Study: Title Industry Mitigates Over $600 Billion in Estimated Risk Exposure Annually
October 3, 2024
Analysis released by First American Financial Corp. finds that the role of title professionals in maintaining reliable and accurate property ownership records dramatically reduces estimated risk exposure in real estate transactions.
The white paper by First American Chief Economist Mark Fleming, “ What is the Risk of Not Curating Property Ownership Records? ” estimates that the title insurance industry’s work to maintain accurate and reliable property records mitigates $600 to $900 billion in risk exposure to homebuyers, lenders and other participants in real estate transactions. The curative work conducted by the U.S. title insurance industry, which includes aggregating and organizing disparate sources of data affecting real property, identifying and remediating risks, and helping resolve errors in the public record, is necessary to clearly and reliably trade property rights and ownership in a real estate transaction.
“The U.S. residential real estate market accounts for a significant share of the total economy, but it relies on a public good—reliable, accurate real property records—that the title insurance industry plays a critical, but largely misunderstood, role in maintaining. It is the industry’s efforts to mitigate title risk exposure that maintains the reliability and accuracy of property ownership records underpinning the real estate economy,” said Fleming. “When the price of maintaining a smooth-functioning real estate economy is just pennies on the risk-dollar, do we really want to jeopardize that and risk diminishing the economic benefits it provides?”
Whitepaper Conclusions
- Annually, prior to the pandemic, the title industry’s estimated pre-curative risk exposure ranged from $600 to $900 billion a year.
- During the boom in sales and mortgage refinancing in the pandemic total estimated industry risk exposure surpassed $1 trillion a year.
- The degradation over time of the public records, if not curated, will cause the marketability of title to become less clear and increase the burden of defending property rights in court.
- The price for curating the public record and insuring ownership rights relative to the total estimated risk exposure is small.
Curative Study
According to a study conducted by ndp | analytics, expert title professionals spend approximately 22 hours to close a standard transaction and 45 hours for more difficult transactions. While all standard transactions require important title clearance efforts prior to closing, difficult transactions require even more substantial work to correct more complex title issues prior to closing. In 2023, title insurance companies estimated 36% of transactions were in this more difficult category.
The study—which includes responses from a nationally representative group of 674 title insurance companies and was conducted in the first quarter of 2024—estimates the time needed to research title and close a transaction. It also estimates the extraordinary efforts title professionals take to fix title issues—typically called curative work—to protect what is often a homeowner’s largest lifetime purchase. While other lines of insurance are unable to predict or prevent events such as floods and fires that can impact a home, title professionals can identify and prevent many of the issues that might interfere with someone’s ownership rights or a lender’s mortgage priority.
Here are some key takeaways from ndp’s research:
- 36% of all transactions require extensive, nonroutine title clearance efforts. Difficult files, which require substantial curative work, are very common.
- Nearly all title insurance companies conducted curative actions often or very often; 62% of these companies typically performed at least four curative actions per transaction.
- Curative work requires more resources than it did five years ago. The biggest changes were cost, transaction volume and compliance. In 2023, approximately 64% of title insurance companies expressed that expenses related to curative work have increased (24% reported costs are much higher than five years ago and 40% said somewhat higher). Over half of companies reported increases in the shares of transactions that require curative actions (55%), the compliance burden (54%) and the complexity of curative work (54%).
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