NextAce has issued a press release that claims their customers are "expected to better weather the current mortgage crisis."  They make it sound as though they are offering a miracle cure for what ails the title industry.  We are in an election year, so we are used to puffery and promises despite the lack of facts.  But, this press release seems to go beyond that.  It could easily be adapted to a late-night infomercial hawking snake oil. 

Has the mortgage crisis got you down?  Is your underwriter feeling the pressure to reduce premiums? Are you finding it necessary to reduce costs and increase efficiencies? If so, NextAce is for you!

With NextAce's title automation and business process optimization, you will be able to remove net cost by replacing the tedious and time-consuming manual title production process that can significantly reduce head count, both onshore and off.  That is right - no more dusty books, no more abstractors that expect to paid, no more phone calls checking on the status of your search!  With NextAce, you can deliver completed title commitments to your customers in as little as one hour!  But that's not all - NextAce will even reduce your exposure to risk!  That is so important that it needs to be repeated - NextAce will even reduce your exposure to risk!

What would you expect pay for such a service?  Wait... don't answer yet.  There's more.  When you use NextAce for you automated title searches, we will provide the following benefits to your consumers: We will help them avoid foreclosure and get a good night's sleep knowing that their property is free from title defects, or the possibility of missed liens or encumbrances. And, we will save them time and money perfecting the title to their property. Does that sound unbelievable?  Well, you haven't even heard the best part yet.  If you order today, we will even throw in protection against identity theft!  Yes, that's right.  Try getting that from your local abstractor.  [insert pre-recorded audience laugh track]

Now what would you expect to pay for all of this?  $50? $100? More?  Well, you will be amazed to learn that NextAce customers save, on average, $40 per search!  Yes, its true.  NextAce customers have saved an estimated $30 million to date on nearly 750,000 searches!  But you better hurry, we have a limited quality quantity and they're going fast!

Ron Popeil, inventor of the Chop-O-Matic and Vego-O-Matic, could not have done it better himself.  Perhaps we are looking at the "new and improved" Title-O-Matic.  But, can it slice a tomato so thin it only has one side?  I doubt it. 

Let's take a look at the bold claims in the press release and you can decide for yourself.

Title companies have the ability to further improve their operations and impact the entire supply chain during today’s constricted lending environment by broadening their adoption of title automation,” said Cantral [NextAce CEO]. “By automating much of the title production process, these companies can quickly realize faster turnaround times, increased efficiencies, and decreased exposure due to claims."

This seems like an oxymoron. The records that NextAce relies on for their speedy-title searches are limited to those that have been obtained from bulk-sales from the county offices.  Most likely, this is a subset of the complete records maintained by the counties.  By comparison, a local title abstractor has access to all of the necessary records to do a thorough search at the courthouse.  It seems to me that by relying on a subset of the official records there is more exposure to risks.

Of course, the problem that remains is that the underwriters have decided to accept the risk of short searches.  Whether relying on a short search from an abstractor or an automated search from a limited subset of county records, the underwriter cannot effectively reduce its exposure to claims. But, at least a professional abstractor can deliver a thorough search when he is asked for one.  Can the Title-O-Matic do that?

“Title automation benefits the consumer as well,” continued Cantral. “An example of this might be the individual seeking quick approval on a refinance that may allow them to avoid foreclosure. And, reduced risk for the consumer translates into: confidence in knowing that their property is free from title defects, eliminating time and costs associated with perfecting the title to their property; identity theft; or the possibility of missed liens or encumbrances.”

This just seem ludicrous to me.  I would like to see the facts to support a claim that an automated search can help someone avoid foreclosure.  Has a traditional title search ever held up a loan long enough that a homeowner being foreclosed on wasn't able to refinance in time to save their home?  I seriously doubt that contention. From my experience, the lenders' underwriting takes much longer than the title companies need to prepare for a closing.

Here is an example from an open file in my office.  I received an order for a purchase on April 18th.  They had apparently already been working on it for some time - the sales contract I was provided expired on the 15th.  I was told by the lender that they wanted to close on the 25th.  We had everything done and ready to close on time, but they are still not ready.  On May 1st, I called them to ask them when we were closing and they were still trying to "clear some underwriting conditions."

I would imagine that someone on the verge of foreclosure would have some pretty serious underwriting issues to work through.  I don't think waiting 24 to 48 hours for a search, versus a few minutes would present a problem.

And, I would really like to know how an automated search does a better job of providing "confidence in knowing that their property is free from title defects," or "the possibility of missed liens or encumbrances."  I, for one, would feel much more confident if a local abstractor really searched all the records at the courthouse.  But, in reality, the consumer never even knows how the title company obtained the title search.  Has any consumer ever said "Gee, I sure feel better knowing that some computer spit out my title search in a couple of minutes instead of a professional abstractor taking his time thoroughly searching the title?"  I don't think so. 

As for "eliminating time and costs associated with perfecting the title to their property," this really has very little to do with automation versus human abstracting.  No matter where the search comes from a human being must review it an spend the time clearing any issues.  Granted, they get a head start if they get their search in a matter of minutes, but if it is not a thorough search there is always a doubt as to whether all of the defects that need to be cured are actually known.  Perhaps the logic is that if they don't search back far enough to find all the defects there is nothing to do but sign off on the commitment.   I recently wrote about a break in the chain of title that presented a defect several deeds back that was apparently missed on a current owner search when the last mortgage was taken out.  This would not have shown up on a short search and since the break went back before the computer indexing began, it would most likely not have been picked up in an automated search either.  If the consumers actually understood the risks of short searches, I think their confidence would be somewhat diminished.

Finally, I'd like to address the cost of the automated searches versus human abstractors.  I don't know what NextAce charges for the Title-O-Matic service, but I have a tough time believing that it is cheaper than a professional abstractor.  If we are going to compare apples to apples, we would have to know exactly how thorough the searches are that come from NexAce's computers.  If they are providing basic current owner searches, they would almost have to be free to be able to claim that they can save $40 per search.  Perhaps they are claiming other savings that come from the efficiencies of electronic delivery, such as the ability to cut and paste the legal description and other information.  But, there are some abstractors out there that email typed reports that would accomplish the same end.  I don't know how they estimated their customers' savings because they have omitted that information from their infomercial press release.  As I said, it is long on puffery and promises, but light on facts.

The fact remains, if you want to deliver a reliable product you need a thorough title search prepared by a professional abstractor.  If you want something that slices, dices, chops and purées, try the Title-O-Matic.  There is no miracle cure for the mortgage crisis.  The title industry is facing exorbitant claims precisely because they abandoned traditional title standards in favor of short searches and automated shortcuts.  If they want to keep it from getting worse, they need to stop buying snake oil and get back to what we know works - thorough title searches and sound title search standards.

Robert A. Franco
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