Title Companies Fight for More Regulations

The average consumer may not know much about title companies and what they do. And many consumers have found that some title companies don’t know much about it either.

The population boom in Northwest Arkansas has opened up opportunities for people to get a piece of the real estate pie. And because there are minimal regulations on title agents, it’s easy for anyone to open shop and sell title insurance, said Blake Hanby, president and CEO of WACO Title in Lowell and president of the board of governance for the Arkansas Land Title Association.

There are 32 title companies in Washington and Benton counties. Ten years ago, there were about eight, Hanby said. But some of those agencies aren’t necessarily doing the work that other companies would like to see in the area.

“There are probably more companies up here than — not necessarily the market would allow for — but probably more than there ought to be because I’m not sure everyone is doing real thorough work,” Hanby said.

Without regulations on pricing or how title work is done, the market becomes flooded with inexperienced title agents. That leads to bad title work. Much of the problem comes from agents not doing a thorough search on titles because manpower can be expensive.

If a title company doesn’t put much money into research, then it can charge less for its work. That makes other companies that pay for experienced researchers have to lower their prices to compete.

“If they’re going to be able to sell the same product I am, not have to meet the same standards that we’re supposed to hold ourselves up to and do it for a cheaper price — I can’t compete with that and do it the way it’s supposed to be done,” Hanby said.

Title Regulations

It takes little more than a couple of computers, four hours of continuing education, passing of the licensure test and finding an insurance underwriter for a person to become a title agent, Hanby said. In an area where everything is happening at a fast pace, many companies go into the business for a quick profit.

“I hear almost every day of somebody else who is opening their own title company [in Northwest Arkansas], and really the joke is on them because there’s not really that much profitability in a title company,” said Jacque Carruth, president of Heritage Title and Closing Co. in Fayetteville, adding that it takes years to build up clientele.

And many people don’t realize how much work is done when researching titles, she said. People think time is money, so they want to get the job done faster, which leads to errors.

One way to research titles is to do a stand-up search at the courthouse. The process consists of going through courthouse records on the title. Other companies, like WACO, have title plants they use to research titles. A title plant is a database that can cross-reference any issue that pertains to a title or abstract, Hanby said. Because it can check a title from any aspect, it does a thorough search for title companies.

His company uses a title plant, but he said it costs a lot to operate because his workers are constantly researching and entering data. One way to get some profit off the database is to sell the information to others, like the Arkansas State Highway Department. They use it when determining property lines.

Even though only eight companies in Benton and Washington counties use a title plant, other companies do comparable work checking titles by doing stand-up searches, Hanby said. That’s because they take time to run a thorough check.

Companies that don’t do thorough searches can cause problems for homeowners. If a title agent misses something, the homeowner could have a title claim, and in some instances, could lose their property.

“You really get what you pay for in this industry,” Hanby said.

If someone files a title claim, the underwriter would pay the claim. If it’s the agent’s fault, the underwriter will get the money from the agency. However, the underwriter can deny the claim, which could prompt a lawsuit.

But not many claims end up as lawsuits, Hanby said.

The way title searches are done is one thing the state should regulate because it will level the playing field, Hanby said.

“We want to be regulated to have a certain level of standards to make sure the work is done properly,” Hanby said. “It shouldn’t be a risk-reward game when it comes to [a homeowner’s] livelihood.”

And because the title work isn’t regulated, pricing for the work is all over the board. Title Company A charges $300 for title work doing a stand-up search, going back however far they want, and Title Company B charges $450 for the same work using a title plant, going back as far as they can, Hanby said.

So, Title Company B will have to lower its price to stay with the competition, which means it isn’t making as much money as it should.

“We clearly need to take a hard look at the pricing,” said Richard Levin, president of Triad Title Co. in Springdale. “There are some in the industry that aren’t making as much as they would like to in order to stay in business. I think someone is entitled to get paid for the quality of service that is done.”

And because many homeowners don’t know much about title insurance, they’ll shop for the price and not quality, said Carruth, adding that insurance companies have no idea what kind of accounts title agents have.

“In the last two days I’ve done $40 million dollars worth of closings myself,” Carruth said. “That $40 million is going through my escrow account. You’d like to think that’s very regulated, but it’s not regulated at all.”

But Levin said he believes consumers are getting smarter, and they’re driving title companies to require having experts in the field. He had one customer who read four books on title work before he closed on his house.

It all comes down to more consistency in the title insurance industry where there are no regulations, Levin said. He and Hanby are sponsoring seminars to educate other title companies and consumers about title insurance.