Panel to scrutinize real-estate title industry

A day after announcing widespread marketing abuses in the title-insurance industry, state Insurance Commissioner Mike Kreidler said Tuesday that consumers may be best protected by radically changing the way real-estate titles are guaranteed in the state.

Kreidler questioned whether the industry was operating efficiently and even suggested that it might be obsolete.

"It may be that we're talking about buggy-whip manufacturers in the automobile age," he said. "We're going to look at what's in the best interest of consumers and the economy as opposed to the best interest of the title-insurance industry."

Kreidler is convening a panel to look at whether customers are being well-served by an industry that he said seems to spend more effort wooing middlemen with pricey dinners and golf outings than competing in the marketplace.

Title policies are part of virtually every real-estate sale, purchase or refinance, and they cost anywhere from $400 to more than $1,000 per policy in Washington state. They protect lenders, buyers and sellers against losses arising from problems such as conflicting ownership or unpaid liens that existed before the property transferred hands.

Before policies are issued, title companies conduct a thorough search of public records and help troubleshoot issues that could jeopardize a purchase. But often, the search is a simple one, done electronically, and turns up no problems.

Kreidler said the need for change became apparent to him during an investigation of marketing practices by 11 companies selling policies in King, Snohomish, Pierce and Clark counties.

In a report issued Monday, Kreidler's office said some title companies have openly flouted a state law that restricts the amount a title company can spend to influence people — builders, real-estate and escrow agents and others — to send them business. The limit is $25 per year for each middleman.

The 10-month-investigation found "ample evidence that some of the major offenders view the law as little more than a nuisance." Some of the firms were so brazen that they continued to break the law even after they knew their practices were being investigated by the commissioner's office, the report said.

Real-estate agents, lenders, builders and others in a position to steer clients routinely benefited from advertising paid by the industry, and were treated to free meals and drinks, and to football games and golf outings, all in violation of the law, the report said.

Kreidler said most people aren't even aware of the requirement for title insurance until it's sprung on them in the midst of buying a house. They're also not aware they can shop around for a policy, he said.

Revamping regulations, or even implementing a state-run system such as one in Iowa, could make use of advances that have transformed other industries and could save consumers hundreds of dollars on each transaction, Kreidler said.

The industry, he said, seems stuck in a paper era, when deep research and courthouse visits were necessary to ensure clear title to a property.

"You don't need that same kind of paper today," he said. "Most of that [information] you can get on a direct hookup with the county clerk."

Peter Sadowski, executive vice president and general counsel for Fidelity National Financial based in Jacksonville, Fla., said prices for Fidelity title products reflect the risk the company assumes if there's a problem. And he said researching individual properties remains labor intensive even with computers.

Three of Fidelity's title companies were cited for marketing abuses in the commissioner's report.

Sadowski said his firm welcomed Kreidler's report because it would help level the playing field for employees who compete against those who cut corners. When companies disregard the law and are rewarded with a larger market share, such tactics become harder to combat, he said.

First American Title Insurance was named "the worst offender in the investigation," in part because it spent more than $20,000 a month underwriting ads for real-estate agents and others who were in a position to steer business to the company. From August 2005 to June 2006, it also gave middlemen gift certificates and catered hundreds of dollars' worth of meals for brokers.

"All told, the company averaged in excess of $120,000 per month funding these activities and giveaways," the report said.

Kreidler said he will not seek sanctions against any of the nine companies singled out in the report because the conduct was so pervasive within the industry, and so long-standing, that he determined there was no fair way to prosecute it.

But, he said, the industry is on notice.

Susan Kelleher: 206-464-2508 or skelleher@seattletimes.com

Information in this article, originally published October 18, 2006, was corrected October 22, 2006. A previous version of this story incorrectly included escrow officers in a list of middlemen who are in a position to steer business to title companies. Escrow officers are not allowed to make title recommendations.