The volume of L.A.-area properties being sold is inching upward, and so is activity at L.A.’s top title companies, according to this week’s List.
But while increased sales activity means better business for the title companies, it doesn’t necessarily translate to better market conditions for local real estate.
That’s because a substantial portion of the properties being sold in the county perhaps as many as one in four, according to title company executives are by financial institutions that sell properties after completing foreclosures.
When properties are sold, title companies insure owners and lenders against losses resulting from any existing legal problems related to the property, such as fraud or “liens” or other claims, that might hinder the transfer of ownership.
Title companies also get involved in refinancings.
When owners refinance their mortgages, title companies insure lenders against any such claims against the property since the date the owner acquired the property.
Refinancings typically generate only about half as much in fees for title companies as do property purchases.
Title companies’ rankings on the List are determined by the combined values of L.A. County mortgages on which they wrote title insurance policies in 1996.
Fortunately for title companies, the gains most of the top firms posted last year are clearly being driven by sales activity, rather than mortgage refinances.
Twelve of the top 15 firms insured a higher overall dollar value of mortgages in 1996 than they had in 1995, including all of the top seven. And 11 of the top 15 insured a higher dollar value of sales-related mortgages than they had in 1995.
The increase in title companies’ business in 1996 comes on the heels of a tough 1995 for the industry. The combined values of L.A. County mortgages dropped from 1994 to 1995 for every firm on The List last year with many seeing values falling by one-third or more.
But the higher activity is not reflective of strengthening property values, given the distressing level of bank foreclosures involved.
“Overall, the sales market was much better last year than in 1995, but it’s still to a large extent influenced by the ‘REO’ (foreclosure) market,” said Tom Kelley, president of No. 1-ranked First American Title Co. of Los Angeles.
As L.A. County still has an inordinate share of the state’s foreclosure activity, REOs foreclosed properties, also known as “real estate owned” constituted perhaps as much as 25 percent of local properties sold last year, Kelley said.
In fact, real estate information services firm Experian has found that the number of California properties foreclosed on leaped nearly 19 percent last year over 1995 with lenders taking back more than 92,000 properties.
And it’s the greater Los Angeles area, along with the Sacramento Valley, that “have emerged as the most affected regions in property repossessions,” the Experian report noted.
As distressing as rising foreclosures may be for property owners, the higher level of sales activity is leading to better profitability for the area’s title companies and real estate brokerages, said Claudia Queen, sales manager at No. 4-ranked Stewart Title Co. in Glendale.
But she and First American Title’s Kelley both said they are seeing signs of better market conditions ahead.
Queen noted that local homebuilders are “resuscitating what’s been in the archives” by reconsidering many of the housing subdivisions that had been planned for development before the recessions hit six or seven years ago.
Kelley added that home “price erosion has finally stopped. If it’s not sliding, people feel more comfortable” about buying and selling real estate.
And he’s optimistic that 1997 sales activity will ultimately prove to be stronger than any of the last six years, and might even lead to slight (1 to 3 percent) increases in local property values.
Next week: Retained and contingency search firms