think you would have a problem, because in a lot or rural areas, the closing and settlement costs are not a problem. We are dealing here with an urban problem, with economic concentration occurring since 1955 when the title insurance companies started expanding.

Senator PROXMIRE. Gentlemen, thank you very, very much. We needed this record, and you have done a fine job.

The committee will stand in recess until tomorrow morning at 10 o'clock. The Subcommittee on Consumer Credit will meet this afternoon at 2 p.m.

[Whereupon, at 12:33 p.m., the hearing was recessed, to reconvene at 10 a.m., Thursday, October 4, 1973.]

[Complete statement of Barlow Burke, Jr., follows:]

Statement of

Barlow Burke, Jr.

My name is Barlow Burke, and I am an Associate Professor of Law at American University Law School, where I teach in the areas of real property and conveyancing law. Some two years ago, I authored studies for the Department of Housing and Urban Development on the transfer of residential real property in thirteen urban areas around the country. Those studies were one basis for a report made to the Congress and this committee in January, 1972. My interest in the protection of housing buyers and the efficiency of real property transactions has continued unabated since that time.

I appear today to testify on S. 2288. Two versions of this legislation, both concerned with closing and settlement costs, have recently been introduced. In pertinent part, one proposes that the HUD Secretary be ordered to set maximum rates for various types of settlement charges, while the other would repeal

existing statutory authority to do this.

Mr. Chairman, it is a poor time to deny HUD such authority.

My reasons for this statement are several:

1. Since 1962, closing and settlement costs have risen

sharply.

2. Past Federal experience with title review shows that

3.

4.

savings are possible.

Since 1971, HUD has undertaken administrative review
of the problem that should not be cut off in mid-stream.
Currently the states are considering new model regula-

tions for title insurers; at such times, federal controls

should not be relaxed, but must be available in case

of state inaction or permissiveness.

Expanding on this outline, let me take up the foregoing

points in the order presented.

1. On the matter of rising costs, it is important to note that any legislation can help to control future rises in

charges as much as to reduce present costs. A reduction is costs is much harder to achieve than a reduction of future increases.

Thus laws designed to hold the line through achieving

Source:

Committee on Banking and Currency, United States Senate,

First Session, Hearings on S. 750, Part 2, at 1250 (1964); H.U.D.V.A., Preliminary Report on Mortgage Settlement Costs, App. B, Table IV (1971).

Costs studies on closings are scarse, but one, conducted in 1972 by Professor Fairfax Leary, of Temple University Law School, showed that title search costs in Philadelphia averaged $75 dollars in 1950, and had risen to $207 per search by 1972. This conclusion was based on a survey of 3000 searches. Over the same years, the cost of living index for the area would indicate that in 1950 dollars, the cost should have been $170 in 1972. D. Blake and F. Leary, "Twentieth Century Real Estate Business and Eighteenth Century Recording," 22 Am. U. L. Rev.

275, 291 (1972). Thus at least one cost is rising faster than the economic indicators would warrant.

There are many reasons why this is so, but foremost among them is the outmoded recording system upon which title searches and many closing services are based. Changes in the way we keep land records are essential in the very near future. Of course the system suffices in many rural and some suburban counties, but if you ask any abstract or title insurance company executive working in a large city, he will tell you that the city is not a profit-generating environment for his type of business. The reason is that while the volume of transfers is high, his firm can expect to receive only a fraction of the title related business engendered by this volume. None-the-less, the company

must "take-off" documents involved in all transactions to keep their plants up to date. Many companies alleviate this problem by combining their title plant resources into a joint plant, but that too may only be a temporary expediency whose usefullness

will diminish over time.

Witness the experience of the abstract

and title insurance industry in our largest city, New York City.

It long ago abandoned private title plants to once again rely

on the public records. T. Fiflis, "Land Transfer Improvement," 38 U. Colo. L. Rev. 431 (1966).

It seems that urban America is going to experience some type of crises in either conveyancing methods or costs. It will be particularly acute in the low income areas of the city, where high closing costs will more than double the initial amount of cash required to take possession of a home. The result will probably be increased use of installment sale contracts, with all the legal and financial problems that attend their use, or lower home ownership rates.

While our realty transfer system is by no means hopelessly inefficient, there is much fat in the system, and eliminating

the fat will benefit the consumer and the economy as well. Examples

are:

a.

b.

C.

d.

e.

full search charges for a "bring-down" or "up-date" search,

the survey fee, repeated upon each transfer, but
leaving no markers,

document preparation charges,

application fees for which are no more than a telephone referral is needed,

lawyer's fees based on a percent of loan amount or sale price, and closing fees for the thirty minute rental of an office.