"You Get What You Pay For"

I've worked in the Escrow industry since 1980, through many different cycles in the housing and mortgage markets. Not much is new ... even in today's difficult economic climate... but I can assure you that the old adage which is the title of this post is true, even now.

In Washington, the Escrow industry exists in two groups: the escrow departments of title companies, and the licensed, so-called "independent" escrow companies.

Title companies, as you may know, are primarily insurance companies. Escrow is a related service, an extra profit center, an industry in which they are allowed to engage with limited oversight from State regulators. In legal terms, it's called being exempt.

The Office of the Insurance Commissioner ... which regulates and oversees title insurance companies ... chooses to stay largely "hands off" of title companies' escrow divisions. A representative of the OIC stated in a public meeting in September 2008 that no audits or examinations of title company escrow divisions had been conducted so far in 2008.

Licensed Escrow Agents ... so-called "independents" ... are everyone else (except title companies) that engage in providing escrow services to Washington's citizens. To do so, one must be (a) licensed (i.e., you sat for and passed a test); (b) bonded and insured; (c) submit quarterly reports to the State Department of Financial Institutions on the status of their trust accounts; and (d) submit to random examinations and audits. None of the foregoing are required of title company escrow divisions.

The general public is mostly unaware of these differences.

So what does this have to do with getting what you pay for?

In order to provide an effective and legal service to the public, licensed Escrow Agents must charge a fee that covers the cost of doing business and provides a living wage for those doing the work.

Title company escrow divisions, however, can combine the balance sheets of both their title and escrow divisions, giving them the ability to charge more ... or less ... as they see fit, on the escrow side of their business. They can also open up branch escrow offices wherever and whenever they choose, without any requirement to have those branches staffed by qualified, experienced escrow closers responsible only for that branch, as would be true of a licensed Escrow Agent.

Until the Summer of 2008, most title companies charged a flat rate for a refinance transaction and a sliding scale for a purchase. In addition, they often charged from $125 to $165 for each mortgage payoff they handled, in addition to their escrow fee (called a "reconveyance" or "trustee" fee), even if such services were usually not needed.

Licensed Escrow Agents are forbidden from charging such fees (unless a trustee was actually engaged to provide services).

In August 2008, the OIC required that title companies file their escrow rate schedules and post them on their websites.

Interestingly, the escrow rates started changing dramatically. The extra fees for payoffs have virtually disappeared, and "low ball" flat rate refinance fees are taking their place.

Of course, the consumer is often drawn to the company with the lowest price. This does not mean, however, that the experience, quality and accuracy of the low price company is of the same high level as a licensed Escrow Agent, often owner-operated, that may charge a higher fee.

Bottom line: know with whom you are dealing, not just who is charging the least. After all, a personal residence is often the largest single financial investment many people will make in their entire lives. Highly experienced, qualified escrow closers work in both environments. Choose one based upon their qualifications, not solely upon the lowest price.

You get what you pay for!