03.28.08
Demotech Press Release Raises Questions on Financial Status of National Title Insurance Underwriters
A Demotech Press Release/advertisement for the 2008 Edition of Demotech Performance of Title Insurance Companies states that the major Title Underwriters are in good financial shape. The press release says:
“Although the severity and duration of the downturn in the real estate marketplace will likely challenge smaller, privately held, regional Title underwriters, the overwhelming majority of the Title underwriters, including the publicly traded underwriters, will sustain exceptional financial stability. They have the financial resources to respond and settle meritorious claims as payments come due. Similarly, the majority will continue to possess sufficient financial strength to withstand agency defalcations that tend to accompany periods of declining Title insurance production.”
My first question is – “what constitutes meritorious claims?” The title industry has long reserved for “title problems” such as fraud, forgery, incompetent or incapacitated parties in the chain of title, etc. But now it seem to have taken on the additional liability for closing issues - not only for such things as simple errors in closing, but also for breaches of contract, fraud, conversion of funds and theft, by providing “insured closing letters” to lenders.
My second question is- “Has anyone taken into account that the policy says the title company will defend ANY claim against title,” meritorious or not. Recent costs of defense have skyrocketed. And, the quality of work done over the last few years, as has been well known and admitted to by the Underwriters, has been deplorable. A few years ago the American Land Title Assoc. claimed one in four titles had defects. They no longer talk about these ratios – too embarrassing, perhaps? After all, the title companies have been responsible for most of the problems. I would not be surprised if one in two titles were now deficient. All of these problems should be mitigated. It will be expensive. Or perhaps the Underwriters will just “insure over” problems, hoping in time they will go away.
Lastly, considering the seemingly daily uncovering of bad apple title agents and recognizing that only a hand full of national underwriters hold a 90% plus market share, when the press release says “the majority will continue to possess sufficient financial strength to withstand agency defalcations” does that mean one or more of the National Title Underwriters are suspect for not being able to survive this crisis?