Lessons From Iowa

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Lessons From Iowa
by Robert Franco | 2007/02/19 |

We all know very well what the general public thinks of title insurance: its over-priced, unnecessary, and used to rip off unsuspecting consumers. If you look at the evidence, its not too hard to figure out why. How many times have we seen one of the Big 5 (Land America, Fidelity, First American, Stewart, and Old Republic) in the news paying a multi-million dollar settlement for illegal kickbacks, rebates, over-charging consumers, etc? How often have we heard borrowers at the closing table asking why they have to pay for the title insurance again, when they just refinanced a year ago? And, how many times have we heard the media point out that Iowa offers a cheaper alternative resulting in fewer claims and better land records.

For those of you who have recently relocated from Mars, the Iowa Title Guaranty Program utilizes an abstract and attorney's opinion to issue an Iowa Title Guaranty Certificate that provides coverage identical to title insurance. Somehow, Iowa is able to offer up to $500,000 in coverage for $110. Even after the consumer pays for the abstract ($150) and the attorney's opinion ($125), the cost is still only a fraction of traditional title insurance offered in other states.

The main criticism of the Iowa Program is that it is slow and unnecessarily delays real estate transactions. However, the delay occurs because Iowa requires an attorney's opinion demonstrating marketable title before it will issue the certificate. That means that any clouds on the title are required to be cleared before the transaction is completed. Please, raise your hand if you thought that is what title insurance provided.

The truth is that most people assume that if they got a title insurance policy, their title was searched and it must be clear. That is simply not the case. Although I am of the opinion that because title insurance insures marketable title the title examination should show marketable title before a policy is issued, all too often title defects are left uncorrected. Today we have a rather enormous gap between marketable title and insurable title.

I came across an interesting law review article written by Shannon S. Strickler in 2003 for the Drake Law Review:

Iowa's title system ensures the quality of the state's public records and property titles. As the deputy director of the Title Guaranty Division affirmed, "Iowa's titles are considered to be the cleanest in the nation." Attorney-abstract opinions deserve much of the credit for Iowa's clean title system. Attorney-abstract opinions examine the chain of title and correct any clouds or defects on a title before it is transferred. These are performed on all real estate transactions in Iowa.

Another reason for Iowa's clean title system is the approach taken by the Title Guaranty Division when issuing Title Guaranty Certificates. Unlike commercial title insurance, an applicant for Title Guaranty must have a title opinion performed and demonstrate marketable title before a certificate will be issued. The Title Guaranty Division will not insure over known title problems as commercial title insurance companies will. Thus, the integrity of the record and title system remains intact because clouds and defects are corrected and properly recorded, not insured over.

51 Drake L. Rev. 385, 395-396

I am certainly not stating an opinion that we should all adopt a state system like the one in Iowa. And, furthermore, I have never walked away from a closing thinking I made too much, easy money. But, I do think that there is something to be learned from our friends in Iowa.

We should be adding more value to the traditional title insurance system. First, we need to be using skilled, professional abstractors. Iowa requires a title abstract by a "participating abstractor" who is regulated by the state to ensure that the title is marketable. Second, any defects should be required to be cleared - not simply insured over. And, third, we need to be more considerate of the integrity of our public records and the quality of title that passes.

This can only be accomplished by regulating the entire title insurance industry, including the abstractors. After all, the title search is the foundation for every title insurance policy that is written. To adopt a phrase from computer programmers - Garbage In, Garbage Out. You have to start with good data to get anything meaningful out of any system. This is a concept that has been vastly ignored in the title industry and I think it is reflected in our current system.

If we cannot make changes to better the industry, the Iowa system may become more attractive to legislatures in other states. If you look at the costs and benefits of the Iowa system, it gets harder and harder to justify the current system that only offers faster service. This is especailly true if Iowa is able to speed up their process:

From the Spring Issue 2007 of "Title Guaranty on the Move" newsletter:

The Rapid Certificate Program means Certificates are issued in days instead of months.

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

Source of Title Blog ::

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Categories: Abstractors

1243 words | 6185 views | 5 comments | log in or register to post a comment

	One of the reasons the process in I...
	One of the reasons the process in Iowa is so slow, is that there are only a handful of abstractors (sometimes only one in a county) certified by ITG (Iowa Title Guaranty) as "participating abstractors." In order to become a participating abstractor, you must own a 40 year tract index IN THE COUNTY where you will be preparing abstracts. Tract indexes are extremely expensive, and the Iowa Title Guaranty does not make an exception for this rule EXCEPT that you can get grandfathered in if you are a lawyer that has been abstracting since 1986. Go figure -- exceptions for attorneys to be abstractors in a state where the attorneys already control literally all of the other title work - examining title, clearing title, and certifying title for issuance of Iowa Title Guaranty. What this means essentially is that Iowa Title Guaranty makes no provisions for allowing direct searches from anyone - not even the most qualified abstractor that has been preparing abstracts all their life -- if they are not financially able to buy a tract index. Even though I have been doing searches as a legal assistant for over 30 years, I can't prepare an abstract to be examined by an attorney if they are going to issue Iowa Title Guaranty. This leaves only the biggest companies to prepare abstracts. In Polk County, for example, we have only one independent abstract company - the others are tied to large corporations. Our county has a population of 400,000 to 500,000 people, and only three abstract companies to do prepare abstracts. NO WONDER THE PROCESS IS SLOW! Don't get me wrong. I agree that the title insurance costs and quality of title are out of control in many instances, but I would not advocate any change that would enrich lawyers and corporations and further restrict the small independent abstractor's ability to earn a living. I do think Iowa could alleviate their backlog and speed up the process if they made the abstracting work avaialble to qualified direct searchers. This might require the institution of a testing/certification process, continuing education, etc., but unfortunately I don't see the lobbyists with the money (being the title companies and attorneys in Iowa) instituting any type of change that requires them to share their business.
	by Jill Kissell \| 2007/02/26 \| log in or register to post a reply

	Thank you, Jill. I appreciate the ...
	Thank you, Jill. I appreciate the perspective from someone who works in Iowa. It does sound as though the Iowa Title Guaranty Program could possibly benefit by eliminating the requirement for the "participating" abstractor to possess a 40 year title plant. I don't think that owning a title plant necessarily makes the search any better, nor ensures that that the abstractor is qualified. Perhaps someone should inquire with the Iowa Finance Authority to find out why they have adopted such a rule. It definitely would be expensive, not only to purchase, but to maintain a title plant. If a reliable search can be compiled from the counties' official indexes, then I don't see much of a reason to have that requirement - except as a barrier to competition.
	by Robert Franco \| 2007/02/26 \| log in or register to post a reply

	Very interesting....
	Very interesting.
	by Diane Cipa, General Manager, The Closing Specialists® \| 2007/02/26 \| log in or register to post a reply

	Being licensed in Iowa and Illinois...
	Being licensed in Iowa and Illinois, I have a good perspective on the advantages and disadvantages of title insurance vs. ITG. One thing that is rarely mentioned is that closing fees in Iowa are more than they are for a similar transaction in Illinois. Essentially, the total closing costs are pretty much equal in Illinois and Iowa for homes around $100K and less, and for homes over $100K the total charges are less in Iowa--much less as the price of the home increases. In many parts of Iowa, attorneys have so little involvement in the real estate transaction as to be nearly invisible, leaving nearly everything, including title clearance matters, to real estate agents. Their duty to their client in these areas is ephemeral at best (actually the identity of their client is even a bit vague. Is it the seller or the real estate agent?). Some attorneys are hired by real estate agents to prepare deeds, and have no contact whatsoever with their "client." I have had conversations with these attorneys wherein they flatly stated they could not assist me in clearing title defects because they did not represent anyone. They claimed that they only prepared the deed, and I should direct any such inquiries to the real estate agents. Seriously. Some parts of the state do not utilize ITG at all. Some areas embrace it half-heartedly. And it seems in these areas, the effort expended by attorneys is half-hearted as well. Though I offer no defense to these individuals, how much effort can one expect when one pays an attorney $50 for deed preparation, or $125 to review an abstract according to Iowa Title Standards and prepare an opinion and assume liability for that opinion? I will say, that in areas where ITG has a strong presence, it is much easier to get an audience to clean up title problems. Title problems in these areas are usually less serious, and simpler to remedy, in no small part because of increased cooperation. And the folks at ITG are working hard to be more responsive to our needs and the reality of the changing landscape. In areas with a stronger ITG presence, the attorneys are more involved in the transaction, as in actually representing the buyer or seller, and often conducting or attending the closing. Where ITG works, it works fairly well, though I do agree with the timing concerns. We have the same monopolistic abstractor problem here as well. The Iowa side of our community is about 250,000 and we have one independent ITG abstractor. The rest are attorneys who were abstracting before 1986 (or attorneys who have made “arrangements” with those pre-1986 attorneys to sign abstract certificates for them). One does not need to be a mathematician to figure out that there are not a lot of years until we have one abstract company for a quarter million or more people. As anywhere, however, there are good abstractors and bad abstractors, and attorneys who are competent to render accurate opinions and those who are not. While it is very difficult, perhaps impossible, to become an ITG abstractor, the only requirement for attorneys is that they have malpractice insurance.
	by Thomas O. Moens, Attorney at Law \| 2007/03/12 \| log in or register to post a reply

	After reading this fine blog, it se...
	After reading this fine blog, it seems fairly obvious what the problem is ... attorney's. Get the attorneys out of Real Estate and you will find that it runs a lot better and faster with fewer errors if any. Perhaps, you need only to look at CA and see how it's done and accomplished correctly.
	by Gena Riede \| 2007/03/15 \| log in or register to post a reply

Source of Title Blog

Robert A. Franco The 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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