The Jonathan Yasko Story

Jonathan Yasko got the call driving back from Atlanta en route to his home in Knoxville, Tenn. He pulled over to the side of the road to get out his laptop, but there was nothing to be done: Claims came in from one agent in Texas for mortgages not in first position where the lender was trying to foreclose. A few months later, Southern Title would have to stop issuing new policies.

At the time, Jonathan was on the senior management team at Southern Title Insurance Corp. In a few months, 125 employees would be reduced to a 14-person skeleton crew, and then soon all of them would be gone as well.

“It was like somebody had died,” Jonathan said. “Walking around the office, everyone had a pale look on their face … It’s a two-floor office and from the second floor you could see down into the first office, and it was eerie looking down, seeing everyone gathering up belongings. A lot of us sat around, not knowing what to do.”

This is the low point of our story, but we start here because, really, this is where it begins. After spending most of his life within the title insurance auditing world, Jonathan would emerge from Southern Title’s ashes and see an opportunity to build something new, inspired by Southern Title, and in the hopes of preventing another Southern Title-like situation befalling someone else.

The image of Jonathan sitting in his car at that time is almost poetic because his interest in cars is at least partially responsible for him entering the title business. Back in his high school days, Jonathan was obsessed with cars. By the time he finally owned his first, an S-10 truck, all he wanted to do was tweak it, soup it up, fix it and, of course, drive it insanely fast. But that’s an expensive hobby. He needed some money to keep it up and looked for work wherever he could get it.

On the weekends, Jonathan sold ice cream at the Magic Kingdom in Disney World, which wasn’t too far from his childhood home. But that wasn’t enough. During the week he was at school, but he had acquired enough credits so that during the day he could work outside of school as part of an on-the-job training program. His older sister worked at a job placement office and helped him find an available position nearby, which happened to be at Interval Title Services, a title company with a focus on time shares. He worked as a runner, going back and forth between the recording office and the title office.

“I had no clue what any of this was,” he said.

It turned out the title work wasn’t too bad, and the more he did, the more money he would earn, so he got more involved. He learned searches. He learned securitizations. Eventually he learned about escrow accounting and all of the other title company functions.

After high school and after two and a half years, internal strife split up Interval management and Jonathan moved on, picking up a slightly different perspective at each place he stopped. He worked as an office services coordinator for an Orlando law firm, working mainly in the bankruptcy and real estate departments; he moved to another bankruptcy law firm where he worked as an office manager and eventually was put in charge of accounts payable; after two years there, he moved on to Attorneys Title Insurance Fund — all the while taking college classes at night.

Attorneys Title Insurance Fund was the sixth largest underwriter in the country at that time, and Jonathan joined as an accounts analyst. This is essentially where Jonathan found his destiny within the industry.

“I liked real estate, and I got to see a side most people don’t get to see. It’s always the buying and selling of property, but no one gets down to the specifics of title and marketability of the property. I thought that was kind of cool,” he said about that early journey through the industry. “Also, I felt very comfortable and I got to use knowledge from previous positions to help make the new position better. Just because you know one aspect of the business, it is so broad, not one person knows everything. I just tried to soak it all up.”

At the Fund, he cemented into the role of auditor and helped build up a new auditing program for the company. This was both a great opportunity and a taxing experience considering there were 7,500 agents and three auditors on the team. He traveled to title and attorney offices within the Fund’s network, some doing a couple deals a month, others doing a couple hundred, and he looked for control weaknesses that could cost the company and The Fund money. Much of the job involved educating agents on better accounting practices.

“The Fund gave us a big opportunity to let us create an audit program the way we wanted to do it, but because it was so new, many of the agents had never been audited before. So, we came in and said this is what we are doing, we need to see the last three months of your reconciliations, and we need this and that, they would be like, ‘who are you, again?’”

New program, agents who had never dealt with this process let alone this team of people, and on top of that, the audit team needed to update or reconfigure the agents’ settlement programs to better facilitate escrow and trust accounting, which was never a part of the original system setup. Many of these attorneys were using QuickBooks for that function, which brought in another set of problems. QuickBooks and Quicken both require a custom report to create the trial balance, the third part of a three-way reconciliation.

The unwinnable war

Jonathan jokes about the thankless position an auditor is in, and the unwinnable war they go out into the field to wage. There are battles with management over issues found in the field; there are battles with agents over best practices; there are battles with sales reps over canceling agents; and the ratio of auditors to agents means the job can never quite be done as well as it should be.

“You have the best intentions of going in there and helping the agent and doing what you need to do, but when you find problems, you have to alert people to it,” Jonathan said. “It’s difficult because nobody really likes you. If you look at the accounting side of it, it’s all red ink. Auditing produces no revenue.”

Obviously a good auditing program does prevent losses (Jonathan would guess in the millions), which contributes to overall company profitability, but it’s a theoretical argument in this facts-and-figures industry.

Knowing that no one likes an auditor, Jonathan had to develop almost a sales technique when trying to work with agents in order to help all involved.

“I can’t tell you how many times I’ve been in a meeting with an attorney in his 50s or 60s, and I’m in my 20s, and I’m telling him what he is doing wrong. He looks at me like ‘I’ve been doing this longer than you’ve been alive,’ but you are trying to help him. … You have to have the knowledge of what to do, but also the ability to convey that you are pro-business.”

His best auditor tip for title owners out there is that the people closest to you, the ones you trust the most, are the most likely to steal from you, as weird as that sounds. Albeit, these bad apples are “the 1 percenters” as Jonathan puts it. If there are errors, a majority of the time it is clerical. But of the share of actual frauds he has seen, many of them come from friends, long-time confidants and family.

"That’s a difficult pill for people to swallow. I’ve seen sisters steal from each other. I’ve seen internal family members take money. I’ve seen people take the identity of other people. If you look at fraud all together from external to internal fraud, more than the majority is internal fraud and it’s by people you had the longest relationship with,” he said. “People you are not looking over your shoulder about. If you work at a title company and your brother works with you, you’re basically going to think to yourself, ‘my brother knows what he’s doing, I don’t even watch over him.’ And that’s where fraud happens — a lack of oversight.”
Then of course there are those who will just lie to your face.

Organized confusion

Sitting in his car on the side of the road, being told the situation, Jonathan remembered that agent, the one that took down Southern. He was a regional audit manager at the time, just starting at the company when he visited this agent in 2006.

“The first month I was at Southern, I flew out to Texas because we were having problems  with some of the agents. Southern, not unlike other underwriters at the time, had problems with agents and attorneys in Texas. I would fly in and travel to an office and sure enough there was money missing from the account and the reconciliation was months behind and it didn’t tie out – it wasn’t done properly,” he said. “The attorney agent that took Southern down was using a title production system for their documents and HUD-1s, but they supposedly did not know how to cut checks from that so they dumped it all into QuickBooks.”

From his time working with attorneys at the Fund, he was well aware of the ins and outs of QuickBooks.

“I knew it wasn’t set up right, and they couldn’t get the trial balance to run right. So, they had the trial balance in Excel. They had three softwares doing what should all be done out of one. I was generally uncomfortable with it.

“When I was there, it was organized confusion,” he continued. “I would say ‘this isn’t right, this isn’t right,’ I’m trying to figure it out, but no money was missing, there was no clear evidence that there was fraud, it was just lack of competency or organized confusion.”

This isn’t really a new experience for a veteran auditor. On the extreme end, he has run into agents with mob ties, agents who have taken money for breast augmentations, and on the more mundane side, he’s seen numbers that didn’t match up because of clerical errors or poor management plenty of times.

“I don’t think people realize the audit function of any underwriter is to basically take a snap shot in time of how that agency performs and then it’s management’s decision of what they want to do with that agent. Do they want to rehab? Educate? Cancel? I show my findings and they make decisions on what they want to do,” Jonathan said.

He brought his report back to management, but there wasn’t much of a decision to be made. Despite the report, this agent was a $125,000 producer that had no claims, which is key to note because Texas was a problem state for Southern. How much of a problem? In 2006, 66 percent of Southern’s total claims experience came from 12 agents in Texas. But this agent wasn’t one of them — and the first fraud wasn’t committed until after this audit trip. So what do you do about that?

“They were a big remitter, remitted 10 of 12 months and never had a claim. It was an attorney-owned and run operation. They had good credit, good background — he was an attorney and adjunct professor at a local university,” Jonathan noted about the situation. “I was arguing something wasn’t right, but didn’t have my finger on anything specific and they looked at it as black and white. I’d be willing to say line up any underwriter and tell them these facts and they’d do the same.”

Texas was such a problem that two years after that audit trip, Southern made the decision to leave Texas and a handful of other states because of how bad the claims experience had become. We covered a lot of what happened there in The Title Report at the time.

Strength in numbers

While working at Southern Title, the team decided that it would be best to base Jonathan out of Tennessee. He jumped at the chance, bought a house in Knoxville, put his Florida home on the market and moved. This was 2006. Needless to say, that Florida home is still sitting there, unsold.

“In my infinite wisdom, I thought the Florida real estate market could go nowhere but north,” he said.

To manage the two-house payment burden, Jonathan started up Entrust Solutions on the side while working at Southern Title. Entrust would be an account reconciliation company and utilize his strengths, and until 2011 that’s all Entrust did. But when Southern Title practically shut down overnight, many of these smaller agents that were the life blood of Southern were left without a home.

“It was so unfortunate because these agents had nowhere to go. The majority of the agents Southern had, about 750, we were the only underwriter they had,” Jonathan said. “I was one of the remaining 14 in the skeleton crew after Sept. 15, 2011, trying to help finalize audit matters.”

That was the light-bulb moment. With Entrust Solutions, Jonathan considered a new business model, one that tried to incorporate these lesser producing agents. He wanted to create a new school solution that would consolidate the risk, pool the revenue, adhere to best practices, use his auditing know-how and keep everyone in business.

This new school solution actually is based on an old school program — the binder program, which Jonathan had seen work up close and personal at Southern Title.

Eugene McCullough, the former president of Southern Title, worked with Fidelity in the ’90s, and at the time, the underwriter was starting to cancel lesser producing agents. McCullough decided that instead of canceling them he would roll some of them into a new program that split the duties differently and therefore split the premium differently.  The underwriter would issue the commitment but the agent would do the closing and fund handling for more of a 50/50 split. The program could then be a win for all sides: Sure, the agent would receive less money, but the agent was also doing less work, and it beat the alternative of losing an underwriter; the underwriter was able to use smaller agents that normally didn’t make business sense on their own, but combined, and with a different split, would now be beneficial. When McCullough moved to Southern, so did the binder program. It was about a half million-dollar a year gross revenue program.

Does a binder program have to be contained within an underwriter? Or could a company like Entrust roll some of these smaller agents and attorneys together into one program and split the duties and premium in a similar fashion? Maybe, Jonathan thought. The sticking point here would be the escrow accounts. Entrust would need to handle the money.

At 33 years old, with a wife, a 2-year-old, no job and no paycheck, he and some key Southern Title employees stepped out into the unknown to give this binder program 2.0 a shot. Enter the Entrust’s Nexus Program. In this program, Entrust is a “super agent,” that consists of dozens of sub agents — the smaller agents that many underwriters do not want to deal with and would likely be out of the business the way the industry has evolved. Entrust issues the commitments and policies, and the money would move through Entrust’s escrow accounts, but the agents keep and run their own business. For the underwriter, all of that business gets combined into one auditable place instead of dozens or hundreds of little liabilities. For this veteran auditor, it’s a model that makes sense for all sides.

“We’re going to basically take the property and casualty business model and apply it to the title insurance world,” he said. “Take State Farm. For example. Joe Smith is its agent. He has his agency license but all of the underwriting and processing and claims work, approval and application process, all of that is done by State Farm. Joe Smith is building his business, and we want agents to still be their own players and own independent people, but they’re part of our Nexus Program. By yourself, you may not have an underwriter, but if we add up all of these people collectively as a whole, now you are a force to be reckoned with.”

These are good people

Amid all of the new technology and fast-paced industry changes, the title attorney that works a handful of deals each month can be easy to forget, but Jonathan has spent most of his career sitting in their offices, looking at their books and their processes, both at the Fund and at Southern Title. This is still a large portion of the title industry when it’s all added together.

“I came from a small agency. Everything seems like it’s being drilled down upon, and all of these things have to be done a certain way, and with the new settlement statements and lender oversight stuff, you’ll see people that just throw their hands up and say this isn’t worth it anymore,” he said. “I think the days of the small to mid-sized agents are in jeopardy, and that’s unfortunate because a lot of good people are going to be squeezed out of the industry.”

There’s that 80/20 rule that gets cited a lot: 80 percent of the revenue in the industry comes from 20 percent of the agents/attorneys. Entrust is looking to work with the 80 percent producing the 20 percent. Currently, First American, Old Republic, Security Title Guarantee Corp. of Baltimore and WFG are Entrust’s underwriters and the Nexus Program has about 60 agents, 95 percent of which are attorneys with real estate as an ancillary part of their business.

“I’m trying to help the agents stay in business. Have the ability to write with four underwriters and create a solution where it is a win for all parties,” he said. “These are still good people, and we want to be the alterative for them.”