July 21, 2009
In The Words Of A Plugged-In Reader: It’s About Time
"The U.S. title-insurance industry faces increasing pressure from regulators to justify the fees charged to consumers for ensuring they have clear ownership of their homes."
∙ Title-Insurer Fees Draw Scrutiny [Wall Street Journal Online]
First Published: July 21, 2009 8:30 AM
Comments from "Plugged In" Readers
Title fees do seem to be pretty large for what seems like a routine bit of paperwork. But I guess the issue is not so much the paperwork done but rather the insurance liability that the title company assumes.
I'm interested to hear if anyone here has ever had a claim filed against their title insurance. How does that work ? What if the claimant is right and owns the property free and clear ? Does the property transfer to the claimant and the title company reimburses the former owner for the value ?
I'd guess most claims are partial, like mechanic's liens. But does the "all in" scenario ever play out much ?
Still as the article states, only 20% of the title fees go towards insurance which is a surprise to me. My last agent told me that the title fees were for insurance giving the impression that insurance made up the bulk of the fee. Now it looks like part of that fee is being kicked back to the referring agent.
Posted by: The Milkshake of Despair at July 21, 2009 8:42 AM
Those fees have always seemed like a bit of a scam. If you think about it, the title company would not insure and the bank would not fund a loan if the title was not free and clear. Claims against title insurance are rare.
Posted by: CameronRex at July 21, 2009 9:19 AM
Even better, the home buyer is paying seperately for insurance that protects only the lender. You can bet if that insurance were purchased by the lender directly and rolled into their overhead costs would be one quarter what they are today.
The home buyer does have an option to pay an additional fee for title insurance that covers themselves, too, but that is rarely mentioned. Probably because very few buyers would go for what looks like just another junk fee at closing.
Posted by: Delancey at July 21, 2009 9:27 AM
"title insurance claims rare"? very. Have you ever
read the exclusions on their coverage? "not responsible for matters we could "reasonably not
be expected to be aware of"
Posted by: ntnthnchrll at July 21, 2009 9:33 AM
@Delancey, You can bet if that insurance were purchased by the lender directly and rolled into their overhead costs would be one quarter what they are today.
This sounds like a solution!
Posted by: Wai Yip Tung at July 21, 2009 9:44 AM
Also paying additional fees on a refinance of your own home with a new title or lender is very annoying.
Posted by: sunnysider at July 21, 2009 10:06 AM
I haven't read the article yet, but have some experience in this area. Regulation of title insurers is a long time coming, if only to create a competitive market.
Title insurance costs about triple what it would cost if there was an actual competitive market.
A large component of the cost is for illegal kickbacks to agents/brokers (used houses); builders (new houses); and lenders (refis). (Yes, you need to buy a new policy when you refi.)
These referral incentives (illegal kickbacks) include everything from cheap office space, free flyer printing services, free market leads, food/bev., and sports tickets; to more complex controlled business arrangements whereby the builder/broker/lender co-owns a subsidiary (with the title insurer) that gleans profits but incurs no actual risk. (when people refer to "title insurance" in CA they're mostly referring to the underwritten title companies, which are basically captive agents of the title insurers)
These people (builders/brokers/lenders) are the "customers" because they have all the steering power. Thus, the "customers" are not the ones who pay for the product. They steer business based on their "relationship" with the title insurer.
The market is also broken b/c, for many fixable reasons, the home buyer does not shop for title insurance. They shop like hell for loans, but not for title insurance.
States have nibbled at regulation, but mostly backed off. Even in relatively progressive Cali. (the past Dem. Insurance Commish was gonna regulate the industry in quite a draconian way but the current mod Rep. commish backed off that.)
HUD has also tried to change their regulations to encourage competition in the industry, but scaled back the more onerous requirements under heavy lobbying pressure.
I guess I should stop and read the article now . . .
Posted by: Rubicon at July 21, 2009 10:12 AM
i like where this economy is forcing everyone to go. justify your value in the world. many people will not be able to. good luck!
Posted by: james at July 21, 2009 10:38 AM
I've always wondered what happened to the story of the woman who found out after the fact (when she tried to sell) that she had purchased a BMR unit at market rates. There was a battle between the buyer agent/seller agent/title company. Anyone know what became of that story.
Posted by: eddy at July 21, 2009 10:51 AM
There is a site where you can get quotes for California properties from different title insurers. Check it out: www.clta.titlewizard.com
Posted by: whatever at July 21, 2009 11:10 AM
You don't have to buy title insurance, I closed on unit in a brand new building a couple of years back and did not feel I needed the protection since the developer already had to have done the due diligence. The title company did'nt like it but I questioned the purpose and protested it once I saw the closing costs, so they removed it.
Posted by: viewlover at July 21, 2009 11:25 AM
I got a quote on title insurance from First American for $1500. Didn't get it in writing, though, and they later tacked on another $850. Quotes from First American that aren't in writing are quotes that never happened. Live and learn.
Posted by: unwarrantedinlaw at July 21, 2009 12:00 PM
Totally OT, but some here may be interested. As part of the final budget deal, W-2 state tax withholding is going to rise by 10% -- not a tax increase because you'll get it all back as a refund at tax time -- just a time-value money grab by the state. But you can opt out of it, and any sensible person who receives W-2 income should do so.
Quarterly filers (like me) also have quarterly payments accelerated with more due earlier in the year (same in 2009). Of course, you then pay less the last 2 quarters. Don't see a way around this, but if anyone does, please share it!
I believe these kick in 1/1/2010.
Posted by: Trip at July 21, 2009 12:22 PM
"W-2 state tax withholding is going to rise by 10%"
You pay upfront with cash and then get paid back later in IOUs. The classic "forced loan" that is one of the tricks that governments always fall back on. I wonder if I can buy some warrants at a discount to pay my withholding.
Posted by: diemos at July 21, 2009 12:40 PM
When wife and I recently purchased a foreclosed home the bank included in their conditions that we use a specific title company, and they were insistent upon it so I can definitely believe Rubicon. They were only a shade above absolutely incompetent, and we ended up filing a sizable claim for title insurance. They missed several liens totaling almost 5% of the loan amount.
Initially they weren't responsive, but when I made a formal claim following all the rules laid out in the documentation (sending notarized documents via certified mail to an address in Texas) it was rapidly resolved. I can't say that I was bothered by the cost because it ended up costing them far more than it cost me. However, it was clear that I quickly found out more about the property liens via publicly available information than their "professionals".
Would I trust them to protect me if a true "all in" scenario took place? Not unless I could first muster overwhelming, incontrovertible evidence -- they clearly weren't going to do the research I (as the owner) would want done.
Posted by: Average Joe at July 21, 2009 12:43 PM
Hey Trip, I've seen you post that before. Do you have a good link? I'd like to forward this info to my firm's HR dept and see if they can deal with this for me (and everyone else here).
Posted by: Shza at July 21, 2009 2:32 PM
Here you go. Basing this on reports as I have not seen the final bill, although I've looked (I think it may not even be drafted yet). This was just contemplated before when I posted -- now "final" pending vote on Thursday. I imagine this would make a substantial dent for a couple of biglaw associates.
Posted by: Trip at July 21, 2009 2:51 PM
when i first got into the biz i got bombarded by Title "reps" asking me for my business. i asked each one what the differences were btwn them and their competition. answer - essentially nothing.
the reps, IMO, had nothing virtually nothing of value to offer me. some tried to say they could train me on various things, like how to set up a database or other nonsense.
the fact that Title companies can afford to hire empty suits who more or less only know how to smile and bring bagels to office meetings made it pretty obvious there was a LOT of fat that could be cut out of title/escrow fees.
the Escrow officer actually works and has a role. the "rep" - none
and fwiw, there was no bribing with sports tickets and the like here in SF - but i had heard that was prevalent in socal. Plus, now virtually all freebies - even the mostly worthless ones they did provide us (like bagels at office meetings) are now against the law.
meanwhile, the new law apparently states that fees can't be negotiated. so if they charge you a $75 email fee (a what????) they can't remove it because that would be favoritism.
to say “Nobody’s getting rich” selling title insurance as the ALTA states in the article is ridiculous. if a title rep can afford a jaquar and live in SF, and do absolutely nothing other than bug me, the system is more than a little broke
Posted by: hangemhi at July 21, 2009 3:39 PM
Most of those Title Reps were laid off last year. There are still a few out there, but they work on commission, by how many sales they bring in.
Posted by: Mystery Realtor at July 22, 2009 12:19 PM
Aside from the bank requiring it for a loan, I never understood title insurance and esp. not at the current price points. It makes even less sense with new construction when you can be pretty sure that no one has lived there before!
Posted by: perplexed at July 22, 2009 1:14 PM
Trip, thanks for that btw. I guess it's really only an additional 10% of the current state rate so it's really just a ~1% increase. But still, I'd just as soon not give out an interest-free loan -- especially while I'm paying interest on loans of my own.
Posted by: Shza at July 23, 2009 11:38 AM
Well, ~1% of two biglaw associate salaries is nothing to sneeze at!
By the way, the bill is now drafted:
(and the entire budget package):
Posted by: Trip at July 23, 2009 2:42 PM