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Insights On Title Insurance And Running A Small Business With Kelly Burke

June 2, 2021

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GDNI 154 | Title Insurance

 

Title insurance is an important part of protecting your real estate investments. Jamie Bateman talks with his long-time friend and Vice President of Real Estate Settlements & Escrow, Kelly Burke. Kelly talks about how she got into the title space, her early experience working with notes and managing her own company. She shares insights on the state of the title insurance industry today and how she thinks technology can help the industry improve. This episode is a must-listen if you plan on moving into titles or need information on title insurance.

Listen to the podcast here:

Insights On Title Insurance And Running A Small Business With Kelly Burke

We have a special guest, Kelly Burke. Kelly has over twenty years in the title insurance industry. She’s run her own title company over the years and now works for RESE Title. We’re going to pick her brain about title insurance. Kelly, how are you doing?

I’m doing great. How are you?

I’m good. Kelly, if you don’t mind, can you tell our audience a little bit about your background?

After school, I somehow managed to get a job working in a law firm. I started working with two other partners. Long story short, after a couple of years there, they decided to go out and start their own law firm and their own title company. They said, “Kelly, why don’t you come with us?” I said, “I don’t know anything about title.” They said, “What do you think you’ve been doing when you’re looking at an auto survey or when you’re looking at the title commitments that come across our desk? That’s all title.” I said, “Maybe this will be a good idea.”

I started working with them back in 2001. I went through all the pre-licensing tests that I needed to. There are a lot of moving parts in the title business. I started doing post-closing, which is dispersing the files and running through the escrow accounts. I was doing the front-end processing where I was preparing the settlement statements, reviewing the title, putting the title commitments together, and then doing the closing. Being the person sitting at the table and saying, “Sign here.” Eventually over time, I ended up managing the title company. A few more years go by, I assumed ownership of it. A few more years after that, I sold it back in 2013.

You’ve had a lot of experience. As you know, I worked for a title company for a couple of years after college. It was apparent that they don’t teach us anything about this in school. I have no idea. I worked for a title company as a settlement officer as well and doing mostly refis. I worked in the funding department. Not that this episode is about me, but it was clear that I didn’t know anything at all about title insurance. A lot of our readers may generally know what title insurance is but they may not completely understand what the purpose of it is. As a note investor or real estate investor, do I need title insurance? What does it insure? How is it different from other types of insurance? Do you mind touching on what title insurance is?

Title insurance is along the lines of car insurance, it protects you. It’s going back in time. Title insurance protects purchasers or lenders from losses that arise after a real estate settlement. They result from unknown liens and conferences or other defects on the property that existed prior to settlement. To put it simply, title insurance is a way to protect yourself from financial loss and related legal expense in the event of a defect in title.

If you’re buying a note or buying an investment property, it’s making sure that your position is protected. The note is backed up by the collateral, which is the property. The assignment chain is all intact. You own this property that there’s not some tax lien that’s going to take the property from you.

That’s when you get into the different types of policies. You’ve got your owner’s policy and your lender’s policy.

It’s more lender-focused. Briefly, what is the difference between those two?

An owner’s policy is to protect the owner of a property. It’s purchased at closing. It’s a one-time fee and it’s valid for as long as you own the property. The owner’s policy protects the buyer or the owner, should a title problem arise. The loan policy is protection for the lender. Most lenders require a loan policy when they issue you a loan. The policy is based on the dollar amount of your loan and it only protects the lender’s interest in the property. The most important part of a lender’s policy is what they’re doing is they’re ensuring their loan position. We are in the first loan position. If something were to go wrong, they would have the ability to foreclose. There’s nothing else standing in their way like judgments, bankruptcies or anything like that. The lender’s policy is to protect the lender.

One thing that gets a little murky for note investors is we’ll buy notes that may have transferred hands 2, 3, 4 or 10 times. You’ve mentioned that title insurance looks backward. We’re not talking about the transfer of the property here. To get in the weeds a little bit, we’re transferring the owner of the loan to the lender, which is common in the lending space. Even in the institutional space, many people are familiar with having a mortgage. I was paying my mortgage to this company and now I’m paying it to a new company. Does that title insurance transfer to the new lender?

Yes, it does. When you draft the loan policy, it’s successors and assigns. Sometimes, you’ll find the assignments are recorded. If it’s going from Wells Fargo to Citizens Bank, sometimes you can track it that way. Another way is when you record the deed of trust. The lender records their mortgage or deed of trust in land records that have a MERS reference on it, Mortgage Electronic Recording System. That way, you can track who was servicing the loan.

The title insurance policy transfers but it only goes up to that date that it was through. If something arose after that date of the closing on the property, that could still be an issue. The policy that was in place at the time of the closing transfers to the new lender.

If you're buying a note or investment property, make sure that your position is protected. Click To Tweet

For example, if you had a state tax lien against the consumer after the policy date, the title insurance is not going to cover that. It’s only prior to. That’s a whole other story because there are two different types of owner’s policies.

This is a question a lot of newer and even more experienced note investors have is because we’ll buy notes and a lot of these are non-performing or there are lots of issues with them. These are not super clean-cut. None of this is legal or investment advice from either one of us. I have bought notes where I’ve gotten title insurance but it’s rare. Normally speaking, that note investor will go under contract to buy a note or more than one note, and then they’ll start their due diligence phase. A huge piece of that due diligence is running a title search and confirming what we talked about. Can you briefly touch on what type of searches there are?

Typically, let’s say you’re doing a standard refinance, we would do a 1 to 2 owner search. Usually, that’s called a limited search. Going back to the last mortgage, when there was a purchase that was not a family purchase or whatnot, that’s what we do for a refinance. If we’re doing a purchase, we’re transferring ownership. We do a 60-year search. That depends though on the jurisdiction of which we’re in. Our underwriters and different jurisdictions have different requirements. For instance, in Baltimore City, you have to go back at least 100 years to find any recorded easements and such like that. For note investors, they’re probably going back to that original mortgage.

The company you work for is a national company. You work across all states in the US.

We do 35 of them, a lot of them.

That’s one of the things that, especially newer note investors, probably underestimate. I know I did initially. As far as the foreclosure laws, everything is state-dependent, even county by county can vary a lot. Are there particular states that you all stay away from or that you’re focused on from a business standpoint? How does that work?

If it makes sense for us to be there, we are there. There are a few states that are too difficult to be in.

Is that from a licensing standpoint?

Yes, like you have to have a title plan. It’s too expensive honestly. Baltimore City is probably one of the most difficult places, and that’s in our backyard.

Baltimore City is different from Baltimore County?

Yes.

Can you touch on that? Why is that?

They have an old system. They’re not online. In a lot of the jurisdictions across the country, we can eRecord. Baltimore City cannot. That has not been helpful during COVID with the courthouses being closed. We are six months behind getting a deed on record. It becomes complicated because when you purchase something in Baltimore City, you have to have a lien certificate, and that only lasts 45 days as all your taxes, water and if there are any environmental fines and things. If they’re taking six months to look at it, the lien cert has then expired and you have to start all over again.

You and I are both in Maryland. I know that Baltimore City suffered from a cyber hack as well.

GDNI 154 | Title Insurance

Title Insurance: Title insurance protects purchasers or lenders from losses that arise after a real estate settlement.

 

There seems to be a lot of that going on. That was fun. That didn’t help much either.

You touched on eRecording. We use Simplifile if we can. Do you all use Simplifile? What do you use for eRecording?

That is correct, anywhere that we can. It’s efficient.

Some counties and some states will allow for eNotary as well. There are many nuances to the note space and real estate, digital signature is one thing. E-notary is where I’m getting notarized through Zoom or some other video.

You have the RON closings, Remote Online Notarization.

You may go do that as a note buyer, but then you find out that the county or the recorder’s office isn’t going to accept that for recording.

There are some things that you cannot eRecord and some things that you can. It’s not completely uniform yet. The RON closings are not 100% there yet either, at least not for us. Even though we can do them, you have to choose a platform. There are certain lenders that are on that platform but there are a couple of different platforms. You have to choose which platform you’re going to go on because those will be the only lenders that you’re allowed to work with on the platform. Does that make sense?

Yes.

That’s why we’re getting there. Virginia was the first state. They’ve been doing them for a while. When they’re here and ready to go, we’ll be ready to go with them.

It’s one of those things that can be frustrating as far as the lack of uniformity across the country. At the same time, to be honest, it also creates opportunities for investors. It’s not like the stock market where the price is what it is. You can find deals. One of the things that also creates opportunities too for investors is that inefficiency. I would encourage people not to always look at that as all bad. We touched on Baltimore City. Because of COVID and some of the changes, delays are still happening. Have you seen that across the country? What changes are you seeing in the title industry in general?

Going back to the delays, when Texas had that major ice storm, they’re still behind from that because FedEx wasn’t working. If somebody settles in Texas, they couldn’t get the package back to us. It’s hard for us to process it. That was fun too. These RON closings, when they’re ready to go, will make everything much more efficient. We’re still dealing with live paper.

It’s come a little way at least since I worked in the title industry. The pandemic has helped push us along where we should have been already in certain aspects of running a business. Speaking of running a business, do you mind touching on it? You ran your own business for quite some time. As a note investor, I’m pivoting the conversation here a little bit away from the specifics of title, title searches, and title insurance. Do you have any takeaways as you look back? Was it 2013 when you sold your business?

I started working for the company back in 2002. I assumed ownership in the best year ever, 2008.

The mortgage meltdown and the real estate crash.

There are so many operational pieces that go into running the business, not to mention the underwriting of the files. There's no room for error. Click To Tweet

I had a four-year-old and a newborn, but it seemed like a good idea. It actually worked out well. We did a residential business and a commercial business. As I’ve noticed throughout the years, at least through my career, when one area is doing great, another one isn’t. You’ve got residential refinance, residential purchases, commercial refinances and commercial purchases. It was great for me because when I grew up in title, I learned residential and commercial at the same time. It’s not any different for me. The concept of it is the same. It’s just a couple more zeros, which can be intimidating. Back in 2008, we had a great project that I had with a developer. They were the master developers for Rowan University. It was all student housing and it lasted for a long time. It was a struggle for a lot of people during that time but we were doing okay.

Chris and I have talked on the podcast before that you don’t want to make light of people’s struggles or anything like that, but you’ve got to be on the lookout for opportunity. The fact is market conditions change and laws change. You have to have your systems and your priorities in place so that you can then pivot. You were able to do that because the business was diversified.

I’ve kept that throughout over twenty years of being in title. Being an employee, then an owner, and touching every aspect of title, post-closing and pre-closing, it’s second nature to me. Running my own business was fun. I enjoyed it. I want it to grow. I had young children. I didn’t want to invest in going national. It was too much.

It’s something that maybe we don’t talk about enough on the show. We have some note investors and real estate investors who may have a few performing notes or a couple of rental properties and it’s more of a side project. We have people who treat this as a business. It’s figuring out how to scale if you want to scale whether that’s outsourcing everything or hiring in-house while balancing the family life, and that’s real. Do you have any takeaways for our readers as far as lessons learned or anything looking back as far as running your own business? How many employees did you have, by the way?

Five. They were amazing and wonderful. Two of them went with me, and it was great. I was nothing without them. They were the heart of it all. We were all close. That is important in the title industry, being with people that you trust. You have a lot of money that flows through their escrow account on a daily basis. Looking back, I was always looking at the bank accounts. There are many operational pieces that go into running the business, not to mention the underwriting of the files. There’s no room for error. You cannot make a mistake.

People are not happy when you mess with their money.

Their money, their investments and where they live.

It’s not just all investment properties. The residents are owner-occupied. It sounds like you enjoyed it. It was also a struggle at times, I’m sure.

I don’t think anybody running a business would say it’s easy all the time.

I feel like that part gets overlooked these days. It’s super cool to be an entrepreneur. I enjoy being an entrepreneur but it’s not easy. On our show, we try to keep it real and not make it all rainbows and butterflies. It’s not always easy. It’s generally worth it to try to go out on your own and not have that regret.

I have zero regrets. The funniest thing is that when I was assuming ownership, it was from one of the partners that started the title company all those years who told me I knew title. The funniest thing of what I was scared of in starting a business was running QuickBooks. I wasn’t afraid of getting the business, paying the bills, making the money and being responsible for my staff. I never used QuickBooks.

It can be a little bit intimidating. We use a bookkeeper, so it’s quite helpful in that regard. She’s good, Debbie Mullins. It’s funny how you have these fears. You probably should have been afraid of something else.

How about maybe a title claim or you sent out the wrong amount of a wire? Those things didn’t scare me. Once I got into it, I was like, “This is easy.” Don’t get me wrong too, it was a lot of fun. Once my girls got a little older, I was ready to grow and expand. I knew that I needed a bigger team. I needed something bigger than the platform that I had. That’s how I ended up finding where I am right now.

Briefly talk about the transition or the time between 2013 and now if you would.

GDNI 154 | Title Insurance

Title Insurance: There are certain lenders that are on that platform, but there’s a couple of different platforms. So you have to choose like which platform you’re going to go on.

 

I’ve been working at RESE. Our CEO is Moe Kazin. He has built exactly the business that I envisioned in my head. We have two companies. We have RESE, which stands for Real Estate Settlements in Escrow. We have NRT, National Reverse Title. NRT does only reverse mortgages and RESE has refinance, commercial and purchase business. It’s diversified. We are licensed nationally. When things are slow maybe here in Marilyn, they’re doing pretty good in Florida.

How does that work so you can get licensed nationally? You mentioned 35 states. Does that mean you’re licensed in those states and you choose not to operate in those fifteen states? How does that work?

In North Dakota, you can’t be outside. You have to have a brick and mortar. You have to be in that state to do business. There are a couple of states like that, and that’s why we’re not there. Maybe something like a Midwest state, it probably doesn’t make sense too. We do have to have a title license and you have to be appointed with your underwriter, different E&O insurance, surety bonds, and all of that. There’s a lot of expense that goes into it and monitoring it. You have all these states and your secretary of state filings and your individual audits. In Indiana, we have a partial audit happening. There’s a lot to keep up with from the operation side as well, while trying to make sure that your clients are happy. Keeping that part of the business is going. The thing that I would say that Moe has done quite beautifully is assigning the right team members to the right clients. It’s a seamless flow.

That’s important in running any business, getting the right people in the right spots.

It’s everything. You’re nothing without your team. Everybody has to do their part. I’ve been around long enough. I’ve seen some things. I know that this is a great place to be.

You don’t necessarily deal in the note investing space yourself. You do hear people say out there in real estate investing and in general that title insurance is a scam or title insurance is not necessary. What would you say to that?

I would say that’s great. Why wouldn’t you pay a one-time fee to protect your interests? I understand how some people could think it’s a scam because they think, “Why would you ever need it?” If you had an undisclosed error or a forgery in the title, I could keep going, but if you pay your one-time fee, you never have to worry about it because you’re covered.

Do you have anything from the memory bank as far as crazy stories that you’re allowed to talk about?

It’s a high-liability business. You also have to think about wire fraud. That’s huge. You have to have systems in place to prevent that from happening. There are many extra steps. What happens is there’s a realtor and they have their email hacked. The hacker emails the title company a new set of wire instructions or they may have been monitoring the realtor’s email so they know when the closings are happening. They send out a new wire thing that is completely unrelated and it’s going into their bank account. I’ve seen that happen, not at RESE. It did happen and the processor sent money to the hacker. Once it’s gone, it’s gone. It was noticed quickly that they were able to call the FBI and get the money back, which is rare and doesn’t normally happen. That’s scary.

Any tips for investors there? Make sure you confirm the wire instructions.

That’s what we do, 100%. We send out the wire instructions to whoever is sending us money, and then we ask that they call us to verify and to make sure that nothing happened in between. We’re sending off your refinancing and you’re cashing out $100,000. You give me your wiring instructions and you sign a form and you’re like, “This is all good.” I’m still going to call you and say, “Let me verify this with you.”

I know my bank is pretty anal about that, to be honest, for a good reason. I can sit here and send a wire right now from my desk. They do try their best to confirm that those are legitimate wire instructions that I have confirmed where I’m sending the wire.

People get cranky about it. They say, “I already gave you my wire instructions.” I’m like, “Do you not watch movies and see what happens in the world right now?”

Hundreds of thousands of dollars are at stake here.

Title is a dinosaur industry where people have been doing the same things the same way for many years. Click To Tweet

Once it’s gone, it’s gone. That other title company got lucky. Other than that, people lose a lot of money, which is scary. Cyber fraud, the whole thing is scary. We have to carry a cyber bond as well. We’re serious.

Anything else you want to hit on, Kelly, as far as title insurance, title searches or running a business?

I’m excited about what the future has to bring when it comes to title insurance.

You don’t hear too many people say that. I don’t.

Title is an old dinosaur industry. People have been doing the same things in the same way for years and years. That’s why it’s fun working at RESE and with Moe because he’s innovative. He’s always looking at being a couple of steps ahead.

You mentioned Simplifile. What other systems do you use?

We have an amazing software called Qualia. It’s integrated with the client. You can upload documents securely. You can see what’s going on with the file. A lot of people probably do that at this point. For me, I’m excited to see what blockchain has to do.

Crypto is all the rage right now. I have also read and heard a little bit about how blockchain could help with closings. Do you have any insight into that?

Blockchain is a decentralized digital database where no single person or group has control. Once the data is entered into the blockchain, it’s updated in real-time. Any historical data can’t be deleted or modified. Realistically, we could start recording everything into blockchain, but it would be hard to go way back in time and get all of that. Everyone is like, “When blockchain comes, what would happen to title companies?” Title companies are not going anywhere anytime soon. Once the research is put onto blockchain, title companies are still going to need to verify any conflicts with deeds, court records, divorce filings, bankruptcies, and things like that. However, if they can get that all together, it would eventually speed up the whole process.

It could be a little more efficient. Potentially, you might have more accurate searches.

Going back into all the jurisdictions such as Baltimore City or whatever, it may make things a little more efficient for sure. It’s going to be a couple of years before any of that happens. I don’t think we’re too far away either from those Remote Online Notarizations becoming a standard practice. In my opinion, there are still a couple of kinks that we need to work out moving forward.

Title agents and title insurance companies aren’t going away. I don’t think realtors are going away either as much as people say they are.

We need them. We need all aspects of real estate. Title is such an important part and people overlook it.

Taxes and insurance in general, it’s not thrilling on the surface to think about either one of those but they’re important. For real estate investors or note investors, it’s staying on top of that for your assets is critical. It’s a high-liability industry.

GDNI 154 | Title Insurance

Title Insurance: Typically note investors just go back to the original mortgage.

 

Working with somebody that you know and trust is important. It’s your money. It’s your livelihood. Taking care of your money that you used to taking care of your family, you wouldn’t want to say, “I’m going to use Joe Schmo’s title company.”

Kelly, this has been awesome. Thank you for taking the time. I know you’ve got plenty of things you’re juggling in your world.

It’s all good. Anything for you, Mr. Bateman.

Kelly and I may have gone to high school together. Is there anything else you want to throw in before we head out?

I don’t think so.

Where can people reach out to you?

If they want to run something past me or need some help, I’m 100% available.

Do you want to throw out any contact information here?

You could always email me at KBurke@RESETitle.com. You can call me and text me, (401) 302-2268.

It’s bold putting your number out there.

We should all help each other. Title isn’t something that everyone thinks about. If you have questions or concerns, I’m always here to answer them.

It’s not something that we learn about in school. Not that I would have been super interested in it anyway.

I understand that.

My mom was a school teacher for many years. She retired a few years ago. I do rip on the public school system in general sometimes as far as not teaching personal finance and not teaching mortgage-related things, things that are important. My mom will come back and say, “Every time we try, the kids aren’t interested in any of that.” I’m like, “That’s probably true.”

You're really nothing without your team. Click To Tweet

I teach my kids all the time.

That’s good. Title insurance and title work are something that may seem like a niche. It is a niche industry where you have expert knowledge compared to most people. It’s pretty important.

It was years of practice too.

It’s not just reading a book and then you’re a guru.

You can always ask my daughters about title insurance and they probably know a lot more than other people.

They probably know more than most of us do.

They did grow up with it. Thank you for having me.

Kelly, thanks a lot. This has been great. I appreciate it. To all the readers out there, please don’t hesitate to give us a review. Please go out and do some good deeds. Take care.

Important Links:

About Kelly Burke

Ms. Burke is a diverse title professional with over 19 years of experience and extensive knowledge of the industry. She handles transactions for real estate developers, commercial brokers, lenders and local residential agents. Ms. Burke owned and operated Kenilworth Title Company, LLC prior to merging into a regional firm in 2013. Now as part RESE (Real Estate Settlements & Escrow LLC), she is responsible for managing and developing RESE’s comprehensive commercial and residential business in addition to the growth of the corporate enterprise.

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