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Title News - March/April 2005

March/April 2005 - Volume 84 Number 2

The 24-hour Closing

by Mike Hathaway

The 24-hour closing is based on five major principles. Success in any one of them will gain you profit and market share. Succeed in all of them and you will achieve the 24-hour closing for most of your business.

In an increasingly regulated title insurance market, the differences between competitors often reduced to the quality of work, turn around time, and effective customer communications. Imagine if you could advertise that your company has a zero error track record, provides instant access to information and documents, and offers next-day service for 90% of your closings (same day in some cases). Then imagine that reengineering your title company to do this will actually increase your revenue to 60% net profit. Welcome to the world of the 24-hour closing. This type of improvement has been documented thousands of times in other industries around the world. It is time to bring it to the title industry.

I am going to use some figures and practices I have actually observed in today’s title companies. For our example, we will use a title company with eight staff: an office manager, two abstracters, one examiner, one escrow officer, two assistant escrow officers, and a receptionist. This is similar to about half the title companies in the country. Here are the numbers based on my observations over the last several years (this is for closings that require title insurance and do not include courtesy closings, refinance, or non-title insurance service offerings):

Average new orders per month	80
Average closings/week	15
Average gross income per closing	$1,100
Average expenses/month	$58,000
Average net profit/month	$8,000 or 12%

Here is what the numbers could look like:

Average new orders per month	315
Average closings/week	40
Average gross income	$1,100
Average expenses/month	$58,000
Average net	$118,000 or 67%

The 24-hour closing is based on five major principles. Success in any one of them will gain you profit and market share. Succeed in all of them and you will achieve the 24-hour closing for most of your business.

Principle One: Fix Your Title Plant
A commitment, from start to finish, should take no more than 1.5 hours on average. If your commitments take longer, then you have an information automation problem. If you outsource your commitments, the equivalent is to pay no more that 1.5 hours worth of labor. If your commitments take longer than this, here are the things to fix:

Make sure your plant software is the best and most flexible product available. Many purchasing decisions are based on the wrong set of parameters and priorities. Too much information is as bad or worse than not enough. Plant software must focus on giving you information in the most effective and intuitive way. It is only a tool to get you to the document you need to examine. The runsheet must be a truly dynamic tool to help you examine. Be careful to invest in software that gives you information, instead of software that just stores it. Then learn to use all the tools and functionality the software has to speed your commitment process.

Review your state requirements and start with a complete indexed image plant as far back as the state requires. You can back-scan and index the earlier documents as funds become available. You may be able to buy images and indexes from the county and import that information into your software. You may also be able to buy indexes or images from a competitor. It never hurts to ask. If you have to scan, consider hiring a vendor to do the scanning for you. It’s faster and will ultimately be cheaper than hiring someone in-house to do it.

If your county provides weekly takeoff CDs with images, have them include the indexes with them, and hire a consultant to write a program to automatically import the images and indexes into your plant. You may have to fix a couple of fields, but it will significantly reduce your indexing time. Scan five years minimum of prior files into your plant software. My clients relate that 90% of their orders are for properties they have worked on in the last five years.

Change your archiving process so your orders are scanned and indexed at the time of closing. Requirements change from state to state, but you may find the only paper you need to keep is a copy of the policy—a digital copy of everything else will be sufficient in most cases.

If you have a card file, consider scanning and OCRing the cards into your plant. This is a pretty slick way to get an automated indexed plant in just a few weeks. Again, using a vendor for this is probably your best option. Then when you scan the associated documents later—you can just merge them (if you have the right plant software).

Having both abstracters and examiners work on a file wastes time and resources. Teach examiners to abstract and abstracters to examine. Each examiner needs a printer on their desk. This is an inexpensive investment that will improve utilization of the examiner’s time.

If you have automated your plant correctly, your examiner will be able to abstract and examine any file directly from the computer, and type, post, and e-mail/fax the commitment from the computer in 1.5 hours or less without getting up.

Principle Two: Minimize Phone Calls and Manual Faxes
I use surveys at my client sites to identify how much time they spend on phone calls and manual faxing tasks. My clients spend 30% to 70% of their working day on phone calls and faxes. I have yet to see anyone that spends less than 30%. To minimize as much of this time as possible, you need two things: a network faxing solution and a good transaction management system. I know many title companies use Internet faxing solutions, but these are overpriced when you consider the volume of faxing in title companies. Follow these points and you will eliminate virtually all of your incoming and all but about 10% of your outgoing phone calls, and all of your manual faxing.

• Install a network faxing solution. I have installed, trained, and maintained all of the major solutions, and the solution I recommend is LightningFax. It integrates with any mail system and provides the ability for each individual to send and receive faxes from and to the desktop. Any paper documents that come in should be scanned into your transaction management software. You should never have to send or receive a manual fax—ever!
• Your escrow software must have an associated transaction management solution (a Web interface allowing automated orders.) Not all transaction management solutions are created equal, so here is another place you need to rigidly evaluate before you buy. The transaction management software can eliminate most of your phone calls by communicating information and documents to your customers. It will automatically notify your customers when a change in the order occurs, thus eliminating many phone calls. Train all of your customers, clients, agents, and lenders to use your transaction management interface and e-mails for all your communications. This is imperative if you want to move toward a 24-hour closing. The transaction management application today is just as important as the telephone or fax machine was ten years ago—if not more so. Again, be careful what you purchase.

Principle Three: Eliminate Delays With Files
There are dozens of things that hold up a file. It waits for a phone call, contract, fax, approval, signature, instructions, changes, recordings, etc. The list is long and painful. Resolving these holdups will require the services of a consultant to help you redesign your processes. Re-engineer your workflow so that each task flows directly to the next one. If there are places where the file must wait for information or documents, find ways to minimize or eliminate the wait. Here are some examples:

• If you need a signature on a document as part of the curative, consider adding electronic signature software to your Web site. This allows you to get legal signatures without having to wait for the mail—you can do it with a phone call and your Web site.
• Prepare a good communication document for every agent, REALTOR®, or lender you do business with. Show them how to print and post documents on your transaction Web site.
• Practice what you preach. Communicate with others consistently using your transaction Web site and e-mail.
• Consider utilizing instant messenger for some of your REALTORS®. It can be a valuable tool for communication, and they may already have access to it on their cell phones.

Principle Four: Eliminate Errors
Errors of any kind produce wasted time and unhappy customers. Any incorrect document or information entry is an error. Any time something is early or late is an error. Your process reengineering should focus on improving flow as stated in principle three, and eliminating errors. To help with this, keep these things in mind:

• Find ways to verify information when the order is entered.
• It is best to have the owner of the information type it where possible. That is why automated order entry in transaction management is so important. If you have to retype information after someone types it in your Web site, then your automated order entry isn’t really automated. You will have just as many errors, if not more, than you did when clients brought in paper orders. There is escrow software on the market that interfaces with lenders nationwide using Calyx Point and allows the lender to enter orders into your system directly. Again—make sure you have the right software.
• If it is correct in the beginning, don’t recheck it all the way through the process. If an order gets to a point in the process with an error, don’t add another checking process! Find out how the error got there, and fix it at the beginning so it doesn’t happen anymore. I worked with one client that had six separate order-checking processes. This is a huge waste of time when it is correct in the beginning.
• Make sure you have a way to check for and review errors on a regular basis with your employees. You will find they have many good suggestions for ways to eliminate them.
• Get your technology to work for you. The more you have to type, the more opportunities for errors. Your applications should complete most documents automatically using information from order entry. You should be able to e-mail and fax using a point and click. All of your applications should work together seamlessly. If they don’t, you need to evaluate how much impact it is having on your process and productivity. I know of one client who changed escrow software less than six months after she bought it because it didn’t give her the productivity she needed. She made up the cost of changing in just a few months from the added productivity in her new system. Don’t settle for less than what you need, and be careful what you buy.

Principle Five: Manage, Monitor, Manage
Use reports to monitor your orders. Good escrow reports can identify bottlenecks and errors quickly. Your escrow application should provide you with all the reports you need to monitor a closing from start to finish, and with reports covering costs, revenue, and problems. I cannot over-emphasize the need for good reports.

I have found some fundamentals that apply to all title companies that want to get to the 24-hour closing level of performance with zero errors.

• Some changes will require investments in software, information, hardware, or personnel. The cost of change will depend on how much you are willing to spend to get what you need.
• The length of time it takes to achieve 24-hour closings for most of your business will depend on your willingness to embrace change and your ability to inspire your staff. Change is painful and chaotic. The success or failure of change is directly on the shoulders of the leader—you! It will move as fast or slow as you let it. Motivate your people and be amazed at what they can do.
• Hire a consultant. I have yet to meet any title company professional or owner that is trained in business process improvement. Get a professional to work with you and keep them close until your project is done. Expect to pay $150/hour for their time. But they do not need to be there every day. They will train you to do most of the legwork, and they will be there to help you manage the project through a successful end. They will more than pay for themselves in just a few months. Some consultants take part of their fee from the improvements in your profits. In essence—they don’t get their money unless you are successful. Talk to your consultant about this approach. It could save you some upfront cash you can use for infrastructure and information automation.
• Have a clear set of objectives and don’t try to do everything all at once.
• Don’t let one employee destroy your efforts. Almost every title company has at least one employee that is allergic to change. This may sound harsh, but get him/her on board or replace them at the beginning of the process. Keep in mind that everyone’s success is at risk.

It is Possible
If you can do these things, you will indeed be able to provide 24-hour closing services for all but the stickiest orders. The changes in profits can be astounding. Don’t be afraid to get help, and don’t be afraid of change. The world of business process improvement has finally reached the title industry. Those who embrace it first will take what they want in the market. Those who don’t will have to settle for the scraps.

Mike Hathaway is chief operations officer for tdms, Inc., a leader in business process improvement in Denison, TX. He can be reached at 903-436-3091 or mike.hathaway@tdmsinc.net.