In order to get a mortgage loan, you need title insurance. This protects both the buyer and the lender against clouded title – claims by people other than the seller that they own part or all of the property. Typically title insurers do some level of research on the ownership history of the property. This eliminates some of their risk – any viable claim against the property will be based on pre-existing ownership rights. In many states insurers can determine how much risk is efficient – that is, when the extra research to further reduce their risk costs them more than the insurance payouts they are likely to make.
In Oklahoma, title insurers are not allowed to make any such risk determination. They are required by law to have a licensed abstractor gather all the recorded documents relevant to the parcel’s ownership history, back to when it was owned by a government entity. Then they are required by law to have a licensed attorney examine the documents and write an opinion of title.
Five regulations in particular inflate the cost of buying and selling real estate with no benefit to consumers. You are paying the price for these regulations, whether you own property or not: landlords must pass these costs along to renters, and retailers do the same with their customers. It’s an overhead cost of doing business, but it is not inevitable. The most burdensome policies, in order, are:
• Requiring every abstracting company to create and maintain a title plant.
• Requiring Title Insurers to have an attorney review a full abstract, created or updated by a licensed abstractor. An update can only be of a previous abstract created by a licensed abstractor.
• Requiring Title Insurers to have an attorney review a full abstract, created or updated by a licensed abstractor. An update can only be of a previous abstract created by a licensed abstractor.
• Requiring every abstracting company to have a certificate of authority from the abstracting board.
• Requiring a license to work as an abstractor (a license does not allow licensees to operate their own abstracting companies, but merely allows them to perform abstracting work for a company with a certificate of authority).
• Requiring a permit to begin building a title plant.
1889 Institute’s study on abstractor licensing revealed that Oklahoma has fewer abstracting offices than one would expect given its population, population growth, and number of mortgages. This is because abstracting companies are protected from competition by the requirements of licensure, especially the requirement for a full title plant. Oklahoma also has more title professionals than expected. This is likely due to the requirement that all abstracts be to sovereignty. Other states would regard the earliest history of the property as largely irrelevant, or at least unnecessary to protect consumers. The research of these early documents is largely busywork – explaining why Oklahoma has so many title professionals.
The national average cost of title insurance and abstracting (after adjusting for the cost of living in individual states) on a $250,000 home is $1,421. The cost in Oklahoma is $1,708. The average cost in states that do not require title plant ownership is only $1,380. That’s 328 dollars that could be saved on every transaction. And don’t forget: just because the government doesn’t require a service doesn’t mean it’s not available. Consumers are still free to request these services in other states. They’re simply not forced to pay for them.
Oklahoma should deregulate abstracting. Insurers should be allowed to determine how much risk to accept. These seasoned professionals will find the optimal risk point while protecting consumers. The interests of consumers and insurers are aligned, meaning the public can trust insurers to protect their bottom line, which in turn protects the consumer. Oklahoma should abolish the Abstractors Board, allow anyone to search and examine a title’s history, allow title insurers to rely on county records, and allow insurers to choose the length of title search that is right for their customers.
Only one body is empowered to end the occupational licensing menace in Oklahoma: the Oklahoma Legislature. Certainly no current member was in office when Abstractor licensing was passed – the same is true of most other occupational licenses. But the failure to correct such an obvious problem, especially when legislators are the only ones who can fix it, makes them still culpable. There are a handful of outstanding legislators who do all they can to oppose occupational licensing – both combating new laws and repealing old ones. But they are too few, and they are outnumbered by those who fail to consider the compound consequences of licensing, instead trying to please the few industry insiders and their lobbyists.
Mike Davis is Research Fellow at 1889 Institute. He can be reached at [email protected].