Future consequences of offshore title searching

It is not widely known outside of the title industry that many (if not most) of the title searches performed for real estate closings are processed outside of the United States. Title searches are typically ordered by a title insurance company to provide the information necessary to prepare a title insurance policy. The insurers have found that by sending the orders to offshore facilities for processing they can save millions of dollars on title search fees. These facilities are typically in India or Malaysia, where contract workers perform searches for pennies using only records available online. Obviously, a processor in another country cannot physically access the actual legal title documents found in the recording offices and courthouse where the property is located.

So is this a good thing or a bad thing? It depends on who you are. For title insurers and underwriters, and their shareholders it is a very good thing. Millions of dollars in savings can be added to the balance sheet. There is nothing wrong with a company earning more profit if it discovers a means to do so. And it is under no obligation to pass these savings along to consumers in the form of lower title insurance rates. The question becomes are there any consequences to the offshoring of title searches. Let’s take a closer look.

1. Reduced accuracy of searches. Title search reports commissioned within the US are typically researches and prepared by experienced and seasoned abstractors. They usual career path of a professional abstractor is to work as an apprentice for a title examiner or attorney for a number of years prior to performing searches on their own. The title searcher will learn the fine art of researching title and all of the complex analysis which goes into that process. By obtaining actual copies of each document, the title searcher can read the language and understand the meaning of each recorded instrument. An offshore searcher on the other hand may receive a few days or hours of training and use only electronic indexes of the records, and possibly no document copies. The result is that the accuracy of the search may not be complete. The consequence? A homeowner may later discover liens or encumbrances not reported on the title search. Now title insurance is supposed to cover these, but there are many “Exclusions to Coverage” listed on every title policy (normally on “Exhibit A” of the commitment). Even if the title defect is not excluded, the property owner is likely to have to wait for the claims process and endure delay and expense to get the defect resolved. Remember, title defects normally turn up when a subsequent sale or refinance is in the works; not the best time for a delay or expense.

2. Lower quality of search process. In addition to accuracy problems, the search itself could be of lower quality. Without access to the actual documents the offshore searcher cannot know whether a printout is an official record or not. Currently the real estate market is dealing with the robo-signing/assignment chain crisis, where mortgage assignments and ownership cannot be determined. A professional and experienced abstractor would have noticed that the foreclosing bank is different from the mortgage holder on title, and made a note of it on the title report. I can only suspect that many of the mortgages with assignment problems were searched offshore by processors not aware of the legal premises which secure property title are based upon. Also, without access to supporting records such as civil court files, prothonotary records, probate court, and Secretary of State filings, and offshore “searcher” can be completely in the dark about important records which can cause a cloud on title. The records which come together to create a title search do not ONLY come from the land records.

3. Exposure of private information. When a title package is sent offshore for processing, it includes all of the personal information for buyer and seller. This could include names, addresses, social security numbers, drivers license copies and signatures. Even credit report copies. I don’t know who would have access to this information, but I am sure the laws and customs in other countries regarding the securing of personal information is different from those in the US. Identity theft is a legitimate concern for offshore processing of legal transactions such as real estate closings.

4. Ownership of property records. Once a processor in India or other location has processed millions of files, they have compiled a huge database of property records and transaction information. It is unknown what contractual agreement exists with regard to who owns the data. A company in possession of this much valuable information has a powerful position in the marketplace which it can leverage.

5. Permanent meltdown of US abilities. To me this is the most troubling potential liability for offshoring of title search services. As US based title insurance companies send more and more of the title processing process offshore, the foreign entity gradually takes control of more of the process. Eventually it can bypass the American company completely and own the entire process. If you think this is an unlikely scenario, consider that it has already happened in several former US industries. One example is Dell Computer:

ASUSTeK started out making the simple circuit boards within a Dell computer. Then ASUSTeK came to Dell with an interesting value proposition: ‘We’ve been doing a good job making these little boards. Why don’t you let us make the motherboard for you? Circuit manufacturing isn’t your core competence anyway and we could do it for 20% less.’ Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. On successive occasions, ASUSTeK came back and took over the motherboard, the assembly of the computer, the management of the supply chain and the design of the computer. In each case Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. However the next time, ASUSTeK came back, it wasn’t to talk to Dell. It was to talk to Best Buy and other retailers to tell them that they could offer them their own brand or any brand PC for 20% lower cost.

This is not an isolated example. The Harvard Business Review identified a “frighteningly long list” of entire industries lost to offshoring.

“Fabless chips”; compact fluorescent lighting; LCDs for monitors, TVs and handheld devices like mobile phones; electrophoretic displays; lithium ion, lithium polymer and NiMH batteries; advanced rechargeable batteries for hybrid vehicles; crystalline and polycrystalline silicon solar cells, inverters and power semiconductors for solar panels; desktop, notebook and netbook PCs; low-end servers; hard-disk drives; consumer networking gear such as routers, access points, and home set-top boxes; advanced composite used in sporting goods and other consumer gear; advanced ceramics and integrated circuit packaging.

But can this actually happen in the title search industry? Apparently it already is. Earlier this year the Times Of India reported that Fidelity National is increasing the depth of processing to overseas operations.

FNF India started in 2006 as a back-office for the parent company performing basic data-oriented work related to maintaining property repositories. This was devoid of any research or analytics . Progressively the company has been tasked with higher-end work. The KPO team offers its services in the areas of escrow, post closing, corporate tax and accounts payable.

The article goes on to say that Fidelity is a late-comer to the offshoring trend, that other insurers are already farther along in the process of sending higher value work to India. The profit motive of an enterprise is not a bad thing. Every business entity lives or dies by maximizing profit. The long term consequences of each immediate profit decision should be understood and considered, however.

This information is not the self-serving opinion of a business at risk of offshoring. In fact, the title search fees paid out by AFX run into the millions of dollars. We would have a huge profit opportunity ourselves by sending this work offshore and realizing an instant savings, and resulting increased profits. And most if not all of the clients we perform searches for are not able to order from offshore firms so there is little risk of lost business. The reason for describing these scenarios is that the current economic problems in the US are largely based on the fact that as a country, we don’t produce enough to support the number of people that live here. Read back up a few paragraphs and look through the list of industries lost to foreign countries. if we had half of those back, or even just a few, there would probably be enough new jobs to get the unemployment rate back down to a few percent.

I meet hundreds of highly skilled, professional, and expert title abstractors in my business and through NALTEA. If too many of these leave the field due to offshoring, then the critical mass of qualified searchers will be gone. In the era of untangling the mortgage note mess, and foreclosure crisis we need expert abstractors more than ever.