Our industry is facing a myriad of challenges and changes largely resulting from the implosion of the U.S. economy in 2008 and the subsequent legislation enacted to prevent another crisis. Since then, revenue and profitability plummeted throughout the title and settlement industry. While there has been a "recovery," the real estate industry is by no means robust.
The recession also brought to light many compliance deficiencies that in some instances led to fraud, escrow fund theft and title agent defalcations. Many title agencies are no longer in business. Those that "survived" are now facing another, if not greater challenge — namely adopting the new standards for market conduct in order to meet more rigorous and actively enforced regulatory oversight requirements.
The American Land Title Association recognized this market shift when it created its "Title Insurance and Settlement Company Best Practices" in 2012 to help as many title professionals of all sizes compete in the market as possible. In March, Wells Fargo announced its support of those best practices in its newsletter to its network of settlement agents. While Wells Fargo affirmed that it values local title and settlement providers that deliver a high level of professionalism, customer service and quality to the their customers, the lender cautioned settlement service providers that lender oversight is increasing and that they should be in the process of documenting their compliance enhancement efforts and be prepared to demonstrate their "Top Performer" status.
Many title agencies have been working feverishly for the past year plus to put in place Master Service Level Agreements to ensure that they have a continued ability to receive business and remain viable. They have embraced ALTA's Best Practices as a performance baseline. Agencies have established a compliance infrastructure with dedicated compliance officers and budgeted for implementation. In addition, they have implemented process improvements necessary to protect client non-public personal information, ensure information technology and physical security, and safeguard escrow settlement funds.
Many have expressed concern that the role of the small independent title agency is being diminished. For those agencies that have resisted the changing requirements, their future may be short.
Doing nothing is not an option and there is only one outcome. Small agents do not have the financial resources available compared to the large national agencies. However, the magnitude of compliance concerns for larger agents is exponentially greater.
Many large agents employ hundreds of employees at multiple offices in different states. Each office and employees must be trained and certified. Small agency compliance problems are minute compared to this. Policy and procedure standardization is far simpler.
There will be additional costs, and for a small agency, it is not unreasonable for those expenses to be in the neighborhood of $25,000 to $50,000. Let’s be clear, though. This cost is not driven by ALTA's Best Practices; the cost stems from the enhanced federal regulations to protect consumers. Best Practices are a bridge to help title companies document their policies and procedures in the most efficient and cost-effective way possible.
If you have a good relationship with your banker, this is the time to request that line of credit to fund the associated costs if financial resources are not immediately available. Many of the actions necessary to achieve compliance are relatively inexpensive and easily implemented. It is all a matter of prioritization, planning and following through.
The question that you must ask yourself: "Is my business worth $50,000?" All of the items that are being required quite frankly are prudent business practices that we should have been doing all along. Your clients should expect that your agency will protect their personal data, closing documents, and disburse their settlement funds securely. Just because your operation is on a smaller scale, does not mean that your clients should not be equally secure when they select your agency for title and settlement services.
Richard Reass is the owner of Virginia-based Reliant Title and CEO of RynohLive, which offers a financial management and fraud prevention system specifically designed for the title insurance industry. He can be reached at email@example.com or 757-333-3777.