The Real Deal New York

Title insurers, too, feel a pinch

January 08, 2009 12:58PM
By C. J. Hughes

To the long list of professionals hurt by the cratering residential real estate market — brokers, mortgage lenders and appraisers, among others — add another victim: title insurers.

These businesses, which sell insurance policies to buyers of apartments, to protect them from sellers who unload homes that were never technically theirs to begin with, are laying off employees in droves, instituting hiring freezes or outright closing, according to industry leaders.

“Everybody is very, very slow,” said Sharon Sabol, the executive vice president of the New York State Land Title Association, a Manhattan-based trade group made up of title insurance underwriters and their agents.

In fact, between November 2007 and October 2008, her group shed 17 percent of its members, because they either went out of business or they could no longer afford the annual dues, which at most cost $800, said Sabol. This plummet was the largest in her 20 years with the group, she added.

Although title insurance policies are not required by New York State law, 98 percent of city buyers purchase them anyway, because most lenders require them before issuing mortgages; the lenders want to protect themselves from deals that could sour down the road if, say, a long-lost relative turned up, claiming dibs to the property.

But, as sales activity dips, so do opportunities to write new policies, and activity levels in the fourth quarter were clearly down, according to reports from New York’s top real estate brokerage firms. The Corcoran Group, for one, found that in the last year, Manhattan apartment sales dropped 40 percent.

And in what’s a double whammy of trouble, title insurance claims are up. Many claims are from the problems suddenly coming to light with homes sold in a rush in the boom without proper vetting, said Jonathan Richards, a senior vice president with Fidelity National Title Insurance Company, one of the country’s largest underwriters.

While the surge in the number of distressed properties is creating opportunities for different kinds of work for title insurers, like insuring foreclosed homes rather than non-distressed ones, Richards said, that type of work tends to be less rewarding.

That’s because foreclosed properties, with their various liens and potentially checkered trails of ownership, require way more research by insurers, and “abstracters,” which are like real-estate detectives, Richards said.

And since policy rates are fixed by the state, at roughly $4 for every $1,000 in real estate, sales of foreclosed homes end up being a lot more work for the same money, he added.

“It’s high-risk work that involves a lot of cooperation from various parties,” Richards said.

And insurance brokers are also getting squeezed, like Marvin Yoches, an
independent contractor who works for LI-based East Coast Abstract, who
has frozen hiring.
Note: correction appended.

“It’s a cyclical business, but I don’t remember it ever being in the toilet like this,” said Yoches, a 47-year veteran.

But even though they may be under more financial pressure than in the past, buyers should still invest in home insurance, Yoches added. In fact, in a down market, homes are more likely to have existing black marks against them, like if a seller had failed to pay his income taxes to make his own end’s meet.

“And Mr. Jones could be liable when the government comes knocking, saying ‘Where’s my money?” he said. “The title insurance protects the buyer, too.”

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