Not very long ago, the role a title agency played in the real estate transaction looked very different than it does today, at least in Michigan. A title agency would research the subject property’s history on the register of deeds, compile its title commitment with the requirements needed to insure the transaction, and submit it to the real estate broker or attorney on the transaction. The real estate broker or attorney would draft the settlement statement, balance the fees, draft the closing documents, conduct the closing, and disburse the file. As part of the disbursement, the real estate broker or attorney would cut a check to the title agency for the title insurance policy premium and provide proof that all requirements on the title commitment were met. Then, the title agency would issue the title insurance policy. And that’s it – purely a title insurance product industry.
I wasn’t a part of the industry before it became largely service-based and the focus was drawn away from the product it provides. When I started my title agency, I had to be able to do all the things:
- Abstract title
- Examine title
- Issue title commitments
- Clear the requirements
- Generate and balance a settlement statement with all the transaction costs
- Generate closing documents including deeds
- Conduct the closing with real estate and loan documents
- Disburse all the funds from the file
- Submit documents for recording with the county register of deeds
- Issue title policies
It wasn’t until about a year ago that I started paying attention to what services a title agency is expected to do that doesn’t effect the insurability of the title. It’s not that I don’t want to be handling all the service portions, it’s more analyzing the risk of doing something that’s outside the scope of title insurance. Also, it was a few years into my career before I experienced a file where we issued a title commitment and then the next communication from the client was a check in the mail for the title insurance premium. I was taken aback and thought, “Wow, that’s all we had to do for that file?”
In some states, title insurance and escrow services are separate companies, with separate fees. I think their structure helps real estate professionals in Michigan better understand what they’re getting out of their local title agencies. So what’s not a function of a title agency if it’s purely producing the title insurance policy product?
- Clearing the requirements. The requirements on Schedule B of a title commitment are a to-do list for the buyer and seller (mostly the seller). It shows the need for discharges on liens or mortgages, whether there’s unpaid taxes, or any other issue with the chain of title. In this purely-product hypothetical, the seller & buyer would take care of these requirements prior to closing and provide proof that the requirements have been met to the title agency.
- Generating & balancing the settlement statement. As recently as the 90s and probably even later, this function was done by the real estate attorney or broker for the transaction. My dad has been a real estate attorney since 1985 and he still has spreadsheets and settlement statement templates for the transactions he worked on for his clients.
- Generating closing documents including deeds. Again, this was largely assigned to the attorneys involved in the transaction. Oftentimes there were no attorneys involved in the transaction, so the title agency would work with an attorney just to draft the one deed, and in many rural counties in Michigan, this is still the practice.
- Disburse all the funds from the file. Attorneys largely handled this as well, acting as the escrow agent. The issue that often arose with this practice is that neither attorney involved in the transaction was a neutral third party, so this caused a lot of issues with who had the authorization to disburse the funds after a transaction was completed.
- Submit documents for recording. This really could go either way – the attorney on the transaction could submit the documents for recording themselves, or request the title agency to do it. Because of the nature of searching public records that were only available within county courthouse buildings, title agencies used to be built strategically close to the courthouse. This also meant that the title agency was oftentimes more closely situated to the register of deeds than the attorney, and was already frequenting the building, so filing the deeds and mortgages naturally fell to the title agencies. But remember, the recording of the deed or mortgage is just another of the many requirements on Schedule B of a title commitment.
So why are title agencies handling all of these extra services? I don’t know for sure, but I can guess that it was a result of two things: 1. convenience, and 2. neutral third party. A title agency doesn’t have a vested interest in a buyer or a seller separately. Their vested interest is in a transaction closing and all requirements for clear title being met. Without those two items, title agencies don’t make money for the work done on the transaction. The convenience aspect is interesting to me because as a result of title agencies handling so many more pieces of the real estate transaction, they’ve become the premier experts in those areas, when a few decades ago that expertise was shared by the real estate attorneys and brokers. Now their role is more in crafting the transaction than its ultimate execution.
The title insurance industry has clearly been evolving the last few decades and continues to do so. My perspective is that the increased knowledge that our title agencies have from all the “non-title insurance” services we provide makes us better real estate partners. There are all the usual frustrations that come with being involved in a service industry, I cannot deny that. However, I do think it’s enlightening to take the time to understand what the original objectives of abstracting companies and title insurance companies were, and how things have shifted since then to be this consumer-facing service industry with its original product still at the center of its operations.
