.

Third, the appraisal is something that the homeowner needs to be able to get the loan. By contrast, the title search is something that the title company needs to issue title insurance. Often the borrower is permitted to choose their appraiser, although usually from a short list of approved appraisers. They are never permitted to choose the abstractor that the title company uses for their title search.

And, Fourth, it is rarely the borrowers' fault that the title order cancels. Why should they be required to pay for a title search? The real problem is that loan originators or Realtors, being in such a rush to close, order the title work prematurely. The most common reason that a deal cancels is due to the appraisal falling short. Title companies want the order so bad that they are willing to get started early, before the results of the appraisal come in. In order to accommodate their sources of business, the loan officers and Realtors, they are willing to take a chance on the deal falling through and they waive any cancellation fees.

Why should the borrower be penalized because their loan officer or Realtor jumped the gun and placed the order before they were sure they could even obtain a loan? When you factor in that the title companies are so willing to accommodate their referrers that they readily accept the order before the appraisal comes in, it seems even less fair to charge the borrower any cancellation fees.

All that being said... if the title company chooses a policy of requiring the costs be paid on the cancelled orders, and it works for them, I have no problem with that either. But, that should be a choice that the title company makes based on the impact it will have on their business. Regardless of whether they charge the consumer or not, if they do order a search from an independent abstractor, they have an obligation to pay for it. Just as it is not the borrowers' fault if the title order cancels, neither is it the fault of the abstractor.

I don't really believe that cancelled title orders is the reason that most abstractors have trouble collecting from their clients. Many of the searches that abstractors get stiffed on do close and the clients still don't pay. The problem isn't really rooted in cancellations, it is in unethical business practices of many of the abstractors' clients.

When it comes to abstractors not getting paid, the answer lies in more rigorous collections methods, including filing law suits if necessary. Unfortunately, it is too easy for a client to run up bills and switch to new abstractors. Often times, that isn't even necessary. Clients will make partial payments and abstractors will continue to work for them - not willing to give up some revenue. If the abstractors as a group would stop working for the companies that don't pay their invoices, maybe things would change.

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



Rating: 

Categories: Abstractors, Billing Issues

1244 words | 4348 views | 25 comments | log in or register to post a comment


I tend to agree with you Robert. I ...
I tend to agree with you Robert. I have no problem with someone who charges a cancellation fee. On the other hand I don't really have a problem if one is not charged. Like you said many times a cancellation is not the fault of the actual borrower.

We are in the same situation as you seem to be. Our abstractors are hourly employees and they get paid whether they conduct searches or not. So it does not make sense for us to charge the customers if an order cancels. If we were paying a third party for this service I think our attitude might be different.
 
by Mark Pilatowski | 2007/12/12 | log in or register to post a reply

If title agents are the "low men on...
If title agents are the "low men on the title totem pole" then abstractors are truly the "Rodney Dangerfields" of the title industry. We just don't get no respect. I really believe that many title agents just don't understand the time and effort that goes into a properly prepared abstract report. I think the mindset among real estate professionals in general is that title searching is something that is primarily done part-time by retirees and housewives who just want to make a few extra bucks on the side.

I think that's a BIG reason that abstractors so often are the ONLY ones who are expected to basically work for free if a transaction does not close. Why shouldn't the buyer pay a cancellation fee? If I call a repairman out to my house to fix my furnace, I have to pay him a fee for the service call even if he doesn't find anything wrong. Appraisers, surveyors and home inspectors get paid regardless of whether or not the deal closes. Why should the searcher be treated any differently than any other professional? I put out a substantial amount of money up-front to get a search to a client's desktop, not to mention the tremendous liability I'm being asked to assume. Why am I the only one in the "food chain" expected to "eat" my fees?

Personally, I'd like to see a requirement that the abstractor's fee be listed as a separate line item on the HUD, rather than being buried in an "all-inclusive" title premium as is the case in PA. That would at least allow some flexibility for title agents with in-house abstractors.
 
by Scott Perry | 2007/12/12 | log in or register to post a reply

"Third, the appraisal is something ...
"Third, the appraisal is something that the homeowner needs to be able to get the loan. By contrast, the title search is something that the title company needs to issue title insurance..."

A title search is also needed to issue an owner's policy (which protects the BUYER'S interest). I wouldn't even consider buying a piece of real estate without one.
 
by Scott Perry | 2007/12/12 | log in or register to post a reply

Regarding: "If I call a repairma...
Regarding: "If I call a repairman out to my house to fix my furnace, I have to pay him a fee for the service call even if he doesn't find anything wrong."

Yes... but how often does the borrower call you to order a title search? Ummm... never? The title company or VMC orders it from you. Therefore, the title company or VMC should pay you for it. If they want to seek payment from the borrower - fine; but, I don't think that should be required and in most cases would probably be unfair.

"Appraisers, surveyors and home inspectors get paid regardless of whether or not the deal closes."

Actually, around here the surveyors all waive their fees if the deal doesn't close. I don't understand why, but they do and have for as long as I have been in the business.

"A title search is also needed to issue an owner's policy (which protects the BUYER'S interest). I wouldn't even consider buying a piece of real estate without one."

Yes, but the borrower doesn't need "the search," in fact, they are never provided with a copy of it. At least when they pay for an appraisal, they are entitled to a copy of it. It's all about the title insurance - they don't care (or even know) what needs to be done to issue it.

Not to mention that owner's policies are not required - in fact, nearly half of all homeowners do not have owner's coverage. If the loan officer or Realtor only orders a loan policy, should the borrower still have to pay for the search?

It's really a very simple principal: If you order it - you pay for it; if someone didn't order it from you - you don't charge them for it.
 
by Robert Franco | 2007/12/13 | log in or register to post a reply

"Yes... but how often does the borr...
"Yes... but how often does the borrower call you to order a title search? Ummm... never? "The title company or VMC orders it from you. Therefore, the title company or VMC should pay you for it. If they want to seek payment from the borrower - fine; but, I don't think that should be required and in most cases would probably be unfair."

Why? What's unfair about paying for something that's been ordered on your behalf?

"Actually, around here the surveyors all waive their fees if the deal doesn't close. I don't understand why, but they do and have for as long as I have been in the business."

Probably because they know if they don't, they run the risk of losing referral business.

"Yes, but the borrower doesn't need "the search," in fact, they are never provided with a copy of it. At least when they pay for an appraisal, they are entitled to a copy of it. It's all about the title insurance - they don't care (or even know) what needs to be done to issue it."

I don't get a copy of the diagnostic for my furnace, either. So, if I don't care or know what it takes to fix my furnace, I shouldn't have to pay for it?
 
by Scott Perry | 2007/12/13 | log in or register to post a reply

A mortgage lender cannot approve th...
A mortgage lender cannot approve the mortgage without both the appraisal and title insurance commitment.

I don't care who pays for the issuance of a title insurance commitment - borrower or lender.

Appraisers bill the lender. The lender collects the money up front from the borrower so the can cover the invoice.

If you devalue the work that goes into the production of a title insurance commitment, whether the abstract is performed by employees or independents, then you are part of the problem and need to re-evaluate how your attitude helped to create the entire joint venture, aba problem.

If we allow realtors and lenders to think any monkey can do this, they will think any monkey can and that they are doing you a real big favor by sending you a referral.

I'd so much rather that they respected my work and understood the difference between providers in title.
 
by Diane Cipa | 2007/12/13 | log in or register to post a reply

I tend to agree with Scott on this ...
I tend to agree with Scott on this issue. As a previous owner of a small title/settlement shop of doing 30-40 loans a month, whenever a loan did not close, I had to pay the abstractor regardless, which was money out of my operating account, payroll, etc. The problem alsways has and always will be that the clients, whether small local brokers or big national lenders, order the title too quickly and nobody does anything about it. I have since left my small operation and have been involved with joint ventures, and let me tell you, the order to closing ratio is unreal. We tried to tell them when to order, but nobody listened. And when you are dealing with a BIGTIME lender and the order to closing ratio is 40%..figure the losses. 
by | 2007/12/13 | log in or register to post a reply

[Just shaking my head this morni...
[Just shaking my head this morning.]

As Dennis aptly pointed out, the problem is that the clients order the title too quickly. You can't blame the borrower for that. They don't know how this business works. The loan officer or Realtor should know better, and if you are doing the work before the appraisal comes in - YOU are agreeing to take a known risk as well.

I don't have a problem with cancellations - I never have. Frankly, my cost to produce a title commitment is not that great. And, if the order cancels, I have no liability on the search or commitment. I see no reason to ask for an upfront fee that is just going to get passed along to the borrower. And, I DO pay my examiners - even if we hire an independent.

Diane: I fail to see how I have done anything to create the AfBA problem - I don't operate an AfBA. If I understand one of your posts correctly - YOU DO.

I thought about standing my ground but I decided I'd be the last man standing and for what? So, I started considering ABA options.

I absolutely abhorred the sham shops. You know the type, one title agency with 25 names on the door.

I refused to be chained to a desk working for one real estate office. I know many took that route but to me it was indentured servitude and I just wasn't going there.

With this heavy load on my mind, I attended a seminar and was introduced to the concept of a limited partnership with 35 partners. It still was too limiting but it opened up possibilities and so I talked with my attorney and we brainstormed and finally game up with the TCS initial offering.

My plan was to raise $50,000 in initial capital by selling individual units at $500 a piece. So that no one took too large a percentage of ownership, we limited entities to a maximum of 10 units. We limited participation to licensed mortgage lenders and real estate brokers/agents and employees of TCS.

Maybe that has something to do with your ability to charge the borrower the upfront fee. You have captive business that shares in your profits - and losses - so they have an incentive to order title work prematurely and pass the cost of their haste along to the borrower.

I don't know of any local agencies around here that charge upfront fees or cancellation fees. We are certainly permitted to - but there just isn't a real need to do it.

Somehow, I think you would all feel differently if YOU were the consumer. If it were me, I wouldn't pay it. The loan originator or the Realtor should have known better than to order the title work before the appraisal was completed. If they want to get started before we even know if the lender will approve the loan - THEY take that risk.

But, to each their own - if you want to charge upfront or cancellation fees, by all means, you are free to run your business anyway you see fit. As am I, and, I choose not to penalize borrowers for something that they have little control, or real understanding, of. I'm fine with that and so are my customers.
 
by Robert Franco | 2007/12/13 | log in or register to post a reply

It is "common practice" to order th...
It is "common practice" to order the search when you get the order. If you do not, you are liable to lose the business. Also, in the state of PA, there are tax certifications that need to be ordered. So, not only are you paying the abstractor to do the search, you are also sending co/local/school tax certs out that are not free. Years ago when I got in this business, there used to be a cancel fee charged AND paid. You can thank the bigger VMC's for taking that piece out of the puzzle. Until something is done, it is going to be the little guys that suffer. I was an independent operator with no ties to anyone and it was hard to generate new business without hearing the word "kickback".  
by | 2007/12/13 | log in or register to post a reply

Robert: In normal market condition...
Robert: In normal market conditions we close between 150 and 175 transactions per month. Want to know how many of those come from limited partners? Maybe 10 so don't throw that in my face because I do not operate a captive shop.

True RESPA compliance isn't lucrative for partners and if you read the entire piece you would understand the outcome of the hybrid ABA experiment.

Understand the motivation of human beings and you will understand the power of fear. Start charging for services rendered and you will see mortgage lenders change the way they order title. If you give it away harlot style, how can you blame them for disrespecting you so.

I believe giving up title examinations for free in exchange for future referrals [fear of loss of referrals] is giving something of value and thus a compliance issue.

At the core of this discussion, frankly, is the value one places upon their contribution to the transaction. I place a high value on mine.

Trust me when I say that it takes bravery to stand up and charge cancellation fees. I have lost much business on account of this position. Somebody somewhere has to stand up and say this is wrong and I'm not going to take it anymore.

In the corniest of movie moments, Sally Fields as Norma Rae stands up with a sign that says UNION.

Title people who choose to operate underneath Massa's whip - have at it. In will not and I hope YOU will join in this quest for freedom.

 
by Diane Cipa, General Manager, The Closing Specialists® | 2007/12/13 | log in or register to post a reply

Make that "I will not......."...
Make that "I will not......." 
by Diane Cipa, General Manager, The Closing Specialists® | 2007/12/13 | log in or register to post a reply

I guess it is just a different mind...
I guess it is just a different mindset... I don't waive my cancellation fees because of a fear of losing business. I don't charge them out of respect for the borrower, who in my experience is usually not to blame for the deal falling through. And, again, I don't have a high cancellation rate so it is not a problem.  
by Robert Franco | 2007/12/13 | log in or register to post a reply

Yet, you won't charge the lender or...
Yet, you won't charge the lender or the Realtor who place the order. Why is that? 
by Diane Cipa, General Manager, The Closing Specialists® | 2007/12/13 | log in or register to post a reply

What I find so maddening and surpri...
What I find so maddening and surprising is that there just is no trade association - not one - who sees the need to protect members or potential members from financial harm.

Theft of services is theft of services and someday, God willing and the creek don't rise..... title people will get the strength and fortitude to stand up for themselves and find value in their services - this strength and bravery that seems to come so naturally to notary signing agents and appraisers.
 
by Diane Cipa, General Manager, The Closing Specialists® | 2007/12/13 | log in or register to post a reply

For those readers of Source of Titl...
For those readers of Source of Title Blog who do not use independent abstractors, I am curious. From the point of receipt of a title order, how many man hours to you spend creating a title commitment, including search time, typing, etc.
 
by Diane Cipa, General Manager, The Closing Specialists® | 2007/12/13 | log in or register to post a reply

I just wanted to add that I had a i...
I just wanted to add that I had a independent abstractor base and there was never a vendor that was not paid on time even if the file was cancelled.  
by | 2007/12/13 | log in or register to post a reply

I don't charge cancellation fees to...
I don't charge cancellation fees to the lender or Realtor mainly because I don't need to. If I did, they would most likely pass them along to the borrower - or simply not pay them. I am pleased that I am able to provide that courtesy to our customers.

In the end, if the deal cancels, my product is of no use them. They don't benefit from it, and I have no liability. If I do not charge them for it, we are all happy and we just move along to the next order. The only person not getting paid here is me, and I don't mind not charging for something that nobody is going to use. I'd rather focus my effort on ensuring the borrower is happy and helping those that do close.

I have had customers offer to pay my for my time when a deal cancels - and the offer is enough for me. I feel good when I tell them not to worry about it.
 
by Robert Franco | 2007/12/14 | log in or register to post a reply

Well, thanks for providing a forum ...
Well, thanks for providing a forum for opposing views, Robert. Healthy debate is wonderful.

What's your take on title companies providing free CE courses to lenders and Realtors? Ed had a nice Active Rain discourse on the subject.

http://activerain.com/blogsview/302099/CE-Courses-Sponsored-by
 
by Diane Cipa, General Manager, The Closing Specialists® | 2007/12/14 | log in or register to post a reply

Interesting question. I think it i...
Interesting question. I think it is in the best interest of everyone to have CE credits. If the title company has someone qualified to offer a CE course, I don't think I would have a problem if it were provided for free.

If they are also providing the accommodations and a fancy lunch with goodie bags - there is likely to be a violation of RESPA. However, if the board of Realtors pays for the accommodations and lunch, and the local title companies are providing speakers, I think that is great. After all, educating Realtors (or builders or lenders) probably benefits the title companies more than it does the attendees.

I think it's the spirit of RESPA that is important. If it's not a quid pro quo - I'll give you "this" if you send me work - there should be some flexibility. I find it hard to believe that with all of the serious violations out there that anyone at HUD would go out of their way to police an educational event.
 
by Robert Franco | 2007/12/14 | log in or register to post a reply

Well, I think it's just another thi...
Well, I think it's just another thing of value given to those in a position to refer business.

Our title underwriters provided free CE to their own agents for years and they have ceased the practice during this last year - I believe - over RESPA concerns.

In my opinion the free CE with or without lunch is a RESPA no no.
 
by Diane Cipa, General Manager, The Closing Specialists® | 2007/12/14 | log in or register to post a reply

ALL I KNOW IS THAT I NEED MORE WORK...
ALL I KNOW IS THAT I NEED MORE WORK
THE END
 
by charles jetter/cfj enterprises llc | 2007/12/18 | log in or register to post a reply

To Do an Abstact takes Time, Money,...
To Do an Abstact takes Time, Money, Experience & Costs, I pay for Gas, Parking , E & O, Copies, I get taxes, I pay Subscription Fees to various clerks, I eat the cost of Bad Copies, etc., etc., The Abstract should be ordered if the loan is going to close (Barring some Title Problem), It annoys me to no end that some Co's don't want to pay for waht they order & rven expect me to eat the costs associated with same. 
by Peggy Pond | 2007/12/29 | log in or register to post a reply

collecting abstract fees up front

good evening scott, my sentiments exactly, we do the work so we should get paid.

 
by charles jetter | 2008/07/01 | log in or register to post a reply

if i call a repairman

what's a vmc?????

 
by charles jetter | 2008/07/01 | log in or register to post a reply

A VMC is...

A VMC is a Vendor Management Company.

 
by Robert Franco | 2008/07/01 | 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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