Michael J. Rooney
Real Estate & Title Attorney

Introduction

The United States Government Accountability Office recently released its report entitled, “Title Insurance: Actions Needed to Improve Oversight of the Title Industry and Better Protect Consumers”, GAO-07-401, April, 2007. The report stated three conclusions. “First, price competition between title insurers and between agents, from which consumers would benefit, needs to be encouraged.” GAO-07-401, page 54. “Second, to ensure that consumers are paying reasonable prices for title insurance, more detailed analysis is needed on the relationship between the prices consumers pay and the underlying costs incurred by title insurers and, especially, title agents.” GAO-07-401, page 54. “Third, to ensure that consumers are not taken advantage of because of their limited role in the selection of a title insurer or agent, more needs to be done to detect and deter potentially illegal practices in the marketing and sale of title insurance, particularly among title agents.” GAO-07-401, page, 54.

Fundamentally, with some minor tweaking in language and approach these conclusions are sound and comprise a good first step. I have long been a proponent of active price competition in the title insurance industry. See, “Bar-Related Title Insurance: The Positive Perspective”, 1980 Southern Illinois University Law Journal 263, at page 318. Such price competition is not always possible where individual states promulgate rates, forcing all companies to charge exactly the same price. Price competition is also more difficult in states with a rating-bureau process that may limit the opportunity for individual insurers to compete on price. While I absolutely believe individual states should have the freedom to craft their own approach, I personally favor what the Peat, Marwick, Mitchell & Company Executive Summary to the Real Estate Settlement Procedures Act (October 1980) called “workable competition” (see, Peat, Marwick Executive Summary at III.4).

At the outset, I should also say I share with our Founding Fathers a deep and abiding mistrust of a powerful centralized government. The Founding Founders did not just fear absolute power in the hands of a single monarch. They feared any consolidation of power in a centralized government and so provided for a system of checks and balances among the three separate branches of the federal government. That fear also prompted them to further subdivide the legislative branch into two houses, comprised of different numbers of members who served terms of different lengths. They further reserved to the states any and all powers not specifically granted to the centralized government. After all, the duties of each of the three branches are necessarily carried out by human beings, some of whom, from time to time, will succumb to a variety of pressures and temptations and fail to discharge those duties honestly and within the bounds of the law. So I am certainly not a fan of federal regulation of real estate transactions and, in fact, would suggest that there are more problems to be addressed today after RESPA than needed to be addressed in 1973 when RESPA was passed. If we think more laws and more regulations are the answer, we need to have a thorough understanding and comprehensive explanation for why the current regulatory environment is not sufficient for our needs.

Background

Fundamentally, real estate is the most parochial asset we own. Real estate is the most parochial business there is. First year law students are taught that the difference between personal property and real property is that the former is mobile while the latter is fixed and immovable. Therefore, every piece of real property is unique. The ground under my house has been in this particular location for millions of years. It is going to remain in its current location for a few million more years. By and large, it will be listed for sale, bought, sold, financed and built on by human beings who live within a fairly small radius surrounding that real estate. And the documents necessary for these actions and transactions will be prepared, executed and recorded by human beings who also live within a fairly small radius surrounding the real estate. Improvements on the real estate will be painted, maintained, remodeled, torn down and rebuilt by human beings who also live within a fairly small radius surrounding the real estate.

Now the size of the radius surrounding the real estate where those human beings live has expanded over the past fifty years. And while the growth of the secondary mortgage market means financing may be provided by a big, national lender, chances are the loan officer and appraiser are local folks. The lawn care professional, pest control people and chimney sweeps are also undoubtedly local folks. Even national real estate franchise firms advertise nationally that each office is independently owned and operated, again by human beings who live within a fairly small radius surrounding the real estate with which they deal. Real estate transactions are closed locally by human beings who live in a fairly small radius surrounding the real estate being transferred or mortgaged. While the GAO Report seems to acknowledge these facts (see, GAO-07-401 at page 20), the Report seems to go on to assume that federal regulation is the answer.

Another factor arguing against intrusive federal regulation is the history of real estate laws and real estate transactions that plainly shows the local nature of the concepts and customs involved in real estate ownership. The Bible tells us Abraham bought Ephron’s field in Machpelah near Mamre so he could bury Sarah, his wife, and the field was deeded to him. Genesis 23:7-20. But after Abraham’s descendants left Egypt, they were mere tenants only (Leviticus 25:8-17) and even a “sale” permitted later redemption by the seller or his family (Leviticus 25:24-34). In the Book of Ruth (probably around 1380-1050, B.C.), we are told that in earlier times in Israel real estate transactions were formalized by having one party remove his sandal and hand it to the other party. Ruth 4:7. By the time Jeremiah bought his cousin’s field in Anathoth (587 B.C.) we are told the real estate transaction was formalized with both sealed and unsealed (for future reference) deeds placed in earthen pots for safekeeping. Jeremiah 32:9-14. Throughout history, various people developed their own notions of ownership of real estate (or not: so-called Native Americans – really we are all transplants – are fond of saying in their culture no one could own the land, but could only occupy it and serve as a steward for future generations) and how that ownership could be transferred.

American laws concerning the ownership and transfer of real property come largely from England and today redemption is a concept limited to mortgage foreclosure sales or other judicial sales in some states if it exists at all. What has survived, however, is the notion of state and local regulation of real estate ownership and transactions. Establishment of ownership concepts and transfer thereof is a function of the states. Documenting or recording actual ownership and the regulation of use of the land is a local government function. Whether it is a town, parish or county, the jurisdiction is a much smaller subdivision of the state, and certainly something more local than the centralized federal government. And states may recognize civil law or common law. Some have community property laws and some do not. Some recognize different tenancies or forms of ownership than others. Some states have pure-race recording statutes, some have pure-notice statutes and some have race-notice statutes. In some, the original statute has been interpreted by the supreme court of that state to mean something other than what it seems to mean upon first reading. Isn’t it marvelous that each state can have such variety in its laws? Citizens who do not like the law are free to try to change it through the legislature or the courts, or by getting elected to the executive branch in that state to use the bully-pulpit of state office, or to leave and go to another state where the law is more to their liking.

Despite the variety of laws, most early states developed local searches or abstracts and attorneys’ title opinions as a way for an owner and potential seller of real estate to prove ownership. The abstract was compiled by a person who, in the olden days, actually wrote a brief summary or abstract of each instrument that appeared in the chain of title. As technology changed, the instrument itself could be copied and today digital images are available in many local recording jurisdictions, though certainly not in all. In any event, an abstract was examined by an attorney who rendered a title opinion on the quality (or lack thereof) of the underlying title to the real estate in question. Potential lessees, buyers or lenders would have their own lawyer examine the abstract, regardless of who ordered or actually produced the abstract. Because of the parochial nature of real estate, the system worked well because all the players knew one another personally or, at the very least, were familiar with each one’s professional (and personal) reputation. In fact, in many states today it is still possible to conclude real estate transactions by obtaining an abstract and an attorney’s opinion thereon.

The system was not (and still is not) perfect, however. Two problems were apparent. First, so-called “hidden defects” could negatively impact the title and neither the abstracter nor the examiner would be liable to a purchaser or lender. Even a properly compiled abstract and a thorough examination of it could not alert one to a forgery, for example. Second, even in the event of a mistake, abstractors and examiners were not held liable in the event of a loss to a purchaser or borrower if they exercised due caution and used ordinary skill and knowledge. In Watson v. Muirhead, 57 Pa. 161 (1868), the court found no liability on the part of a “conveyancer” since the error complained of was not due to negligence and he had exercised due caution and used ordinary knowledge and skill in performing his services. As cities grew larger and larger with the result that it became more and more difficult to know the professional skills of the lawyers rendering opinions, the problem of “hidden defects” and the negligence standard generated the need for the title insurance industry and the first such company was chartered in Philadelphia in 1876. For nearly a hundred years thereafter, real estate ownership and transactions and those other than lenders who were involved in them, dealt with the local town, parish or county for recording, local municipalities and their respective state real property laws.

The Real Estate Settlement and Procedures Act, of course, changed all that. Suddenly, purely local issues and requirements were impacted by a national law that introduced the concept of the “federally related mortgage loan” and nothing would ever be the same again. In the “good old days” a real estate transaction could be concluded with a few signatures on a few pages. Today, consumers are faced with scores of signatures required on hundreds of pages. What’s changed? In most states, a deed is still a deed and it’s one page possibly accompanied by a declaration of value of some sort for recording stamps/tax or use by the tax assessor. All the remaining documents are “required” either by the lender or the federal government or both for reasons the average consumer (and many a lawyer) does not comprehend. Somehow, the tail has begun to wag the dog and lenders have forgotten that without the underlying real estate sale, there is no need for their loan. And somehow the federal government has extended its regulatory tentacles so far into the lending community that it believes it ought to be able to control state law, too.

But wait, in the typical residential sale, the seller lives in the real estate being sold. The real estate agent with the listing is local. The buyer and his or her real estate agent are probably local, though some buyers are relocating to the area from some distance away. But even in that event, the buyer has already made the decision to become local. Chances are that the other actors in the transaction are also local, including the loan officer, appraiser, home inspector, home warranty company and others. Certainly, the title company (whether underwriter or agent) is local. Only the home office or processing center for some lender is not local and that’s a choice the lender is free to make. However, that choice should not impact the other actors in the typical residential real estate transaction. In short, there is no reason to take the typical real estate transaction out of the purview of state and local control and make it subject to control and regulation by the centralized federal government.

To be sure, some things have changed over the years. Fifty years ago, people in the title business said the reason someone should do business with them was the quality of the title work. They had the best abstractors and examiners, the best records and, therefore, the highest quality. People handling the escrow side of a transaction said the reason to do business with them was the quality of their escrow work. They would not lose any money or steal any money and their closing statement would balance to the penny. Today, in each case, such quality is simply the price of admission: it gets one in the door to compete for business. Such quality is the minimum acceptable standard. Today, many title companies share one computerized title plant, or share identical copies thereof, and issue the same form title insurance policies. And software used to prepare the HUD-1 Settlement Statement means that all settlement sheets balance to the penny. There must be a new model for the business.

Today, the real magic for consumers, real estate agents, lenders and anyone else involved is the ease with which the transaction unfolds. Everyone wants to have a good result and an easy time in achieving that result. At the same time the documentation required for mortgage loans has increased, the number of loans consumers have against a given property has also increased. This means more information to gather concerning pay-offs and more releases to be drafted and recorded. At one time, many loans were assumed by buyers. Now, nearly every sale involves one or more new loans. As title insurers have become more sophisticated about coverage they could sell to lenders, both those lenders and the federal government have been eager to have borrowers pay for such coverage. From radon to EPA endorsements to location notes to lead-based paint disclosures, more coverage requires more paperwork and premiums. Nor is the federal government shy about using the closing entity to enforce tax laws and withholding requirements. All of this means the average person responsible to close a transaction has maybe a page or two of additional documents to deal with on the real estate transaction itself, but literally dozens more documents comprising hundreds of pages for the mortgage loan. New documents and multiple pay-offs means additional telephone conversations, emails, voicemails are required. Then “the closing”, which means different things in different states, and sometimes different things in different parts of the same state, must be scheduled if someone can acquire the appropriate forms from the new lender for execution by the buyer-borrower.

In the years since the passage of RESPA, the title company is no longer merely “the title company”. Nor is it merely “the escrow company”. Rather, it is the facilitator of the primary real estate transaction and those secondary transactions that accompany it, such as the mortgage loan, contracts for services from real estate agents, home warranty companies, home inspectors, surveyors and others. Title is just one of the many pieces that must come together to get a transaction concluded and the only people who think it is the most important piece are employees of the title company. Therefore, any approach to regulating “title insurance” should identify at the outset whether the goal is to affect only the insurance portion of the business or the larger transaction facilitating portion of the business. Had it so desired, the federal government could easily have made the case to regulate buggy whips at the beginning of the twentieth century, because some buggies crossed state lines, to increase safety on highways and to enhance the safety and comfort of horses. But transportation was already evolving and by the time “appropriate” regulations were agreed to by all interested stakeholders, buggy whips would be disappearing from the marketplace.

Automobiles present different regulatory problems. And no matter how many horsepower a car has, it will never be an airplane. And no matter how many pistons or horsepower it has, a propeller-driven plane will never be a jet. And no matter how many engines we attach to it, a jet plane will never be a spaceship. A submarine will never take man to the moon: no matter how dedicated and smart its captain, no matter how loyal and organized its crew, no matter how earnest and supportive its suppliers. It just is not going to happen. But submarines can evolve so they can remain submerged longer, run quieter, perform more scientific experiments at deeper and deeper levels. And all the modes of transportation mentioned also evolve over time. I suggest that “the title industry” has evolved, is evolving and will continue to evolve. When the target is moving, the quarterback must aim and throw to where the receiver will be when the ball arrives. In some ways, the GAO Report recommends throwing the ball where the receiver is today even though we know the receiver will not be there by the time the ball arrives. To return to the buggy whip analogy: will we regulate the buggy whip of yesterday or the transportation system of today and tomorrow?

The GAO’s Conclusions

While I agree fundamentally with the GAO conclusions, I would re-order them and tweak the language. The most important conclusion is the final one, which I would rewrite to read: “More needs to be done to detect and deter illegal practices in the marketing and sale of settlement services”. In this country we do not limit the horsepower of an automobile engine because the car may “potentially” violate the speed limit, so why look at “potential” violations in the sale of title insurance (or, as I have broadened it, settlement services generally)? And what difference does it make if illegal activity is engaged in by title agents or the insurance company itself? If it’s illegal, let’s put a stop to it. If it’s not illegal, let’s move on to what is illegal and stop that for the benefit of everyone, not just consumers. The tools exist to enable us to stop illegal activities. The only questions are “Who will do it?” and “Does the will to do it exist?”.

The rewrite also eliminates any reference to the limited role consumers play in selecting a title insurer or title agent. Is the limited role truly a problem? If so, how do we know? The GAO Report points out (pages 21-23) that consumers buy real estate and title insurance infrequently and see limited benefit in spending a lot of time educating themselves about an industry when that education, at best, would result in a small savings. This is particularly true because the title insurance portion of the overall settlement cost for a real estate transaction is quite small. (GAO Report-07-401 at page 24) Quite correctly, this portion of the report concludes, “…most consumers place a higher priority on completing their real estate transaction than on disrupting or delaying that transaction to shop around for potentially small savings.” (GAO-07-401 at page 23) The Report also notes that the interests of the intermediaries (real estate agents, lenders, attorneys) who do make the selection of title insurer or title agent are aligned with the interests of consumers since if the latter receive poor service and pay high prices, the former will see their own professional reputations suffer and the likelihood of future referrals from those consumers diminished. (GAO-07-401 at page 25)

The “alignment of interest” between the intermediaries and those referred is key. Affiliated Business Arrangements (defined at GAO-07-401, at page iii) become a problem if, and only if, the existence of the ABA causes the interests of the intermediary and the consumer to become misaligned. As long as the interests are aligned (both parties want decent service at a fair price to get the transaction concluded), there is no problem. An issue arises when the intermediary’s interest falls out of alignment with the interests of the consumer. For example, the intermediary may want increased profits and so may reduce costs of the ABA by decreasing staff, resulting in poor service to the consumer. Or the intermediary may focus on a sharing of the profits that will enhance the financial well-being of the intermediary, knowing full well that the ABA itself charges consumers higher prices than the consumer might have to pay at another competing entity.

The appropriate response to the potential misalignment of interests is not disintermediation because the GAO has discovered consumers will not make the effort to become educated in this area. The appropriate response is to punish those ABA’s and those intermediaries when the intermediary participates in an ABA to the benefit of the intermediary and the detriment of the consumer. As long as the interests are aligned, ABA’s may, in fact, benefit the consumer. There are many ABA’s around the country that operate full-service companies designed to do their best to serve consumers’ needs. Among the benefits to the intermediary may be improved service, better control over the quality and timing of service delivery, integration of the title and escrow piece with the intermediary’s primary business to improve overall experience of the consumer and ease of communication. It is the misalignment of interests that is the problem, not the potential misalignment. (The last two sentences of GAO-07-401, page 26 describe merely a potential misalignment. If, in fact, both prices and service are better at an ABA, there is alignment of interests, not misalignment.) Where the misalignment has caused harm to the consumer, put a stop to the ABA and punish the participants.

This is not as difficult as the GAO Report would have us believe. First, we have to identify the real issue. The general definition of an ABA is that an intermediary (often called a “producer of title business”) owns an interest in a title insurer or title agent. Yet the GAO Report seems to be confused about what an ABA really is when it says, “In affiliated arrangements the insurer has an ownership interest in the title agent…” (GAO-07-401 at page 45) This is not a correct characterization of all ABA’s. See, discussion in GAO-07-401 at page 14 and Figure 3 at page 15. The real issue is the ownership interest in the ABA of the intermediary, the “producer of title business”, be that real estate agent, lender, lawyer or other person or entity.

Second, we must resolve to deal effectively with the real issue. The Report notes that, “Recently, the arrangements have begun to involve three or more entities, making it difficult to trace the flow of money among entities and the responsibilities of each entity.” (GAO-07-401, at page 50) Really? Considering the recent cases having to do with fiscal mismanagement and gamesmanship at huge mega-corporations (Enron, HealthSouth, Quest, Tyco, among others) are we really to believe that three entities is all it takes to succeed in hiding illegal activity? Perhaps the true answer is also found on the same page: “Some state regulators expressed frustration with HUD’s level of responsiveness, saying that the agency did not always follow up with them on forwarded cases, potentially limiting the success of investigations.” (GAO-07-401, at page 50) And on the following page the Report notes, “Some industry officials also said that the rules under RESPA were not always clear and that HUD had not been responsive in answering their inquiries, potentially resulting in activities that HUD later deemed to be illegal.” (GAO-07-401, at page 51, emphasis added) The means to put an end to illegal activity exist but it seems what is lacking is the will to put an end to illegal activity.

The Report notes that HUD has asked for the ability to levy civil penalties in addition to the power it already has to file suits to enjoin violations of Section 8 of RESPA. (GAO-07-401, at page ) But we have just seen that the GAO itself believes HUD does not have the ability to follow the flow of funds. Moreover, we have also just been told that HUD is not responsive in addressing the issues that are brought to its attention. What makes us think that giving HUD more authority is the answer? We expect, as government agencies, both GAO and HUD will argue in favor of expanding the power of the centralized federal government. Similarly, those of us in the states would argue there are better solutions to be found. For example, the Report notes that state and federal fines or consent decree payments without admission of guilt (GAO-07-401, at pages, 29, 46 and 49) are seen by the payers as simply a cost of doing business. In the case mentioned on page 29, this is exactly what one of the principals told me personally at the time when I expressed the opinion that $1 million was a steep price to pay. In essence, he said the revenue generated by the activities complained of but not admitted to be violations exceeded the $1 million many times over. Naturally, the same logic will apply to any “civil” penalties HUD might levy. Unless and until HUD is willing to pursue the criminal sanctions it already has the power to pursue, adding additional powers to HUD will be meaningless, especially when the GAO itself reports that HUD does not have the talent to ferret out wrongdoing once there are three entities involved in an ABA. (GAO-07-401, at page 50) Frankly, there are many people, both within and without the title industry, who can assist HUD in analyzing ABA’s. As is true of so much in life, however, the will to succeed must come before and be combined with the talent to succeed before success is achieved.

The GAO’s second conclusion is one with which I also generally agree, but which I would rewrite to read: “More detailed analysis is needed on the relationship between the prices paid for and the underlying costs incurred to provide settlement services.” I understand that the GAO understood its mandate was to study title insurance, but as noted, the business has changed, is changing and will continue to change. The “closing” or settlement itself generates more costs than in the past and certainly an increasing percentage of a title company’s or title agent’s total costs. True reform should also consider prices charged and costs incurred by everyone who is involved in the residential real estate process, such as lender, home warranty companies, appraisers, inspectors, pest control providers and others. Why is “title insurance” alone subject to regulation? Do we expect some day that the federal government will want to regulate the price for beer and donuts (consumed in the home), paint and shingles (applied to the exterior of the home), automobiles (parked in the garage attached to the home) and wallpaper (applied to the interior of the home)?

Without admitting more regulation is good, further study of prices and underlying costs to provide services is clearly appropriate. The current model is NOT irretrievably broken (GAO-07-401, at page 53) and the alternatives proposed by GAO Report are clearly harmful to consumers. First, the GAO proposed a “lender pay” alternative, but we already know lenders in general have proposed title coverage for themselves only and not for consumers based on a purely actuarial approach to potential title losses, even though they proposed not engaging in the appropriate title abstract and examination activities that eliminate the risk of loss and result in the low proportion of premium dollars going to pay for title losses. Whoever pays will want to control what they pay for or how it is provided and we already know lenders will not act to benefit consumers in the area of title assurance. It is beyond incredulous that an agency of the federal government would believe this is a good idea. Second, the GAO proposes a state-run system like Iowa’s, without further noting that the Iowa system requires private abstractors and examiners whose fees are NOT included in the charges the state makes for title coverage. Due to some unique circumstances, the Iowa system works in Iowa. Our federal system ought to protect the right of the citizens of Iowa to participate in such a system. However, to advocate adoption of the Iowa system elsewhere is to display a significant lack of understanding of the unique circumstances that make the system workable in Iowa.

More study correlating price and cost is important because the GAO itself either does not understand or has deliberately misconstrued the numbers it already has available to it. First, there is a comparison between the number of dollars in penalties paid in settlements with states for alleged referral fee violations between 2003 and 2006 ($90 million) and the net earnings in 2005 alone of the five biggest title insurers (almost $2 billion). (GAO-07-401 at page 47) But these two numbers bear a relationship to one another ONLY if one argues that the net earnings of the five biggest title insurers ALL resulted from referral fee violations. Second, in discussing HUD’s inactivity, the Report notes that the number of voluntary settlements obtained by HUD from 2003-2006 averaged $302,000 but during the same period the combined net earnings of the five major national title insurers averaged about $1.6 billion per year. (GAO-07-401, at page 49) Again, these two numbers should be compared ONLY if one argues that each and every dollar of the combined net earnings resulted from activities for which the company should have paid a voluntary settlement to HUD. Even the GAO does not make such an argument directly. Rather, the report sets up those numbers in juxtaposition to one another so the reader will focus on the extreme disparity between the numbers, without regard for whether there is a causational (or any other) relationship between the two. Such intellectual incompetence or dishonesty is striking, even from a governmental agency.

Study of prices and costs is also important because the components of cost for the title insurance industry are changing. The Report incorrectly states that “…the critical question is whether amounts paid by consumers for title insurance reflect the actual underlying costs of producing title insurance policies.” (GAO-07-401, page 5) Forget for a moment about why there is no call to regulate all prices consumers pay. The fact of the matter is that the “underlying costs of producing title insurance policies” are not the only costs the title insurance industry bears. For example, the Report does note that some agents are involved in more aspects of the closing process. (GAO-07-401, page 18) And it is the federal government’s own proliferation of closing requirements that add to the cost of performing those closings. While title insurers and agents may have developed computerized title plants that make abstracting and examining less time-consuming than before, it must be pointed out that less time in abstracting and examination may not necessarily equal greater efficiency or lower cost. (GAO-07-401, pages 16 and 17) There may be more documents to find and examine as a result of the federal government’s fondness for regulation. Moreover, those companies have made huge infrastructure investments in such automated systems and they should be permitted to recover those costs.

While admitting that regulators do not fully assess title agents’ costs (GAO-07-401, page 41) the Report fails to acknowledge that consumers placing a higher priority on completing the real estate transaction than on saving a few dollars (GAO-07-401, page 23) changes the very structure of such costs. “Completing the real estate transaction” means:

• analyzing the contract of sale;
• assuring that the deed is sufficient to transfer title;
• acquiring pay-off information on all existing mortgages and other liens;
• precisely paying off those items;
• assuring legal execution of documents for new mortgage loan(s);
• recording of all legal instruments in the appropriate office;
• obtaining and recording all appropriate releases for paid-off items;
• seeing to proper disposition of impounds with seller’s lender;
• disbursing funds to all miscellaneous participants in the transaction, including the real estate agent, lawyer, credit report provider, flood certification provider, tax certificate provider, home inspector, appraiser, home warranty company, pest inspector, foundation inspector, extraneous contractors;
• assuring that those for whom money is collected and disbursed actually performed services justifying those payments to avoid mortgage fraud;
• following all other lender closing instructions so as not to justify payment to the closing entity;
• distributing copies of everything to everybody.

In anticipation of performing those duties, it is impossible to calculate the number of hours devoted to telephone calls, emails and personal visits required. As the number of contacts and the amount of information both increase and the time within which to accomplish the task decreases, there are bound to be mistakes resulting in additional costs to the companies involved. Moreover, whether denominated “small escrow losses”, “administrative losses” or some other designation, more and more title agents and the direct operations of title insurers report increases in these costs as opposed to what we used to call pure title claims. As settlement agents handle more funds for more people as a part of “getting the deal closed”, these costs will continue to escalate. Further study in this area is certainly warranted.

The final conclusion with which I generally agree is the GAO’s first, though I would rewrite it to read: “Price competition between and among settlement service providers must be encouraged.” Again, although the GAO mandate may have been limited to title insurance, why is that the only area we should consider regulating? Why not a set price for all real estate agents’ commissions? Why not a government-mandated interest rate and discount points established for all “federally related mortgage loans”? Needless to say, I strongly oppose either suggestion, but I do wonder why it is that only some aspects of some costs of real estate transactions are subject to meddling by the centralized federal government. I am generally a free-market advocate, so I actively support efforts to increase price competition. If a title agent can do its job in such a way that it demonstrably reduces the title insurance underwriter’s costs, the agent should be permitted to retain more of the premium. On the other hand, if the title insurance underwriter assumes more of the responsibilities it should be permitted to receive a greater percentage of the premium. In any event, each individual state should be permitted to decide the type of rate it wants, risk-rate, all-inclusive, state promulgated, or whatever. Healthy and active price competition will be good for consumers and for everyone else involved. To the extent price competition becomes unhealthy in any one of several different ways, the individual state, not the federal government, should step in to make corrections that are appropriate for the state in question.

Final Thought

The GAO Report on Title Insurance of April 2007 is, indeed, a step in the right direction. We should do more to eliminate illegal practices in the sale and marketing of settlement services. We need to analyze and compare the price consumers pay with the costs imposed on settlement service providers in this new era. And price competition is always good, as long as individual states are permitted to reach their own conclusions about what is best for their citizens. The talent is available to state and federal regulators who care to seek it to identify illegal arrangements and practices. Those same regulators need to develop the will to put an end to such arrangements and practices. The talent and tools exist: it is the will that is suspect. The saying is, “Where there’s a will, there’s a way.” It is also true that where there is no will, there is no way. See, Joshua 24:15.

Michael J. Rooney © 2007