Veteran title agencies forced to defend practices

And for good reason.

The unexpected mid-June closing of Nixa-based Guaranty Title Co. effectively halted loan disbursements for several area construction projects and suspended an unknown number of real estate transactions.

A subsequent audit by Guaranty Title’s Virginia-based underwriter, LandAmerica Financial Group, found at least $4.5 million missing from the company’s escrow accounts as well as 500 unreported policies. Additionally, Missouri Department of Insurance officials recently confirmed an anonymous tip to Springfield Business Journal that LandAmerica discovered $500,000 missing in Guaranty Title’s escrow accounts and 5,323 unreported policies in a February 2006 audit.

Some of the title company’s former customers are now suing in hopes they can recover money Guaranty Title was supposed to be holding in escrow.

Title insurance agencies act as intermediaries for cash that changes hands for real estate deals and construction projects, said Bob Clinkenbeard, general manager of Springfield-based Fidelity Title Agency. And in an active real estate market like Springfield, millions of dollars move through a title agency every month, he said.

“It doesn’t take long to learn how to steal that money,” Clinkenbeard said. “It can happen fast.”

In recent weeks, Clinkenbeard and his agents have been reassuring customers that the title insurance industry – like all business sectors – has a small number of bad apples. He said the Guaranty Title scandal has had a chilling effect, especially for homebuyers handing over thousands of dollars in earnest money to Fidelity Title.

“The biggest question we get is, ‘How do I know you guys aren’t going to do this to me?’” Clinkenbeard said. “It’s a bad situation. Fidelity Title shouldn’t have to explain itself.”

Rapport

Fidelity is one of a handful of Springfield title agencies with on-site property records that date back to the late 1800s. Hogan Land Title Co. and Lincoln-Evans Land Title Co. also have the ability to perform in-house title searches that date back several decades.

Through various owners, Fidelity Title has been part of the local business community for nearly a century. The current owners bought the agency from underwriter Fidelity National Title Corp. in August 1997, Clinkenbeard said.

Murney Associates Realtor Diane Nicholas said she’s used Fidelity Title for years, citing seasoned closing agents, low turnover and a high level of professionalism.

Dana Elwell, senior vice president of mortgage lending at Guaranty Bank, which is not affiliated with Guaranty Title, said he’s also been pleased with the level of service at Fidelity Title along with Hogan and Great American Title Co., all of which have become trusted business partners.

“These are the people we’ve known the longest and have a comfort level with and have provided us with good service, so these are the people we would recommend,” he said. “It’s probably a tough situation for the newer companies … but they’re just going to have to earn their stripes, I guess.”

Insurance of history

Lincoln-Evans’ predecessor was Lincoln Land Title, a locally owned company that was created two decades after the Civil War ended. Lincoln-Evans President Kelly Jones said customers buying title insurance for the largest purchase they’ll likely ever make should consider the “longevity and integrity” of the company issuing the policy.

“Title insurance in a lot of ways is an insurance of history,” Jones said.

“And how can you be involved in insuring history when you don’t know what the history is? I think that’s why you see some very historic title companies in the business.”

Jones actually sees Guaranty Title’s

collapse and the ensuing fallout as an educational opportunity for an often-misunderstood industry. Inquisitive customers provide the ideal platform for agents to extol the advantage of title insurance, Jones said.

“There’s a lot of uneducated purchasers and borrowers,” he said, “because (title insurance) is one of those things we don’t buy very often.”

Title Insurance 101

Missouri law doesn’t require real estate buyers to purchase title insurance, but a policy offers assurances that the title is free and clear of liens as well as protection from future claims disputing property ownership.

While buyers typically take out policies to guard against such claims, title insurance is largely a “lender-driven product,” said Kelly Jones, president of Lincoln-Evans Land Title Co.

Title companies issue one policy for the buyer and another for the lender. Both policies remain in effect for as long as the buyer owns the property.

The cost of a title insurance policy is typically rolled into a lump sum paid at closing that includes various fees and commissions paid to companies involved in the transaction.

Title insurance policies are relatively inexpensive when compared to a real estate investment, Jones said. A policy issued by Fidelity Title for a $150,000 home would cost about $425, according to Bob Clinkenbeard, general manager of Fidelity Title Agency.

Large insurance companies underwrite policies issued at local title agencies. A November 2006 cover story in Forbes magazine listed First American Corp., Fidelity National and LandAmerica, respectively, as the top three companies in the country’s $18 billion-a-year underwriting business. LandAmerica, which backed policies issued by the now-defunct Guaranty Title, is still auditing its former agent to determine why the company collapsed.

Since Guaranty Title closed, Jones said officials at Lincoln-Evans are fielding more questions about the underwriter’s role with the local title agency and the coverage of a title insurance policy.

Many area title companies also disburse construction loans to builders and developers. The agencies hold the money in escrow and oversee loan draws as projects proceed. [[In-content Ad]]