I spoke recently with the Pennsylvania rep for Southern Title. He had made the jump from New Jersey Title and was busy signing up agents who were left without an underwriter when New Jersey Title stopped writing new business.
Both regional title insurance underwriters were hit by substantial defalcations. I am convinced that the system of title insurance underwriting is capable of withstanding title claims - good years and bad. It's the defalcations that put the entire system at risk. If underwriters do not get serious about the money that flows through the hands of agents, then regulators ought to focus their eyes on the major weakness of the system. This is where consumers are most likely to be harmed and the largest vulnerability - in my opinion - to the entire system.
Bonding isn't enough. We need mandatory annual audits of the escrow accounts. The audits must be performed by independent CPA firms following some uniform standards. I believe the FHA audit requirements for their approved lenders provide a framework for file review. General audit guidelines for reconciliation of accounts should cover the agent obligation for a triple reconciliation. Add to that checks for escheat compliance and a system for monitoring and protecting good funds moving into and out of the agency and you shut down the opportunities for bad agents or stupid agents to play with the money in escrow. Yes, these audits are expensive. I have to say, however, that the cost of the audit would most definitely be less than the cost of eating the cost of producing title commitments for files that don't close. Just consider it a cost of doing business and if you complain to me about that audit being too expensive then we can chat about cancellation fees and RESPA because I am sick and tired of the same stupid game being played over and over and over. Defalcations will kill the business of title insurance. It's time to take our medicine.
Both regional title insurance underwriters were hit by substantial defalcations. I am convinced that the system of title insurance underwriting is capable of withstanding title claims - good years and bad. It's the defalcations that put the entire system at risk. If underwriters do not get serious about the money that flows through the hands of agents, then regulators ought to focus their eyes on the major weakness of the system. This is where consumers are most likely to be harmed and the largest vulnerability - in my opinion - to the entire system.
Bonding isn't enough. We need mandatory annual audits of the escrow accounts. The audits must be performed by independent CPA firms following some uniform standards. I believe the FHA audit requirements for their approved lenders provide a framework for file review. General audit guidelines for reconciliation of accounts should cover the agent obligation for a triple reconciliation. Add to that checks for escheat compliance and a system for monitoring and protecting good funds moving into and out of the agency and you shut down the opportunities for bad agents or stupid agents to play with the money in escrow. Yes, these audits are expensive. I have to say, however, that the cost of the audit would most definitely be less than the cost of eating the cost of producing title commitments for files that don't close. Just consider it a cost of doing business and if you complain to me about that audit being too expensive then we can chat about cancellation fees and RESPA because I am sick and tired of the same stupid game being played over and over and over. Defalcations will kill the business of title insurance. It's time to take our medicine.
