The goal of a title agent or agent-attorney is to make sure the person selling a property has a right to sell it and there are no issues that would affect a new owner’s title rights. If the title company or law firm can’t clarify the chain of title, it’s their job to either remove those barriers by clearing title defects, accept the risks when issuing the title policy, or deny the request for title insurance.
As you can imagine, access to accurate land records is paramount in accomplishing this task.
How do title agents ensure that the data they access is accurate and what advances in technology make the process of title clearing faster and more reliable?
How do title agents access property research?
Real estate closings have come a long way since the time of Sansine ceremonies and early land recordkeeping.
- The Public Record
- Title Plants
- Other databases or third-party search services
A professional title search starts with the public land records that each recording jurisdiction (usually a county, parish, or even the city) in the United States maintains. Nowadays, many recorders have files that are accessible online, but not every recorder has the infrastructure to support internet queries, and the information on the website may not be complete, so a trip to the recorder’s office may be required in some cases.
Additionally, recorders aren’t responsible for verifying the accuracy of the documents they record. State laws actually limit the recorder’s ability to refuse documents that otherwise meet the requirements of the laws for recordation. Thus the job of the title searcher is all the more important, as searchers act as the property detective piecing together each document, determining its veracity, uncovering title defects, and taking the necessary steps to resolve and prevent title defects before and after the closing.
“It’s important to remember there can be and are significant variations in state laws regarding recording requirements,” said Jerry Lewallen, president of the Property Records Industry Association (PRIA). “Each recorder must abide by the laws and regulations of their state. Thus what happens in one recording office may differ from what happens in the recorder office of another state, which leads to confusion and apparent contradictions.”
“Of particular concern currently to PRIA are the well-intentioned but unintended consequences of states passing laws requiring recorders to shield information from the public and title searchers if addresses and other personally identifiable information appears on documents being recorded. If you can’t prove you own the land, or you’ve satisfied the liens, how are you going to be able to sell that land?”
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What are Title Plants?
In Texas, title companies are required to either own or lease title plants, which store property records indexed geographically by both legal descriptions and by owner names. Title plants help to keep documents related to a property updated, reducing the risk of title insurance claims and subsequently lowering its cost. Some of the types of records found in a title plant include:
- Abstracts of judgment
- Chattel mortgages
- Deeds of trust
- Divorce actions
- Lis pendens
- Plat maps
- Probate records
In the past, title plants were literal buildings housing thousands of paper documents, making title research a time-consuming process, but just as public record systems have become digitized, so too have many title plants, saving research time and the cost of investing in new buildings.
Although title agents could access the same information they need through a public record search, title plants are considered a more accurate method. Their indexing system by a property’s legal description vastly reduces research time. Alternatively, using the public record and searching by owner name can return many irrelevant documents related to another “John Smith.”
Title plants are also more likely to maintain more accurate records. Since recorders aren’t expected to, and are even prohibited from, making corrections on documents they record, errors in the public records is one of the most common types of title defects. In contrast, those who manage title plants have an incentive to correct errors to either avoid title claims or provide a guarantee to their customers that the information is current, correct, and complete.
A scarcity of experienced title examiners means their time is especially precious, and the cost of leasing or creating a title plant is well worth the investment for many title companies and law firms, even if it isn’t required by state law.
The MERS System
The MERS System (Mortgage Electronic Registration System) is a private national electronic database that tracks changes in mortgage servicing rights and security interests in secured residential real estate loans. This system tracks mortgage specific information on a property. At closing, MERS is designated as the mortgagee or beneficiary on the mortgage or deed of trust by both the borrower and lender. The lender records the mortgage or deed of trust in the recorder’s land records and registers the information about the loan on the MERS system. MERS remains the designated mortgagee in the land records as servicing rights and promissory notes are bought and sold on the secondary mortgage market.
Ideally, this system helps reduce issues related to breaks in the chain of title by acting as the main source of mortgage information, but sometimes it’s used improperly to transfer interests instead of simply tracking those transfers. As a result, mortgage assignments (documents that show when a new bank or entity buys a home loan and has rights to enforce the note) go missing in the public record.
The potential disparity between public and private records means title agents are compelled to search all known databases to obtain a full picture of a property’s ownership and loan history. For some title agents, they may outsource the initial title report to their underwriters or to third-party companies like PropLogix to optimize their internal process and alleviate some of the work on overburdened closing agents.
Can technology make clearing title easier?
Clearly, there are a lot of disparate ways in which property information can be gathered, assessed, and maintained. With so many parties involved, the push for better standardization and digitization of property records is being led by organizations like the Property Records Industry Association (PRIA) and technology service providers like Simplifile and Ubitquity.
Standardizing and Digitizing Property Records
The mission of PRIA is “to develop and promote national standards and best practices for the land records industry.” Members include county recorders, title and escrow professionals, lenders, notary associations, technology companies and other groups serving the real estate and mortgage industry.
In the 1990s, business transactions were changing quickly with the advent of electronic signature technology. New laws like the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (E-SIGN) were being introduced to accommodate the changes. However, there were no national standards for recording property records in place and local governments’ lacked the funding for technology upgrades. The national and global growth of property financing and ownership became hampered by inconsistent state requirements and inefficient government systems.
While many county recorders have provided digital access to their paper-based records for some time now, the ability to process and clarity on the legal acceptance of electronic documents for eRecording is still in its infancy for many jurisdictions, but adoption is growing.
PRIA has been instrumental in developing best practices and models to help ease and promote the implementation of eRecording and eNotarization among county recorders.
As of January 1, 2020, Kentucky became the 49th state to offer eRecording. Simplefile, one of the largest technology providers of eRecording, estimates approximately 85% of the US population lives in an eRecording jurisdiction. One study from PRIA showed, in 2018, slightly more than half of all documents recorded in 622 jurisdictions were electronically recorded, up from 38% in 2014.
Will blockchain replace land records?
Standardizing and streamlining the recording of digital property records is just the beginning of modernizing the land records system. Ubitquity is hoping to provide a far more ambitious overhaul to the system with Title Token.
The title token would contain all of the relevant information that would be found in the public record, a title plant, or any other database along with other data like the current assessment and market value. A Title Token would be created when a property owner’s title insurance policy is issued and would be hosted on Ubitquity’s marketplace, where the holder can share their property information with title companies to review before issuing insurance for future transactions.
With the title plant system in mind, Wes Williams, ESQ., a veteran in the title industry and Ubitquity’s Vice President of Title explains, “Title companies have figured out how to bring all the right property information together, and they’ve sourced it and licensed it to various parties. I think bringing this data and control to property owners would be an amazing undertaking and feat if it would happen because it would shift the balance of power.”
From Title Plants to Title Tokens
“Ultimately, if a property owner now has the ability to present the state of his title in a fashion that allows these third parties to access it and trust that the data is correct, then the need to maintain title plants goes away,” Wes points out.
While such technology would make title plants redundant, Wes believes that there is still no reason for title professionals to resist the move to blockchain title records. He argues title agents perform other functions, like escrow and settlement, and the title search process and the risk of insuring a property will be significantly eased or eliminated if a product like Title Token comes to fruition. Additionally, if title companies can see the state of property title in real time and bid on it, it could generate new streams of revenue.
This restructuring of roles and processes in an industry is natural as technology progresses. Wes remembers, “I’ve been in the title industry since the early 90s, the technology was still DOS based. Title land records only went back so far. From that point you’d have to go into another section – the actual microfilm to fill in the gaps if you didn’t have a starter to go from. Then you had various other job roles like a separate searcher, a separate examiner, a separate typist, and all of these individuals played a role in putting this title report or commitment together. Now these are all consolidated into one.”
“Right now this is just a concept,” Wes explains. “I don’t necessarily know if the industry is ready or if there is an appetite. When someone has a unique and interesting idea, convincing a lot of people that your idea has merit is very difficult. I can image what the guys at Uber had to deal with when selling people on peer-to-peer ridesharing and how that would work out.”
For now, Ubitquity is rallying early adopters in the title industry like Rainier Title to test and optimize their platform. The team at Ubitquity and the CEO of Rainier Title are convinced that this is the next step for the title industry.