Shopping center developers and investors face enough risks without having to worry about the dangers that can surface in the murky area of title searches. Fraud, partnership disputes, easements, encroachments and liens are just a few of the hazards that can materialize after a sale has closed. "There's just too much money at stake not to have title insurance," says Joe Bonita, chief underwriting counsel for Chicago Title Insurance Co.
While other policies protect against future threats such as fires or floods, title insurance is an insurance of the past, says James Kilgallon, a director of national title services for Fidelity National Title Insurance Co. in Philadelphia. "Title insurance is a function of eliminating versus assuming risk," he notes.
Hidden dangers Title searches are done to disclose encumbrances that affect a property. But not all of those factors are discovered during the due diligence process. Title insurance covers those variables that may appear at a later date. Some of the most common title claims involve easements that surface after a sale is complete. "We have a case right now where somebody bought a building, and there was a grant of easement in the parking lot," Bonita says.
Citing the easement, the owner of the building next door is claiming the right to use 400 spaces in that lot. "That is a serious problem because there are zoning requirements as to how many parking spaces you have to have," Bonita explains. Regardless of whether that third party claim is valid, the title insurer is obligated to take care of it, he notes.
Title insurance often protects owners against such "off-record" risks, says Cliff Morgan, an underwriting director for First American Title Insurance Co. in Santa Anna, Calif.
For example, one common title dispute arises when a partnership is selling a property. "The title insurance industry has a high incidence of claims where partners are fighting amongst themselves," Morgan says. The immediate question is whether the partners signing the mortgage or sale documents actually have the power to do so. Often, they lack the power to bind a partnership, Morgan explains. All of the partners, even limited ones, may be required to consent to a transaction. So if one of the partners becomes disgruntled and disputes the deal, the title company has to pay the legal expenses to defend that title.
Not only are title companies stepping up to shield their customers from such risks, but an increasingly competitive industry has prompted title firms to leverage new technologies and a wider menu of services to capture new business. "You have to do it faster, better and quicker to keep up with the demands of the client, and a competitive industry," Kilgallon says, adding that ongoing consolidation has intensified industry competition.
Title technologies Increasing automation is providing some of the most notable new efficiencies in the title industry. Information can be accessed much more quickly. "The technology of title information is changing every day," Morgan notes. "It has improved a lot over the last five years, with a higher degree of computerization." Nowadays there is more electronic access to title information, and some of that information can be accessed via the Internet, he says.
The old days of going out and paging through documents to find abstract titles have fallen by the wayside, and the need for faster service is increasing all the time.
"One of the challenges in our industry is trying to be on the cutting edge of providing that faster service so that you don't get left behind," says Karen Butler, a commercial account executive and assistant vice president for Old Republic National Title in Minneapolis.
Reorganized databases -known as "title plants" -have helped companies assemble documents much faster, sometimes in just a few days. The electronically stored records are organized by property as opposed to a person's name, Butler says. "It's easier to do searches than back in the dark ages."
More and more information is being transferred to electronic data storage. Flood searches, for example, can now be done electronically by searching databases and printing out maps as opposed to manually paging through map documents.
"I think our company will be looking to improve on searching in various areas in the future," says Gary Cichon, a senior vice president and national senior underwriter for Stewart Title Guarantee Co. in Chicago. One trend is for title companies to be able to access an electronic link directly to courthouses where documents are filed, Cichon notes.
Better service Not only is technology enhancing the search process, but many title companies are using technology to better serve their customers. Stewart Title introduced its REprofile.com website last year.
The site was created to provide news and information to all segments of the real estate industry. It features links to court systems and lawmaking bodies of all 50 states and the federal government. Reprofile.com also offers daily news and significant court decisions pertaining to commercial and residential real estate, finance, property, casualty and title insurance.
In addition, the site includes Stewart's Virtual Underwriter online software, which allows users to access forms and legal information necessary to complete the transfer of real estate.
For its part, Chicago Title has developed a website to enhance a broad range of services for its existing customers. The Internet-based system, called CastleConnect, allows customers to access their current Chicago Title real estate documents using IDs and passwords. Any completed documents, such as a title commitment, are posted to the web.
One-stop shops Today, title companies are routinely asked to send schedules of documents such as easements and restrictive covenants. Although that was much less common 10 or 15 years ago, Butler says, some firms now automatically provide such additional documentation.
For example, if rezoning of a parcel is necessary, a title company might conduct ownership searches on adjoining land to get a head start on the notification process.
Title firms also are bundling a variety of real estate services together to offer more comprehensive packages.
"There is a movement to provide title real estate services as opposed to just title insurance services," Kilgallon says.
Some of those services address credit, flood certification, real estate tax certifications and recording services. Such ancillary services have been growing over the past five years. "Providing information is really a changing trend to offering a standard insurance product," Kilgallon explains. Clients are looking to title companies to provide a variety of services from a single point of contact. "All of the policies look alike, so choosing a title company has become a function of service and of pricing," he continues.
Essentially, title companies are positioning themselves as one-stop shops. "Firms are providing whatever it takes to help their clients complete that due diligence," Cichon says. "Whenever possible we even have our own plant sites."
Stewart Title operates one Illinois plant that has records dating back to 1979. The firm also provides additional real estate services through its wholly owned 1031 exchange company. "Title companies think that vertical integration of services allows them to control a project from beginning to end," Cichon says.
Another growth area for title companies is expanding their geographic reach. The large institutional property owners are shopping for title insurance for entire portfolios that may include properties scattered across the country.
"There is an awful lot of pooling of properties in the commercial sector," Kilgallon says. As a result, title companies need to possess the capabilities to conduct those national title searches, he says.
The increasing ability to access information greatly enhances a title company's ability to serve large clients. Given the competitive nature of the title industry, that ability is widely sought.
Stewart Title currently has 10 underwriters on its staff who are able to underwrite any national transaction. That allows the firm to streamline the search process. "The more you can control a project from beginning to end, the more you are able to make sure it gets done with quality of service and in a timely manner," Cichon notes.
Not only are title firms focusing on improving national service, but they are eyeing international expansion as well. The industry has seen an explosion of international business as large shopping center developers continue to target overseas projects.
"American developers are being financed by American banks that want title insurance," Cichon says. "Over the next decade or so, there will be a real growth area for international business."