The old adage that “the devil is in the details” can be applied to many different situations. And it can’t be denied that the title and settlement service industry, at its core, pays close attention to detail. After all, title insurance is only issued after a thorough examination of public records.
Thank you for reading this post, don't forget to subscribe!But now, more than ever, title agents must be mindful of axioms, especially when it comes to decision making and budget cuts.
While the extraordinary market pivot of 2022 and the title industry’s move towards digital production are two defining trends facing the title industry over the past two years, there are other emerging trends that are not yet winning the headlines. An increasingly aggressive regulatory enforcement stance at the federal and state levels, as well as the perennial threat of fraud and error in production (and support) processes pose very real threats to title agents and business owners. We have already seen some examples of what cyber attacks and malware can do to affect businesses.
Cutting back on expenses, especially those deemed “less essential,” is a proven ingredient in the recipe for riding out market downturns. It’s painful, but this industry in particular has long used a business model in which expenses rise and fall with order volume. This means technology, layoffs and termination of third-party provider or service contracts are not considered mission critical.
However, now is not the time to cut all professional support services indiscriminately.
Compliance, for example, because it’s not typically considered a profit-driver or revenue stream, is one of the first things budget-conscious CFOs and CEOs target. Managed IT services and cyber security are other functions that are often considered an expense.
Escrow reconciliation is another important responsibility that many title businesses delegate to previously untrained employees or managers. Even those that have retained expert staff or third-party service providers in this area, unfortunately, tend to reduce them early in the budgeting process.
Tough markets and short revenue cycles are precisely when the risks of internal theft or fraud increase. All hands are on deck looking for new revenue and fewer eyes are focused on internal processes.
While none of these features directly generate revenue, the costs that may be associated with their elimination or dramatic downsizing can be sufficient to put a firm out of business entirely.
For many title firms, it is quite common to delegate things like compliance or escrow reconciliation on a part-time basis to employees already responsible for things like escrow assistance or closings. Most everyone wears a few hats at the specific title firm! But in weaker markets, like the ones we’re experiencing now, there’s even less to manage the load.
On the other hand, when (not if, but when) the market corrects, those same businesses quickly find themselves shortchanged as all hands scramble to manage the influx of precious order volume.
And not all rebounds are even. A mini-spike in volume can cause a firm to lose orders due to mistakes or turn-times, even as they rehire and train new employees to help with the surge. scramble for.
While all of this happens, the opportunity only increases for fraud, error, cyberattacks, and the like. Most third-party service providers in the compliance, managed services and escrow reconciliation sectors can offer a variable cost option in the short run, meaning the business only pays for what it uses. It is much easier to scale up with a service provider when the market changes than to re-staff with new employees, and there is no “lag time” to back up order volumes in the pipeline.
When it comes to the forgotten but important services we’ve been discussing here, some put their trust in software or unqualified part-timers more than headline businesses. The COO’s uncle may be dabbling in IT, which should help the firm fumble until order volumes increase. Or maybe an escrow officer has a passing understanding of leading escrow reconciliation technology – to the extent that she becomes a de facto escrow reconciliation professional, even for a while. Perhaps the owner’s brother is a GP attorney in another state. Good enough to manage compliance for now, right?
In these cases, however, a lack of in-depth training and expertise in these respective areas of knowledge can be disastrous. For example, having a copy of TurboTax does not automatically qualify a non-CPA to determine the best tax strategy for a medium-sized company. Technology is only a tool, and while it can be helpful (and is probably used by professionals as well), it does not come with extensive expertise built-in. And a little expertise can be enough to bring about a hefty regulatory fine or cyberattack.
In volatile markets, such as we may experience throughout the year, variable costs become the norm for most agency budgets. Software as a service and third party providers can be valuable contributors to titling businesses without the need for flat compensation. However, the key is the understanding that certain functions and services, such as escrow reconciliation, compliance and cyber security/IT, while not revenue drivers, can make a significant contribution to “keeping the lights on”, especially during times like these.
Mary Anne Harris founded Positively Balanced in 2020 to help law firms and title companies with escrow reconciliation services. She is also the President of Real Estate Closing Path.
This column does not necessarily reflect the views of HousingWire’s editorial department and its owners.
To contact the author of this story:
on Mary Anne Harris [email protected]
To contact the editor responsible for this story:
at Sarah Wheeler [email protected]
