George Leefs article, The state and lawyers close ranks, The N&O, November 24, 1999 (which follows) is so full of half truths, misstatements of fact and erroneous assumptions that it would amount to misrepresentation if he were selling something (or is he?). Such unsubstantiated charges can not go unanswered. The consumer is entitled to the truth. The system of title assurance in North Carolina benefits the consumer more than almost any other state.
There are over 17,000 attorneys practicing law in North Carolina many of whom work in the area of real property law and vigorously compete for business. This competition is very real and as a result attorneys fees, calculated as a percentage of loan amount, have steadily decreased since 1980 as land values have increased. This is a real consumers bargain compared to lenders origination fees and real estate brokers fees which have generally stayed a constant one percent and six percent respectively. This hardly describes monopolistic enterprise.
The costs quoted in the article are extremely misleading because they do not include the cost of the title insurance premium, which is the other half of the title assurance equation. In North Carolina the premium for a $150,000 purchase with a $120,000 loan would be $275. In Michigan the typical premium, for the same coverage would be $931 resulting in a combined cost to the consumer that is over sixty percent higher than in North Carolina. The New Jersey situation, where attorneys no longer examine the titles, is instructive also. Search, settlement and premium typically total over $1400 now for the same type of transaction.
North Carolina enjoys the second lowest closing cost in the nation to the consumer for search, document preparation, settlement and title premium. Arizona, cited in the article has the eighth highest cost. States where the attorney is involved in the title examination predominate the lower half of a survey of average closing costs nationwide. North Carolina also enjoys one of the lowest rates of title insurance claims in the nation. Title insurance premiums reflect the cost of doing business. In other states, these costs include the costs of plant, personnel and marketing needed to search title and close transactions as well as to cover losses. As a result, North Carolina also enjoys the lowest premium rates in the nation.
It should be noted that title insurance premiums are consistently lower in the states where attorneys do the title examinations. Real property title examination requires the broadest knowledge of the law of any area of practice. Real estate is arguably one of the most complex areas of law. The real property attorney must have a proficient knowledge of Real Property, Bankruptcy, Wills, Estate Administration, Domestic, Corporation, Partnership, Environmental, Criminal, Land Use Regulation and Tax law (to name a few) in order to render a competent opinion on title. A lay person cannot be expected to have this knowledge and can not adequately examine titles without intensive training, extensive experience and adequate supervision by an attorney. When too much responsibility is turned over to a lay abstractor, without this training, experience and supervision, title problems go undiscovered and errors in judgment occur giving rise to claims. More claims result in higher title insurance premium costs to the consumer. There are additional costs and harms to the consumer. The consumer may have created a title problem that should be discovered and cured during a refinance. Title insurance would not cover the owner in such a case, but if there was actionable negligence on the attorneys part, malpractice coverage would. Non-attorneys do not have the same professional obligations to the consumer as attorneys do, leaving the consumer unprotected when attorneys are not in the process.
The article makes one valid point. There is nothing an attorney does that a lay person can not learn to do. This obviously begs the question of who determines if and when they are qualified. The North Carolina State Bar is the agency responsible for licensing, regulating and disciplining attorneys. Nurses, physicians, teachers, engineers, surveyors, morticians, certified public accountants, veterinarians, pharmacists, opticians, electricians, truck drivers, barbers and beauticians all have licensing requirements and few would dispute the benefit to the consumer in the resulting protection from incompetent and unscrupulous practitioners. In the real world, we recognize that competition comes between members of a regulated profession as long as admittance is not unreasonably restricted.
We regularly receive calls from title examiners reporting uncanceled liens, improperly drafted instruments, improperly executed conveyances and similar problems where it is clear that out of state lenders have circumvented North Carolinas unauthorized practice of law statutes. In such cases, the consumers must clear up the mess at their own expense. Attorneys in North Carolina actually certify the title to real property as opposed to furnishing a mere report or abstract. In doing so, they assume liability to the consumer for errors or omissions as part of their professional responsibility. Generally, abstracter liability is to the insurer. The insurers liability is generally limited to the contract, which often leaves the consumer without effective recourse.
It can not be stated too forcibly, or too frequently, that title insurance is no substitute for good title! While title insurance may protect an insured from certain defects caused or missed by examiners, it must be remembered that the choice of remedy belongs to the insurer, not the insured. Title insurance is not usually responsible for consequential damages either. In addition, title insurers will often provide coverage to a lender but not the owner due to the lower risk involved. An attorney who doesnt receive a part of the title insurance premium may be more likely to give a meaningful explanation to a prospective purchaser of the risks involved in relying on insurance rather than relying on good title.
These stated costs and harms to the consumer are not hypothetical. Our files are full of real life examples of title problems caused by non-professionals. If the New Jersey Supreme Court or the U.S. Attorney General had access to the information replete in title insurers files they would not have made the speculative assumptions cited in the article. Competition between professionals and lay persons is not a real factor in the cost of closing to the consumer. Expertise and accountability is the primary factor. Real property attorneys must do a better job of educating the public of the real benefits and reduced costs associated in having licensed professionals undertake responsibility in what is the largest financial investment for most consumers.
Acknowledgment is gratefully made to The Title Company of North Carolina and Old Republic Title Insurance Company for the information cited from their Residential Closing Survey (October 11,1996) which was prepared for the N.C. Residential Real Property Task Force.