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4 December 2013
Jerry Springer, Days of Our Lives, high-yield bonds
For better or for worse, our trends have a habit of coming from the US.
Title insurance is eager to join the list. Our friends across the pond wouldn't dream of touching a property deal without it. Law firms in the US don't want to do title work or give opinions on it, unlike their UK cousins, who of course do both.
Here in the UK, buying insurance to protect purchasers and lenders against title defects is common practice, but things haven't moved much further. Defective title insurance is a key staple of First Title, the UK arm of US title insurance giant First American, which launched here in 1996.
But now First Title is trying to add something new for clients who are investing millions of pounds in property. Group legal director Philip Oldcorn has been working closely with Paul Hastings Janofsky & Walker London real estate partner Nigel Heilpern to come up with something new for lawyers and clients involved in big portfolio transactions. Together, they have developed a new outsourcing product to capitalise on the pros of title insurance - and they think they have cracked it.
So what do you get when you cross someone who wants to earn legal fees with someone who wants to earn insurance premiums?
What Oldcorn and Heilpern are doing is using title insurance as a way of short-circuiting traditional due diligence instead of simply insuring against specific title defects. And here's the extra twist: they are combining this with a panel of regional law firms that can carry out a level of basic due diligence, depending on the specific deal and based on sampling.
Needless to say, the insurance premium will look extremely favourable compared with a traditional due diligence fee.
So the likes of Heilpern do the 'sexy' end of the legal work, while First Title insures the title on the basic due diligence that outsourced to lawyers on its panel.
Set up with assistance from Meena Heath of consultancy Genesis Coordination, the panel so far includes Scottish firm Boyds, Halliwell Landau and Mills & Reeve. It takes a far-sighted practice to see past the threat of portfolio title insurance and Oldcorn is at pains to stress that this new product is not about replacing legal work.
At the other end of the production line, he is talking to firms ranging from the magic circle to other London practices such as Paul Hastings, which lack a UK depth of resource.
It is not difficult to see the advantages for those in the cycle. The likes of Paul Hastings get the deal without having to haul extra lawyers over from the US. The client gets some due diligence, plus insurance, plus speed, but without the usual costs or the need to pore over hundreds of pages of due diligence reports. First Title gets its insurance premiums. And the panel firms get work that they wouldn't otherwise be doing.
But the arguments against title insurance in place of thorough due diligence are well rehearsed. The argument that a good lawyer will not need to cover his tracks is first to spring to mind. And if something does go wrong, no title insurer can suddenly wave a magic wand to make it right again. First Title can only pay out to compensate the client for its loss. Oldcorn would argue that a purchaser of a 1,000-pub portfolio can never have absolute certainty about title. Although title insurance has many ardent supporters, it still has to win these arguments.
In the UK, its natural client constituency comprises the US banks and the vehicles they back. In the US and Canada, Goldman Sachs, Lehman Brothers and Merrill Lynch all buy its products, while Cadwalader Wickersham & Taft and Weil Gotshal & Manges are among some 10,000 arrangers that it works with.
But Oldcorn remains realistic that banks in the UK may be the last to get behind this product. One of First Title's toughest tasks now will be to win over the bankers' lawyers.