By: Paul McLaughlin, IAR Legal Counsel
Similar to the passing fight for saving six-on-six girls basketball and the slow demise of steel spiked golf shoes, title insurance is still fighting for survival. Iowa is the ONLY state which does not allow title insurance. Iowa had it before 1944, but at that time it was prohibited for Iowa companies to sell. It only prohibits the sale by an Iowa company, not the purchase in Iowa by Iowa consumers.
The State of Iowa itself, through the Iowa Title Guarantee Program, purchases title insurance from an out-of-state company for any transaction over $100,000 (now I believe over $250,000). The Iowa Finance Authority is holding a legal monopoly in this state through the title guarantee program AND will not allow the private sector to compete for this service - based upon cost and service.
The Title Guarantee Program really is "insurance" called a "guarantee". The Iowa Finance Authority and the Bar Association simply justify this upon "It's good business practice" to insure over these risks. This is a classic example of the public sector doing private sector work, and legally enforcing a monopoly. For example, they place ads in several magazines – especially the Bar Association literature.
A key reason for justifying title insurance is really about servicing the customer – TIME IS MONEY!
Key: really turns on the interest rate which consumers are offered – mortgage companies charge a larger percentage the longer they are required to keep a lock-in rate (one quarter point for each 15 days held open).
Our title insurance proposals would only allow the consumer the choice of using title insurance or the opinion and abstract method.
Technology has changed the way everyone has done business, especially the mortgage companies. Wells Fargo may approve a loan within 24-48 hours and will only get quicker.
65% done within 15 days!
Abstractor businesses say they are computerizing their files. Electronic records bring an abstract quickly up to date. Technology has not speeded up how long an opinion takes to be completed.
Estimates range from $650,000 – up to $1 million already leaving the state. This has been estimated to provide coverage for $1.4 billion worth of property in the state. HOW MUCH IS TOO MUCH MONEY TO LEAVE THE STATE?
National mortgage sales – Market for mortgages. Out of state companies do not accept the opinion and abstract method. For commerce and nationwide business, they require more, which is why the state has developed the title guarantee program which has its own problems, however.
Nearly all commercial property requires title insurance purchase from an out of state company.
Title Insurance does not equal the Iowa Title Guarantee Program
In fact, many companies opt to go outside the state. Principal Insurance does for their residential loan programs, even to insure over their own building.
Wells Fargo Title Option Plus program – Much better than the "guarantee" program. In Iowa, still could reduce time and transaction costs. The fact is, guarantee programs take relatively few, if any, risks, which is
the whole purpose of insurance – risk transfer. That's why they can claim they never pay any claims. They require needless cleanup of a title to make them marketable.
Gap coverage, mechanic's lien, non-recorded event - 55 examples: easements, family histories, encroachments, taxes. Records are flawed.
There is no standard opinion for attorneys – it varies widely throughout the state. What is good in Davenport is not good in Des Moines. Various Bar Association activities try to string them together but are unsuccessful.
Who gets sued if there is a problem now?
Abstractor or Attorney. Who places the blame on the other? What about the disclaimer each attorney places upon their own opinions?
How many times do you need to scramble to clean-up something, such as an affidavit of name, personal experience, film affidavits by other persons. Also there is no record of the amount of claims paid by attorneys and abstractors – why push up attorneys' malpractice insurance rates?
In fact, Title Standard 1.1, which guides an attorney decision on an abstract, states the opinion is only supposed to stop a loan if there is a high PROBABILITY, NOT JUST A POSSIBILITY, OF NOT HAVING a marketable title.
Small defects are supposed to be let go and the perfect attorney system does not catch many.
Costs: the only true comparison would be between:
Title Insurance vs. 1) Attorney opinion, plus 2) abstracting, 3) plus charges by the title guarantee program.
Title insurance includes basically ALL closing cost involved and several other services to the customer, such as Edina Realty in Minnesota including offering of abstracting, preparing closing figures, seeking settlement statements, review title, coordinate with lenders, prepare closing documents including deeds and affidavits, recording documents, preparing checks, and mail commitments to buyers, and sellers, PLUS IT PROVIDES INSURANCE FOR THE OWNERS PROPERTY.
In a competitive marketplace, Service, cost, timelines and value can be some of the factors involved for the ultimate deciders of which system which works best.
If the method used now is so good, the consumer will not change.
It is an empty award to claim that Iowa has the "best" and "cleanest" title system in the United States. As mentioned earlier, Iowa abstract and attorney method is neither accepted nor understood nationwide.
Why have these "clean" titles when you can ease the process for the consumer and simply insure over the risks?
Have spoken with the Insurance Commissioner – she's able and willing to regulate the title insurance industry as she does with all other insurance companies in Iowa. (Insurance is big business, especially in Des Moines). As with all 49 other states, this business can be regulated smoothly (reserves, conduct, etc.).
Note again, almost all commercial properties required title insurance.
How many times has something sprang up and caused necessary delays?
Have a couple items in the hopper to modify the system now, but the only way to really change is the political
Let the consumer have an option - allow them to decide what best serves them.