Title Insurance Services
Title insurance and related services (title) include the functions of searching,
examining, closing and insuring the condition of the title to real property.
The title segment also includes certain ancillary services provided for Internal
Revenue Code Section 1031 tax-deferred exchanges and home and personal insurance
services.
Examination and closing. The purpose of a title examination is to ascertain
the ownership of the property being transferred, debts that are owed on it and
the scope of the title policy coverage. This involves searching for and examining
documents such as deeds, mortgages, wills, divorce decrees, court judgments,
liens, paving assessments and tax records.
At the closing or “settlement” of a sale transaction, the seller
executes and delivers a deed to the new owner. The buyer typically signs new
mortgage documents. Closing funds are then disbursed to the seller, the prior
lender, real estate brokers, the title company and others. The documents are
then recorded in the public records. A title insurance policy is generally issued
to both the new lender and the owner.
Title insurance policies. Lenders in the United States generally require title
insurance as a condition to making a loan on real estate, including securitized
lending. This is to assure lenders of the priority of their lien position. The
purchasers of the property want insurance to protect against claims that may
arise against the title to the property. The face amount of the policy is normally
the purchase price or the amount of the related loan.
Title insurance is substantially different from other types of insurance. Fire,
auto, health and life insurance protect against future losses and events. In
contrast, title insurance insures against losses from past events and seeks
to protect the public by eliminating covered risks through the examination and
settlement process. In essence, a title insurance policy provides a warranty
to the policyholder that the title to the property is free from defects that
might impair ownership rights. Most other forms of insurance provide protection
for a limited period of time and, hence the policy must be periodically renewed.
Title insurance, however, is issued for a one-time premium and the policy provides
protection for as long as the owner owns the property or has liability in connection
with the property. Also, a title insurance policy does not have a finite contract
term, whereas most other lines of insurance have a definite beginning and ending
date for coverage. Although a title insurance policy provides protection as
long as the owner owns the property being covered, the title insurance company
generally does not have information about which policies are still effective.
Most other lines of insurance receive periodic premium payments and policy renewals
thereby allowing the insurance company to know which policies are effective.
Losses. Losses on policies occur when a title defect is not discovered during
the examination and settlement process. Reasons for losses include forgeries,
misrepresentations, unrecorded or undiscovered liens, the failure to pay off
existing liens, mortgage lending fraud, mishandling or defalcation of settlement
funds, issuance by title agencies of unauthorized coverage and defending policyholders
when covered claims are filed against their interest in the property.
Some claimants seek damages in excess of policy limits. Those claims are based
on various legal theories. We vigorously defend against spurious claims and
provide protection for covered claims up to policy limits. We have from time-to-time
incurred losses in excess of policy limits.
Experience shows that most policy claims and claim payments are made in the
first six years after the policy has been issued, although claims can also be
incurred and paid many years later. By their nature, claims are often complex,
vary greatly in dollar amounts and are affected by economic and market conditions
and the legal environment existing at the time claims are processed.
Our liability for estimated title losses comprises both known claims and our
estimate of claims that may be reported in the future. The amount of our loss
reserve represents the aggregate future payments (net of recoveries) that we
expect to incur on policy and escrow losses and in costs to settle claims. In
accordance with industry practice, these amounts have not been discounted to
their present values.
Estimating future title loss payments is difficult due to the complex nature
of title claims, the length of time over which claims are paid, the significantly
varying dollar amounts of individual claims and other factors. Estimated provisions
for current year policy losses are charged to income in the same year the related
premium revenues are recognized. The amounts provided for policy losses are
based on reported claims, historical loss payment experience, title industry
averages and the current legal and economic environment. Actual loss payment
experience relating to policies issued in previous years, including the impact
of large losses, is the primary reason for increases or decreases in our estimated
loss provision.
Amounts shown as our estimated liability for future loss payments are continually
reviewed by us for reasonableness and adjusted as appropriate. We have consistently
followed the same basic method of estimating and recording our loss reserves
for more than 10 years. As part of our process, we also obtain input from third-party
actuaries regarding our methodology and resulting reserve calculations. While
we are responsible for determining our loss reserves, we utilize this actuarial
input to assess the overall reasonableness of our reserve estimation.
Factors affecting revenues. Title insurance revenues are closely related to
the level of activity in the real estate markets we serve and the prices at
which real estate sales are made. Real estate sales are directly affected by
the availability and cost of money to finance purchases. Other factors include
consumer confidence and demand by buyers. In periods of low interest rates,
loan refinancing transactions are also an important contributor to revenues.
These factors may override the seasonal nature of the title business. Generally,
our first quarter is the least active and our second and third quarters are
the most active in terms of title insurance revenues.
Mortgage Services
Our mortgage services segment includes a diverse set of complementary products
and services provided to enhance the mortgage and real estate markets. These
services are provided principally through Stewart Lender Services (SLS) and
PropertyInfo® Corporation's Stewart Government Services.
SLS offers services for the entire lifecycle of the mortgage process including
mortgage origination support, servicing support, default and REO services and
loan review and audit services. These services include a full suite of valuation,
title and closing services, post-closing outsourcing, loan review and audit,
component servicing, portfolio reviews and audits, loan file reviews, loan quality
control and servicer oversight to residential mortgage lenders, servicers and
investors.
Stewart Government Services provides automation of county recorder offices
and other county services.