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Home Buying Autopsy: Title Insurance

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Back in May when I was reviewing the closing documents in my home purchase, the $1200 I would need to pay for title insurance really irked me (especially since it was originally estimated at $900) but it appeared, and still appears since those sort of things only become problematic at inopportune times twenty years down the road, to be one of those “you’re only a fool if you don’t get it” type of deals. Of course, I wish I could’ve lived in a state like Iowa where the state runs the Title Guaranty Program and I could’ve had coverage for $110!

If you went to sell your home and someone shows up with a legit claim that they never sold the house, title insurance protects you against that. If you went to sell and someone says they have a legit lien on the house for some work they did, title insurance protects you against that as well. It will essentially protect you from title related issues relating to the transfer of it (like on a sale) and let’s you “trade property with confidence,” says Nelson Lishutz, a spokesman for the American Land Title Association.

The only problem is that this stuff can get pretty expensive depending on where you live. Like I mentioned before, in Iowa the program is run by the state and would’ve cost me $110. Here in Maryland, it’s all privately operated and I paid more than ten times that amount. What’s scary is that according to ALTA, the industry paid out $662M on $15.7B in premiums, or a paltry 4%. Typical auto insurers pay out nearly 75% according to the American Insurance Association.

The difference, claim title insurers, is that the money you pay is to prevent loss as opposed to protect against loss. The title insurance underwriter, in providing insurance, will do the legwork to research your title to make sure everything’s clean and clear. The unfortunate downside of this is that they might exaggerate how much they’re doing and how much goes to their marketing machine.

I have to agree with Birny Birnbaum, a former chief economist of the Texas Department of Insurance, and say that I was an anxious homebuyer and went with the company my mortgage agent recommended. I called the company that provided the insurance and saw that the rates were competitive with what was there, my mortgage agent did say that the insurance wasn’t required, and I did see that the insurance was 0.4% of my purchase price and saw it as not being “that much” and thought it was best if I bought it.

Could I have done something differently?

Referenced title article via CNNMoney.

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