Personal Finance 

Five Biggest Legal Ripoffs Ever

Scam SchoolMy wife and I bought our house five years ago. I remember looking over the list of closing costs and seeing a line for title insurance. Title insurance, which costs in the neighborhood of a few thousand dollars, is something that boggles my mind even to this day. It’s an example of something that is a 100% legal and 99% rip off. There are some things in life that are obvious rip offs, like pay day loans, and then there are others that aren’t so obvious. Today, I wanted to point out a few of the biggest legal ripoffs in the financial world. Some of them are completely avoidable. Others, however, are not.

In this article, we take aim at bank fees, extended warranties, title insurance, college textbooks, and car rental insurance.
(Click to continue reading…)

 The Home 

Title Insurance: A Totally Legal Scam

When my friend refinanced her mortgage, I was surprised that she had to pay for title insurance all over again (and title insurance is not cheap, in fact, it’s pretty ridiculously expensive for what you get). See, the way I saw it, she paid for title insurance the first time around and it insured that her title was clean for her. So… if it was clean then (and insured against mistakes, fraud, etc.), why would she have to get it again considering there was only one change between the first time she bought it and the second time, the lender providing the loan. When you get title insurance, they’re supposed to double check that all the t’s are cross and all the i’s are dotted, and then insure you against their own mistakes. If you’re still the owner, why do you need to buy it again?

Well, it turns out that the title insurance follows the loan and the insurance policy expires when the loan is paid off. When you refinance, the new lender pays off the old lender, which means the old loan is paid off, and the title insurance expires… and you get the opportunity to pay for title insurance all over again. Talk about a scam that is totally legal…

 The Home 

Home Buying Autopsy: Title Insurance

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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