Saturday, May 31, 2008

Diamond to manage state title insurance offices

Richard Diamond of Brookline has been promoted to Massachusetts manager of First American Title Insurance Company. He will oversee the day-to-day operations of First American’s state offices, which provide services to attorney agents, lenders and real estate brokers in the commonwealth.

Diamond joined First American in 1988. He has held numerous positions, most recently as vice president and regional information technology director for the Northeast Division since 1998.

He is a member of the National Title Standardization Committee, the American Land Title Association, Title Technology Committee and the East Coast Title Technology Group for First American Title. He is a periodic guest lecturer for Massachusetts Continuing Legal Education in Boston, and a member of the Massachusetts Continuing Legal Education Technology Committee.

Diamond currently serves on the Executive Board of Massachusetts Title, the oldest title insurance company in the United States. He speaks regularly throughout the country about IT trends and how technology can help title processing for agents of First American.
http://insurancetitle.blogspot.com/2008/01/title-insurance-for-limited-liability.html
http://insurancetitle.blogspot.com/2008/05/questions-about-title-insurance.html


Wednesday, May 28, 2008

Making Sure Your Art Is Yours

For collectors, buying title insurance can offer peace of mind or a full settlement if it turns out their artwork has a murky past

by Tatyana Gershkovich

On May 8 the champagne was flowing at the Manhattan galleries of Bonham's auction house in anticipation of the upcoming spring sales. The mood was confident, as both buyers and sellers anticipated a successful season. While many of the guests were members of long standing in the close-knit art world, there were also some newcomers, and it's not quite clear how welcome some of them will be.

"Here come the ARIS people!" is how Lawrence Shindell says he and his team were greeted when they arrived. Unlike most of the other attendees, Shindell deals not in art, but in insurance. The former lawyer is chairman and CEO of ARIS Title, which he founded in 2000 with Judith Pearson, his sister, who has an extensive insurance background. Based in Manhattan, ARIS offers a new product called "art title insurance," which is similar in concept to real estate title insurance. Both protect the policyholder against loss in the event of an ownership dispute.

The global art market is flush with cash, having grown by 95% between 2002 and 2006, from $25.3 billion to $54.9 billion, according to a survey by the European Fine Arts Foundation reported in ARTnews magazine. Annual private art sales alone total $25 billion to $30 billion, according to the magazine, and despite global economic insecurity, auction houses continue to set records. A 1976 triptych by Francis Bacon sold on May 14 for $86.3 million and became the most expensive work of modern art ever sold at auction.

Aesthetic Passions vs. Brass Tacks

For buyers, art isn't just about making money. It's a place for investors to have a good time, socialize, and indulge their aesthetic passions. But this rosy atmosphere, says Shindell, can also lead to reckless investing practices, such as the purchase of a work with a questionable title.

"The problem of art title has existed for some time. It was first illustrated in the context of claims of art seized during World War II, and over time as each title dispute presents itself the art market becomes more aware and risk-averse," Shindell says. "This is combined with the increasing complexity of art transactions that involve investment funds, lending against art, people generally regarding art as an asset, and the increasing value of art. Today, the financial risk of transaction is much more acute and much more in need of risk management."

Last year's highly publicized title dispute involving director Steven Spielberg has become a cautionary tale for collectors. In 1989, Spielberg purchased a Norman Rockwell painting, Russian Schoolroom, that, unbeknownst to him, had been stolen from a Missouri gallery 16 years earlier. If Spielberg had had art title insurance, Shindell argues, he would have been able to avoid the whole mess because either his company would have uncovered the painting's origins during due diligence or it would have reimbursed the director the full cost of the painting. Without it, Spielberg was not only out the $700,000 value of the painting but also his legal fees.

The FBI estimates that $6 billion worth of art is stolen each year. But Jane Jacob, a board member of the Appraisers Association of America, a nonprofit organization based in New York, estimates the number to be even higher, somewhere between $7 billion and $9 billion.

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Art lovers view Monet's 'Waterlilies' displayed on May 9, 2008 at Christie's in New York. DON EMMERT/AFP/Getty Images

Private and Unseen

"The stolen art industry is second only to gun trafficking and drug-running. They say it's tied into that, and I believe that's exactly true," says Jacob, who is also president of Jacob Fine Art, an art appraisal and advisory firm in Chicago. She added that because the majority of art sales are private, many stolen artworks disappear for years and reappear only when they enter the public sphere as part of an auction, exhibition, or publication.

For years the best defense for a buyer was hiring experts to trace a work's history, but it was often just as easy to forge a provenance as it was a painting.

Moreover, finding reliable papers for older works or works seized by the Nazis, for example, was almost impossible.

Jacob looked into the possibility of art title insurance in the 1980s, when issues of provenance in art became topical because of emerging claims on art seized in the Holocaust. At the time, Jacob dismissed the idea. "It didn't have any teeth in terms of financial backing. It was conversational, but there was no entity to take it on," she says. She has since changed her mind, realizing during the past two decades that there is a need for an art title registry. "Fifteen years ago, provenance or chain of ownerships wasn't on anybody's radar, but now it's on everybody's tongue," she says.

Financial backing was not the only obstacle to attracting clients. For example, Hiscox, a syndicate of Lloyd's of London, sells art title insurance policies, but its annual renewal model didn't appeal to customers in the U.S.

A One-Time Premium

"Customers worried that if someone did bring a title dispute, the policy would not be renewed the next year," says Steven Pincus, managing director of insurance brokerage DeWitt Stern Group. Pincus recently learned about ARIS and says he was excited to introduce his clients to the product. ARIS offers a policy that doesn't need to be renewed. A one-time premium, between 1.75% and 6.75% of the artwork's value, buys a life-of-ownership policy that can be passed on to heirs. The insurance doesn't guarantee authenticity of the work, but prior to underwriting a sale, ARIS uses its private research database to provide vetting services and investigate the background of the artwork. In an ownership dispute, ARIS will cover legal defense expenses and the cost of the artwork if it is lost.

Art title insurance through ARIS has been available for purchase since June, 2006, and it has underwritten more than 300 policies. ARIS clients include private collectors, dealers, art funds, and major museums and investment entities, and the values of the works insured have ranged from $20,000 to $4 million. (ARIS has been approached on a $100 million transaction that hasn't yet taken place.) Shindell says that in its second year of existence the company has seen a 300% increase in business, and he anticipates that in five years, "certainly in the U.S. and portions beyond it, it will be difficult to transact something that doesn't have title insurance."

Not everyone is convinced there is enough demand to make art title insurance standard practice.

"This title issue has been around for a long time, and we've wrestled with it for a long time. While it sounds like a good idea, from a pricing standpoint it's not something that a large number of people can afford," says Mark Schussel, vice-president in charge of public relations for Chubb Insurance. Chubb offers protection against "defective title," under its broader valuable-article coverage. In the case of a title dispute, this policy will cover up to $100,000 in legal fees but will not compensate the policyholder for a lost artwork.

Plenty of Objections

Art dealers are sometimes reluctant to purchase art title insurance, citing their slim profit margin, says Shindell. Using real estate as his example, Shindell argues that the premiums will go down as more people purchase title insurance. Robert Koo, who consults with Bonham's auction house on art succession and philanthropy, says that peace of mind regarding ownership is worth the investment, especially considering that its cost is often a fraction of what an art buyer will pay in sales taxes on the transaction.

Cost concerns aside, art owners may choose not to purchase insurance for other, more personal, reasons. ARIS protects client confidentiality, but some owners, who don't want anyone to know about their collections, will even refuse to buy risk insurance—insurance on damage and theft. Art dealers also worry that purchasing title insurance will make clients think they are not doing their job in vetting the works. Others are simply used to doing things the old-fashioned way—on good faith and a handshake.

"The art industry is large and unregulated," says Charles Dupplin, chairman of Hiscox's Art & Private Client Div., which reinsures ARIS. Dupplin says he is surprised by the amount of attention ARIS has already managed to attract, but he predicts that art title insurance will become a more commonly used tool "in an industry, that like any good industry, consists of both gentlemen and of knaves."

Tatyana Gershkovich is an intern at BusinessWeek.com

Tuesday, May 27, 2008

Ask the mortgage specialist: What the heck is title insurance?

By Kristin Abouelata, STYLE Home Loan Specialist.

Just what exactly is title insurance? It's on your list of mortgage charges, but why do you really have to have it?

So, you're sitting across from your mortgage lender going over all the charges for your mortgage. It seems like there are countless charges for this (document preparation) and that (MERS assignment fee - what the heck is MERS again?). But, none of these little charges are that big. But, whoa, wait a minute! What's that on line 1108? Title insurance? Do you really need it since you're putting 20% down on the property? Is that a double charge for the insurance you're getting in case your house burns down? What exactly does it do for you?

Truth be told, title insurance as required by the lender doesn't do a whole lot for you as a borrower. But it does a heck of a lot for the lender. Title insurance protects from loss against problems arising from problems with the title. If you are being lent money to buy or refinance your home, your lender is going to require it. Before you came along and put down a contract on the house you want to buy, there have possibly been numerous people who owned the house or at least the property it sits upon. The house may have changed hands countless times. And if the parties conducting the transaction before yours made a boo-boo, it could mean the world to you and your wallet. Which in turn, could pose a huge risk for your lender.

What kind of errors could be made? Well, say someone forged a document. It happens more than you think. Maybe Aunt Sue really never intended to sell that house when she was in a coma. Or what about tax liens against the property? If they were undiscovered at the time of a previous transfer, someone somewhere is owed some money. Title insurance will protect the lender for unforeseen claims against title up to the amount of the mortgage. It's obligatory that you buy it if that lender is giving you money. You will be required to pay a single up front premium that will protect the lender for the life of the loan.

So you can see, a lender's mortgage insurance policy does very little to protect a buyer. However, buyers can purchase their own title policy insurance to cover their legal fees and needs if a problem with title insurance occurs. It's usually offered at a discounted rate to them at closing, allowing them to "piggyback" off of the lender's policy. At a closing I attended the other day, the closing agent told of an undiscovered $10,000 lien that surfaced after a loan closing. It seems that the sellers had a pool built. Unfortunately, they failed to pay the pool builder. So the builder filed a lien against the old homeowners. These homeowners went to sell the home to the new buyers, a title search was done, and there were no issues. But, after closing, the pool builder figured out he had filed his lien in the wrong county. Oops. So he promptly re-filed it correctly. And lo and behold, suddenly there was a doozy of a lien existing against this property. The seller was long gone. Thankfully, the title insurance paid the lien so the lender was happy. And the buyers just had happened to purchase title insurance as well ?so, they were happy because the whole fiasco cost them nada. In fact, it might have been the wisest $150 they ever spent. End of story.

Kristin Abouelata is a Home Loan Specialist with Mortgage Investors Group in Knoxville. You can e-mail her at question@kristinmortgage.com or call: (865) 567-0113/1-800-489-8910.