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Title Insurance: A Totally Legal Scam
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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…
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There are two types of title insurance. One protects the lender, and is attached to the loan. Another protects the buyer, and is attached to the property. When you refinance, you have to buy a new lender policy. However, if you opted for an owner’s policy, that doesn’t need to be re-done — it sticks with the property as long as you own it (at least that’s how it works around here). But in general, I agree with you. About the only thing you can hope for is a discount on the new policy if you use the same title company.
I think the bigger scam is that they only “insure” titles with no problems. If there’s any issues at all with the property, you won’t find an insurance company to touch it. Maybe I’m naive, but that seems to defeat the purpose.
Title Insurance is just that, insurance that the property is free and clear of any encumbrances. If there is a defect at the time title was given then you have a “claim” against the policy. So, if there are “issues” then they must be cleared prior to the issuance of the policy since THAT is the purpose of title insurance.
At least you don’t have to pay for the title search again. There’s another great product. For the low, low price of $500, you get a clerk to do a 5 second Lexis-Nexis type search. Now that’s a great product.
I’d hate to have hte ownership of my house contested and lose it just because I’d finished paying for it. Aargh, that’d be frustrating.
At least I don’t have much to worry about. We bought our house from the original owners who built it, and by the time we pay off our mortgage they will most likely not be alive anymore to contest it.
And you have to get it again (lender title insurance) even if your “old” and “new” lender are the same. I’ve never gotten a discount on this part, but using the same title company has gotten us 50% off the closing fee. I thought this was pretty slimy when we refinanced the first (and only) time. Quite the way to make money.
Blaine, the original owners might not contest it, but how about the long lost descendant of the people who owned the land before your house was built on it?
A couple of quick thoughts –
1) title insurance isn’t like hazzard insurance – title insurance insures against past issues, not future problems, like hazzard insurance. If there’s an issue on a title, then insuring it would be an instant guaranteed payout. Like insuring a house after it burned down. Wouldn’t make much sense.
2) There is risk in title insurance. The issuing agency relies on the public record (called a search) to determine the status of the property. If an issue that was existant, say a lien, but was either missed on a search or mis-indexed in public record, the insurer assumes the liability.
3) Reputable title agents don’t rely on 3-5 minute “lexis-nexus” type searches. They rely on painstaking searches of public documents, sometimes going back to handwritten documents recorded in the 1800′s. You A couple of quick thoughts –
1) Title insurance isn’t like casualty insurance – title insurance insures against past issues, not future problems, like casualty insurance. If there’s an issue on a title, then insuring it would be an instant guaranteed payout. Like insuring a house after it burned down. Wouldn’t make much sense – that’s why a problem title can’t be insured.
2) There is risk in title insurance, even without know problems. The issuing agency relies on the public record (called a search) to determine the status of the property. If an issue that was existent, say a valid lien, but was either missed on a search or not indexed properly in public record, the insurer assumes the liability.
3) Reputable title agents don’t rely on 3-5 minute “lexis-nexus” type searches. They rely on painstaking searches of public documents, sometimes going back to handwritten documents recorded in the 1800′s. You won’t find those in an on-line database.
4) Depending on where you live, subsequent refinance transactions can be significantly discounted. In PA, that discount can be as much as 37%. Protect yourself by getting quotes from multiple providers. Never sign anything provided by your Real Estate Agent, Lender, or Builder that gives away your right to select a title insurance agency without carefully considering the implications of the loss of comparison shopping.
5) Lenders title insurance policies protect the lender – they are going to insist that a policy is issued in most cases. Hey, it’s their money, and they want to make sure the collateral is protected. If you don’t want to pay for it, don’t borrow other people’s money.
To add to what Dave wrote above, there are things that can “come up” to cloud the title when you still own the property. Just because the title was clean when you bought the house five years ago doesn’t mean that it’s still clean.
For instance, say you renovate the kitchen or have a pool put in the backyard. If you’re not paying for this work up-front, a common thing is for the contractor and/or supplier to put a Materialman’s and Laborer’s Lien (M&L Lien) on your house while the work is done. This lien is then shuffled off to a bank or whatever when the work is done. But sometimes there can be disputes or other issues that lead that M&L lien not to be released. That contractor has a valid claim against your property. They can’t foreclose on the property, but the lien puts a cloud over the title. Nobody’s going to want to buy that property (which is effectively what a bank does when you refinance) while that lien is still unreleased.
Another (much worse) cloud on a title is a Tax Lien. This usually happens when you don’t pay your property taxes, but it can also come into play from non-payment of income taxes or business taxes. Again, nobody will touch your property while there’s a Tax Lien out against it. It will have to be resolved before you can sell the property.
There are also judgments that can be obtained in court that will cloud the title. Whether due to a divorce, a dispute with your neighbors, somebody slips and falls on your sidewalk and decides to sue you, whatever. A judge can order a “Lis Pendens” which effectively means that you can’t sell the property until you have taken care of the matter at hand and the Lis Pendens is released.
All of these things will show up in a search of the real property records at the county courthouse. As Dave wrote, sometimes this will be computerized, but sometimes it will involve a search of many old, hand-written documents. It depends on the county and how up-to-date it is, and also on how old the records are. Also it depends if there is a good Title Abstract Plant in the area. If you retain a copy of your original title search when you first buy the property, you may be able to save some of the work involved, but they still might not lower the fees.
What a surprise, a title company person defending title insurance. So tell me Dave, what is the percentage payout of received premiums in this industry? It’s among the lowest in the insurance industry.
It’s a scam that’s rife with overcharging and kickbacks.
http://www.consumerfed.org/pdfs/Title_Insurance_Testimony042606.pdf
The purchase of a home is basically a scam for scavenger lawyers and other unscrupulous persons.(This may sound like a very vicious and angry statement, but it is true!) The consumer is burdened with unnecessary fees and charges that they don’t understand and no one explains to them. I guess “buyer beware” is a term coined and practiced often by lawyers. Title insurance certainly falls within this category. The number of claims ever made against a title are extremely small and the amount of commission paid by these companies to lawyers is unconscionable. You pay an attorney to do a “title search” and of course the lenders don’t have much confidence in the average attorney’s ability, so they require lenders title insurance. But lenders then require title insurance just in case lawyers didn’t do their search thoroughly. Well, I guess that’s OK, but the lender requires the borrower to pay for their insurance!!! That is not OK. Plain and simple there needs to be an overhaul to the entire practice of buying, selling,and refinancing real estate, to determine what are legitimate charges and what are not. Title insurance is probably the biggest fraud being committed against borrowers that there is, but it will not go quietly into the cold dark night….unless we all help it.
Excellent documentation, KR B. We just closed on our house today, and we refused the owner’s insurance b/c it just didn’t sit right with us. No one at the Title company could (or would) tell us the rate of claim incidence. It has to be the lowest risk in any of the insurance industries. Sure, car insurance is mandatory, but everyone has an accident at some point during their lifetime. Based on median home prices in 2005 and the amount that was paid in insurance claims that year (about 1/4 billion), the rate of incidence is about a thousandth of a percent. That’s a pretty acceptable risk level for me.
Iowa is the only state that has done away with title insurance companies. All lien and title searches are public records and can be done by the home buyer.
Plain and simple, title insurance is utterly useless. All states can be like Iowa, all it takes is for the populace to vote it through. However, many industry people receive kickbacks from the title companies. In fact, most of the money spent by title insurance companies is for kickbacks to real estate agents, lawyers, and contractors. So basically, the only way to get it done is through referundum vote. The state capitals are swarming with paid-off representatives.
Paying for insurance stinks until you need it. What’s even more surprising is that $800 [or whatever price you pay determined by the price of your house] policy that you spot on your HUD settlement statement, probably $200 goes to the insurance company and the rest goes to the law firm that did the closing as a commission. That’s right. The majority of that insurance payment is paid to the law firm!
Don’t get it confused, law firms that do closings for a flat fee of say $700 for a purchase, make a money on the P&S work at $200/hr, typically add $50-$125 on TOP of the title search and then add in their commission for selling you the title insurance.
So when you look at the HUD and see $800 for title insurance and $275 for a title, understand that the examiner performed the search for $200 and the title company is getting $200. [The numbers are just examples....]
I couple points to extend on John’s points above
You go to the title company. They check the history. Then they sell you insurance, just in case they screwed up.
You refinance. You very well may go with the same title company. They check again (to see if they screwed up the first time). Then, they re-sell you insurance against the possibility that they missed something both times. The kicker is that this insurance covers you for a time period that would be covered for by the first policy.
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if you know you’re going to refinance within 2 yrs, ask the title insurance company for a binder. it costs 10% extra but the next title insurance is supposed to be free.
it also works if you’re going to be selling within 2 yrs.
Also, the title insurance company should be giving you a discount if you refinance within a 2-3 year period but don’t have a binder. I always ask for one and get it.
Every state’s rates and rules are different. In PA the binder doesn’t exist, but the discount for refinances within 2, 4 and 10 years does. In NJ the discount is even more complex.
Best advice – get multiple quotes. Use a service like TitleInsurance.com or GetTitleInsurance.com if you are looking for a quick way to get multiple quotes. They’re free.
I guess the lenders are covering their butts, on your dime. They get you to pay the research, so “THEY” can make sure the title is clean and they won’t endup in troubles.
Don’t refinance then. At the time of refinance the policy issued is a Lender’s policy and it insures the LENDER that the property is free and clear of encumberances and that their mortgage is in first lien position. Title Agents are paid very little to do the work of searching, examining, clearing and issuing title. The lender’s title policy is a requirement of closing the loan, if you don’t like it, don’t refinance.
You can put some lipstick on this pig, but at the end of the day it’s a massive scam. Your solution? Don’t participate in the home finance market? Really? To find a better solution, TK, let me suggest this: ask… ANYONE!
Those on here defending the price of title insurance definitely work for or own a title insurance business. When you refinance you pay for a title search then pay for a whole new title policy. If there is a lien that doesn’t come up in the overpriced title search then the title insurance would pay. At the rate they charge every buyer/refinancer they pay out less than 8% of the total premiums they charge. In Florida there is no comparison shopping either. This is the biggest racket and should be illegal. Someone needs to sue and bring this to light. I am refinancing now and I may just have to be that one.
I agree. Why should I pay for it when I’m refinancing? That makes ZERO sense. Shouldn’t the insurance the first time cover me? Of course not! Because that would earn them less money!
Philip – I agree with you. Any chance you can point me to where you got the 8% figure? I want to raise visibility to this evil tax on home onwership….
Unbelievable! First you pay a seller who supposed to have CLEAR title. Then you pay closing attorney to do title search to make sure title is CLEAR. And even this is not enough: you pay to ensure yourself from screw ups of the first two. Seems like paying three times for the same thing: CLEAR title.
You don’t ever pay the SELLER for clear title. The title company insures that title is clear. And depending on the state you live the attorney is really only conducting the closing. And if you are a homeowner and you don’t know if you have clear title or not, you have bigger problems then a website can help you with.
Sounds like you don’t know how to read/ “titleking” (in lower case). Alex didn,t say he paid the seller for clear title, he paid the seller for the said property. Sure glad I will never have to use you for any thing refering to legal documents, you must have a reading problem and I pretty sure you have to “READ” to search a title. P.S. I’ve bought and sold more than 6 properties without title ins. just title searches, Fortunately never had a mortgage so didn’t have to sucumbe to the rip off. P.S.S. Florida also has public search records and the title only goes back to the last owner, and can’t go back futher for litigation purposes. DA!!! RIPOFF
I was in the process of refinancing my house in Staten Island when my Mortgage Broker presented to me a bill from a Title Company he was using on my file. Let’s say I was very surprised to see such high numbers, I was not expecting my closing cost to be so high. At that point I was very upset and my friend, who used to work in that industry, advised me to shop around. He told me that Title Insurance premiums are regulated everywhere in US but title fees are not. My friend advised me to get quotes directly from few different Title Insurance Companies in NY because their fees are not regulated and could be very different.
I followed his advice and called several Title Companies to get quotes for my refinance. After advising my mortgage broker that I was shopping for Title Insurance he was surprised and told me that other Title Companies won’t do a good job and most likely they’ll charge me even more at the closing. After comparing quotes from 5 different Title Companies I noticed that their fees were indeed very different. In fact, my mortgage broker’s Title Company gave me the highest bill. It was about $600 higher than others. Prudential Abstract 646-434-0888 was one of the Title Companies which I called. They provided me with good customer service and waived almost all of their fees. To make the story short I saved almost $900.00 by ordering Title Insurance directly through the Title Company. I was very satisfied and my advice to anyone would be to shop around when buying or refinancing a Real Estate.
You don’t need to get title insurance ever. It is that simple. You also don’t need to buy a home with financing or refinance a mortgage that you have. Title insurance is required by your lender. You, without financing, don’t HAVE to get it, but you SHOULD. With financing, you must get it as lenders require it. I agree that the chance of a claim being made and a company paying out is small, but…….
I’ll admit up front that I’m an Escrow Assistant (processor) for a title insurance company. Being completely honest, title insurance companies don’t get very much of the title insurance premium (regardless of how much work they put into a file). Unless a search is completed in the same county as the title insurance company, the company has to pay a large amount of that premium to the local plant doing the actual search (from 40% all the way up to 90%). So, for instance, if your title insurance premium is $1,000, the title insurance company may be getting a meager $100.
Something else you need to keep in mind is that the borrowers who have tried to scam or fraud mortgage and title insurance companies have hurt everybody. As a result of those who try to do this, both mortgage companies and title insurance companies have to protect themselves from fraud…just as government regulations help protect borrowers from overpaying for title insurance and related services. One example from an actual refinance was a borrower who tried to refinance the house right out from under their sick mother. Both the borrower and their mother bought the house together but, when the borrower tried to refinance, they tried to do it without the company knowing the mother was still around. Can you imagine what would’ve happened if the company had used the search completed when the house was bought instead of doing a completely new search? The mother would never have shown up and the borrower would’ve gotten away with it…and the company could’ve been sued by the mother when she found out.
Another examples of why a new policy is needed is shown above…Mechanics Liens, Tax Liens, and other types of judgments. From the time you buy a house until you’re ready to refinance it, a myriad of liens and judgments could’ve been filed which affect your property. One of the problems I came across recently was a judgment creditor who was paid off when the house was refinanced. Several months later, the borrower came to us wondering why the release of judgment hadn’t been filed…and when the judgment creditor was contacted on this, they tried saying that they weren’t paid on time and wanted more money before releasing the judgment. If the borrower hadn’t purchased a new policy, it wouldn’t have covered this problem. As stated above, title insurance policies don’t cover future problems…so since the judgment was filed after the first policy was purchased, it wouldn’t have covered this judgment. However, since a new policy was purchased and there was proof of how much the creditor was paid and when, and even though it was several months after closing, the company took care of the problems and got the release for the borrower.
Before you go around bashing all title insurance companies, you should do proper research. In every single industry, there are companies that will try to scam their customers. It is your responsibility as a borrower to do your research and make sure you are using a reputable company. Get recommendations from friends of companies they’ve used and have been happy with. Do some research and see what (if any) complaints or scam claims there are against the company you’re thinking of using. Get quotes from multiple companies but also keep in mind that the cheapest doesn’t always mean the best and don’t forget that, many times, you get what you pay for.
All I know is that my Title Insurance cost me a few hundred $ when I purchased the property. A year later when I sold the property and another Lawyer refused to accept the existing title description, three lawyers started ‘bickering’ back and forth via letters. I still ended up paying an extra $1300 for more legal description documents that the Title Insurance company says they do not have to pay because of all the various ‘exclusions’ in the policy. Three lawyers each giving me different advice, or perhaps ‘shrugs’ would be a better description. Title insurance is a scam that benefits only Lawyers if you ask me!
I am currently in the process of refinancing my home, with the same lender, and recieved a call the day before xmas for the Title Company telling me that their was a Tax lien found during their search…When I contacted them, found that the tax lien was not against the property, but was a tax lien against another person with the same name as I, in a city in the same state… I thought a) they search the property and not the buyer/owner and 2) if they do, isnt it their responsibility and duty to confirm if what they have found is legit and valid, before making contact causing complete freakout listening to a message that I had a $14k tax lien, of which is not mine, but frustrated that they didnt do ‘due diligence’ before making that call…as they told me quote ‘ it most likley is not yours, but we need to confirm, of which they requested confirmation of employement, etc… I contacted my mortgage lender, of which has not returned my call…whole other issue…..Does this seem appropriate from a ‘reputable’ large Title Company? Thanks for any thoughts, as I am somewhat concerned, since the price paid for titles searches, we should get what we pay for.
TO Judy R:
When a search is performed by a title company, they search liens and title evidence on the property, the current owner, previous owners, and any other people they may find in their search. If a tax lien is filed against a person, in most states it automatically attaches to any property that person owns, hence, the need for searching the person’s name.
The reason they phoned you to confirm the tax lien, was becuase the liens themselves only have names on them, no address or other person-identifying information. They are supposed to attach to all property owned by that person in that state. So if you have a more common name, chances of a hit comming up on it are high. The only way for the title company to verify that the lien is NOT yours is to request personal information from the borrower, usually a SSN. Using this, they can call the lien holder and get the last four of the SSN of the person auctually named in the lien (these aren’t published in public record for obvious reason.) Then the title company can either confirm it is your lien or not. There is no need to be upset, this sort of thing happens frequently, however, the title company should have explained the situation more clearly so that you understood they are just making sure it is NOT yours, rather than blaming you for not paying your taxes!
As for title insurance, it is true that the percentage of premium paid out for ‘claims’ to policy holders is small. However, the insurance does not just cover loss from a title defect (i.e. a lender collecting from you on a valid lien that the title company failed to clear) the insurance also pays for all of the policy holder’s legal representation should a claim arise. So if a developer buys the field next door, and you have to fight them in court to keep access rights to your driveway, becuase the title company missed that your driveway extends through their new development, and there was no easment filed, and this is the only access to your property, then the title insurer will pay all of the legal fees associated with keeping you in your home, and maintaining its value and access. Plus, the title insurer has expert attorneys in the field to fight on your side, which more than likely you would never be able to afford on your own, making the liklihood of you winning much higher. And if you lose, the company pays out for your loss, which could be a very large sum. A win win situation for the insured. Claims situations are rare indeed, however, when they do happy, the insured save thousands upon thousands in payoffs and legal fees. Car insurance claims are frequent, but usually small amounts. Title insurance claims and legal fees can easily reach 5-6 figures. There is value in the insurance indeed. Also, even if you don’t like the way the title insurance industry/mortgage industry works, its not going anywhere. Buy that owner’s policy. Doing so, by presenting it to the title company each time you refinance, you can save thousands on lender’s premium over the time you own your home. This savings alone is always more than you paid for the policy to begin with. PLUS you get the insurance protection to boot. Even Clark Howard sees the value in owner’s title insurance. If youre going to rant and rave, get educated first people!
Jim, if you’re going to post on something, at least try to obtain at least a rudimentary understanding of the subject matter. Title insurance is overpriced? I’m not sure you’d feel that way if your ownership of your home was being challenged by a contractor foreclosing on a mechanic’s lien arising from the previous owner’s unpaid work on the home. Or if your neighbor is demanding that you remove half of your bedroom that a new survey discloses is encroaching onto their property. Plus, your understanding of obtaining a new policy under a refinance is so, so wrong. See above post re: lender and owners policies. The new lender is going to want assurances that you haven’t accumulated crazy liens or other mortgages on your property since the last purchase/refinance. Eh, what do I care – you have the right to refuse (an owners policy) of title insurance when you purchase property. Go for it!
I see a lot of posts from the title insurance industry. What I see them using is fear tactics. Never mentioning the % of people that actually have to use the insurance. Before you doom and gloom us how about you offer a little hard fact please.
“[First American]Title insurance had a 5.3% claims ratio in the 4th quarter and 6% for the full year 2009. The company expects claims payout rates to moderate to 5% to 5.5% in 2010.”
Because Title Insurance is preventative in nature, the customer is basically paying us to ensure that they never have a claim made on their property. We as the insurer pride ourselves on having a low payout percentage. It means we did our jobs to assure clear ownership.
We’re not alleging you don’t do your jobs…..it’s just that the price that is being charged for title insurance is not supportable with the cost of doing business. “Rip off” is the only appropriate description for what is going on. Use your flashy pamphlets and list all the “what if” scenarios that you want….they still happen very, very, seldom and the premiums to insure against them should be very, very, low. We will overcome the money spent on lobbyist to correct this “rip off” eventually.
I’m going to start selling pink elephant insurance. Sure, there aren’t many of them out there, but you’ll be sorry you don’t have PE insurance when you get trampled by one!
Blah blah blah, it’s the same hyperbole I’ve heard from every insurance agent out there. For the record, I don’t see Title Insurance as a scam (in theory) and I can see the value in it. However, using the “you’ll be sorry” argument/scare tactic without providing information like percentages of premiums paid back, or incidence of title errors, is totally unprofessional and doesn’t exactly put title insurers in a positive light.
It’s quite obvious from some of the posts here that some of the people posting
It’s quite obvious from some of the posts here that some of the people posting have never had to make use of their policies. Please understand that owners policies are optional, protect you (the buyer), and are only available when you first purchase your property. Lenders policies are required both when you purchase and when you refinance your home, and are a requirement of your lender…not the title company. Go take a look at the following TDI page to see why your lender requires title insurance – http://www.tdi.state.tx.us/pubs/consumer/cb058.html. This is a Texas Department of Insurance page, but is relevant in any states – keep in mind that Texas is one of the most strict states.
have never had to make use of their policies. Please understand that owners policies are optional, protect you (the buyer), and are only available when you first purchase your property. Lenders policies are required both when you purchase and when you refinance your home, and are a requirement of your lender…not the title company. Go take a look at the following TDI page to see why your lender requires title insurance – http://www.tdi.state.tx.us/pubs/consumer/cb058.html. This is a Texas Department of Insurance page, but is relevant in any states – keep in mind that Texas is one of the most strict states.
I’m in the Title Insurance business … it’s corrupt and consumers get screwed all the time. I have many many opinions about the industry …. my family has been in the business for over 80 years in New Jersey. I’ve been doing it for 20 years …. consumers need protection … it’s horrible!
No question this is a scam. Are title companies ever liable for ‘missing’ something? I can understand if handwritten documents need to be tracked back to 1887 that can be a real challenge. But what about a home built in 1987 with only two owners? How muddy can the clue trail get? It is always left to the homeowner to ‘insure’ themselves against these ‘mistakes’ while title companies collect for their ‘services’ without any accountability whatsoever. Pay in advance or pay later. Perhaps I should charge my clients extra to ‘insure’ against me doing a crappy job – I can charge them once for mistakes they might notice right away (lenders insurance) then charge again (owners insurance) to protect them in case it takes them a while realize that I suck at what I do.
Let me preface this by revealing that yes, I work for a Title Insurance company. I’m not a sales person, so don’t make any sort of commisions, just an office employee.
The payout/claim rate for Title Insurace is low BECAUSE any liens, judgments, title issues, etc are CLEARED prior to closing. Unless you have worked in the Title or Real Esate industry, you wouldn’t know the amount of work and searching that often goes into clearing these items prior to issuing a policy. If you are purchasing a house, you’d want those items cleared and resolved prior to purchasing, yes?
The lender of course will instist on have a new search done. Just because you still own the property, how do they know without checking, that the property is still free and clear of any incumberences.
It is not just “title” or “ownership” issues, as some other poster mentioned, there could be Mechanics (contractor) liens, tax liens – for both unpaid Real Estate taxes and also income, estate taxes, etc. Most of what you pay goes right back out (to the county clerks for recording documents and taxes, the searchers out in the clerks office, etc) The fees are regulated by the state insurance
I read it all! What a scam! I still can[t believe these types of higway robberies are still going on! It makes you wonder is there any regulators paying attention,
My daughter refinanced her home yesterday and had to pay over 10 times the actuarial and services costs to buy title insurance, mainly for
the benefit of her new lender. To me this means that this title insurance “industry” is completely uncompetitive. Perhaps a 20 pct markup might be OK, but 1000 pct? This may be the best racket in the world.
All title fees are state filed and are a percentage of the Loan amount. If she was over charge the Department of Banking and Insurance in your area would handle a complaint. Also, she has a three day right of recission so she can cancel and pursue a claim with your local officials. Again, you don’t have to refinance.
Attorneys, lawyers, counselors…whatever you call them, are receiving a very good portion of the title insurance premiums. A number of them have gone to jail for grand larceny. Most continue collecting all the while charging the client to protect them. Bar Associations do not care even when meetings take place letting them know they run a fine line. A number of states now allow the conflict of interest. It’s very rare to see a lawyer sue a lawyer. In fact, in the last 20 years in the title insurance industry, I have never seen one. But the lawyer always demands to collect far greater than what their normal retainer fee is for protection. Lawyers are in fact scum. Most of them are no matter who you are. I had one lawyer charge owners and loan policies for his own relative just to receive a greater kickback. Our Superintendant of Insurance is a lawyer and refuses to come close to forming real regulation. The real estate division in that same division refuses to investigate. Lawyers are seriously scum.
Here’s a perfect example: The following came from a lawyer who wrote about title insurance on the website: lawyers.com.
Attorney agents who research property histories are usually paid to conduct the title search and typically get to keep the majority of the premium paid for the title policy. Furthermore, prices are pushed up by “reverse competition.”
Title insurance companies don’t market to consumers but to agents who have an incentive to opt for higher-priced policies, because commissions are usually based on a percentage of the premium. Investigations in other states discovered illegal kickbacks to realtors, builders and others for referring title insurance business.
To all who read these blogs: let it be known, no lawyer searches records. Abstractors do. Lawyers ARE the title agent. As stated: “agents who have an incentive to opt for higher-prices policies”. This means YOUR lawyer will request both Owners AND Loan policies. There are plenty of places in the US where the owners policy is just not worth the cost. YOU pay all. So now do you see the conflict of interest? Do you know when it comes to kickback, all articles mention realtors, builders and others? You will never find the word “lawyer” in these articles. Go to the Rockland County Bar Association and read a letter from a lawyer (recent). Read the bottom of the page. The letter refers to NYS looking to run its own title insurance company. and after whats been going on, I’m actually beginning to agree with this state. Let them make it law because this state will make billions.
AGAIN, it is ILLEGAL and monitored by the Departments of Banking and Insurance in most states, to offer any “incentive” when to anyone for them to use one title company over another. THE STATE FILED RATES must be followed and we get audited every quarter that we are not offering “incentives” to anyone. Only attorneys can charge whatever they want. This is all lies and bull!!! YOU CANNOT LEGALLY CHARGE MORE AND JACK UP THE PRICE OF A POLICY! What is it with this thread? And for the last time!!! We must disclose all fees and they are listed on the HUD!!! If you think the fees are excessive you can always contact the department that regulates the licensing for banking and insurance in your state. How about complaining to the State Regulators and Legislators in your state instead of posting hearsay and misinformation? We not only have to be licensed in my state of New Jersey but we are required to take continuing education classes to keep our licenses!!! Do you have to take continuing education classes for your job, I’m betting not. Title Producers are some of the hardest working, honest professionals I know and I’m tired of fighting over the fees, if you don’t like it you elect the legislators that approve the filed fees! Call them and complain. But ignorance is not a defense in court and not one that I accept in business.
i worked for a title company for several years doing mainly re fi titles. the number of problems that showed up were amazing. leins posted to the original seller after the purchase, court judgements against owners from over 20 years ago just being recorded. As far as purchase insurance, it is a good thing. We had a case where the purchasers wanted to use the property as a B& B and there was a clause for the neighborhood that forbade the selling of alcohol. We also would do alot of things like getting the seller’s dog off the title, correcting legal desciptions of the property, notifiying the purchaser and lender of right of way violations and so on. You may consider it overpriced, but we did in depth research on every property.
The folks defending title insurance miss the point of those posting….
a) Title insurance is (unfortunately) useful
b) The way title insurance is regulated results in (typically) fixed prices and a requirement to use by lenders — and the result is 5-6% payouts thus 94-95% margins (an insanely high margin)
c) If title insurance were regulated in a different way — the profitability (margins) would be much lower and the kickbacks to lawyers, realtors, etc would not be possible
d) Beyond changing the regulations for title insurance…just make it all electronic and require the title to be current. Everyone has 5 years to get their claims current and after that…if you don’t have your claim on the property properly…you don’t have a claim. With a few other rules you can cover the other situations mentioned by posters in this thread. In fact I believe there are other countries that do have a much more efficient system – would have been a great use of stimulus money to make the home buying/selling process have lower transaction costs (it would naturally increase home prices).
Many have approached the state government including the governor himself. Most go to the Insurance Dept. A hearing took place a few years back and the standing room crowd took them as a division who does not understand our industry. Our regulators have not enforced the laws for quite some time. I know very well which title company (and agents) are providing the kickback and what the percentage is. The largest underwriter sent a proposal to license agents. The insurance dept. sent out their proposal. Look at them both and compare. They are the same! Then look at a revision because the original prohibited ABA’s which would prohibit lawyers from issuing title. The revision deleted the ABA clause. By the way, the insurance department will not accept a complaint from a title agent. Why? Because they are not licensed. Only title insurance company can be investigated. Fat chance. NJ is reciprocal. I have a license there and all that took was a check and an application. Tighter regulations and the prohibition of ABA’s. This will correct many problems. FL is the only state I know where the loan policy premium is very limited in premiums when an owners policy is issued. As little as $25.00. This is the best fee structure and should be applied. Article from that lawyer upset you TitleKing? We are all passionate in our industries. At least to those who are loyal to what’s right and follow the law.
Unfortunately, Title Insurance has a bad reputation. As the manager of a local Title Insurance office who performs all of the closings, I explain to my refinance customers that title insurance premiums on lender policies can be compared to appraisals in that lenders require the borrower to absorb the cost of protecting the lenders investment in the property. In my state of Montana, premiums are filed with the state auditors office and credits are given to all customers whose property has been described in one of our policies in the past three years. Closing costs, are typically a lump sum fee for the myriad of services that escrow officers provide,..ordering your deeds, payoff’s on existing mortgages, working up the lenders closing instructions, time at the closing table and later processing the transaction. It’s a frenetic, stress filled job that not everyone can handle. The liability insurance that WE pay to be able to provide those services is unreal. Typically, title companies make little to no profit on closings and a large percentage of the title insurance premiums are paid to the insurance underwriters. Maintaining a title plant and staffing it is not exactly cheap and keeping quality people to do tenacious courthouse searches costs money as well. It’s always interesting to me that the same people who dont bat an eye over junk lender fees (they are usually the ones charging you an “attorney fee”) because they are getting that “low rate” will scoff at the amount of a title insurance premium the same lender required in the first place.
Title insurance has a bad reputation because it deserves it. When a challenge was made to the title on a recent property I purchased, the title company delayed coverage until I threatened to sue and now they are defending the title in local court while suing my corporation to get out of the policy in Federal Court. Now that’s protection.
Can anyone advise us? This story comes from my brother:
My partner will be buying half my property, in cash. I’ve owned it for 20 years, paid off mortgage and own it outright. I paid for an owner’s “attorney certification” of title when I bought it (but the attorney has either passed away or is otherwise AWOL, can’t find him). All was clear at that time. I know the previous owner, have no reason to be suspicious of him. I own the home outright, have paid all bills, and all my dealings with contractors are well in the past, and fully paid up.
Now, to pass papers to get my partner’s name on the deed, two lawyers suggest I must get title insurance, at about $1K, PLUS a paid appraisal ($600) to verify the fair market value my partner and I arrived at for the buy-in. This seems like a scam to me, and totally unnecessary. City records in person & online show a clear title. I’ve lived here 20 years. It’s a cash deal. It’s a straightforward, small, cookie cutter lot. Can anyone see ANY reason why I should buy title insurance??? One possibility: could it protect me if an anti-tree neighbor cuts trees over my line?
to RSR: One benefit of having an owner’s policy of title insurance is that if you or your partner ever finance the property and take out a mortgage, you will likely save a significant sum on the Lender’s policy that the lender is going to require. Depending on the State, and loan amount, the savings could be anywhere from $100 to $1200 right off the top of the lenders premium. Insurance is about risk: if you don’t feel you have the risk of loss, then maybe you can justify going without the insurance. If your statement is true, and you have owned the property for 20 years free and clear without any claim to your ownership and no collections for any liens, then you are probably at low risk for ever having to file a claim. Once again, it is all about risk, and should you ever have a claim, the insurance could save you tens of thousands. People buy cancer insurance. Some use it and it saves their lives and their livelihood (in more than one way!) Others pay premiums for years and years and never use it. It is your call whether it is worth it. But just remember, title insurance is one premium paid up front, and your coverage never diminishes.
to Steve: You are correct that payout margins for title insurance claims are small in the insurance industry, however, you must realize, that title insurance also pays for legal fees in curing title matters covered by the policy. Specialized title attorneys are expensive. Most people when faced with a claims situation would much rather have the insurance company fix the problem through legal means, rather than take the claim payment. Most people would rather keep their house by having the title insurer pay for a lengthy court battle, rather than take a check for their purchase price and shop around for another place to live. The expense the insurer goes through to correct problems is not reflected in the claims payout figure, which causes the straight numbers to be skewed. Also, the premium does not only go into a giant fund to pay for potential claims, but to pay title insurance companies daily operating expenses. If premiums were cut in half nationwide, the fees for title searches, title research and examination, and title curative work would just double, as the cost for researching, fixing, and overseeing title matters is not likely to decrease any time son. Even if records systems become digitized, they will never become automated. It will still require manpower to review the record, determine what is outstanding against a property, and determine who actually owns the property.
As for making everything electronic, that is a great idea, and in many states this is beginning to happen. This is more the case in the west where the system for surveying land and legal descriptions (numbered lots and blocks vs the old English method of metes and bounds) is far more condusive to digitalization. In the majority of eastern states, especially in rural counties (and you must remember, land records are county issues, not state issues) the funds for transitioning land records to all electronic format are simply not available. I.e. when it comes to putting a new roof on the High School vs. making the land records at the county register’s office state of the art, the taxpayers are going to want dry students. Only more populous counties with a large volume of conveyances, and with that a large volume of conveyance fees paid, are able to afford and get the most use out of electronic land records. When you have a rural county with 20-50 conveyances per week and a staff of two at the Register’s office, the necessity for having everything electronic is simply not there.
As far as ‘kickbacks’, I think you’ll find that with stringent insurance and Bar association regulation, this practice is not at all the norm, and the companies that engage in this activity are never around for long, or, are not actual title companies, but are settlement companies that have no direct relationship with an insurance underwriter, but outsource their transactions elsewhere in order to avoid the scrutiny of the government and the underwriters.
Well, I didn’t find an answer to what my question is… this is another scam that hasn’t been mentioned…
Why 2 policies? Why doesn’t 1 policy cover the property? Will the Title Insurance company pay out double if there is a legitimate claim? Will the Lenders policy AND the Owners policy both be paid?????? For some reason I doubt this…
If I pay for a policy it should cover the “Owner”, whether that is the Lender, myself or a combination of both of us! One payout and the Co-Owners split it according to the amount of $ each has into it!
RSR, you’ve been there for 20 years. There is no need for title insurance. As long as you know of no pattern of claims with neighbors. Not only would you pay for an owner’s policy (and yes, the both of you would be covered), you may also be required to pay for a new survey. In your position, there is no need for insurance. Ask the lawyers this: “Do you write title”? Ask them and let me know the response.
Bombo; if you obtained a mortgage, you’ll be required to pay for a Loan Policy. If you also purchase an Owner’s policy, you would then pay for a Simultanteous Policy meaning a discount for both Owners and Loan policies. Should there ever be a claim, each policy protects you and the lender. If you only have a Loan Policy, that only protects the lender which means you could be on the hook for any claim directly. Case in point: A Toronto resident recently purchased a cottage in the mountains of NYS close to the Canadian border. She did not use a laywer, did not obtain a title search report and did not obtain insurance. She paid over 114,000 in cash for that place and recorded her deed. Later on, she learned that seller purchased the parcel from a church. Although the church gave a deed to him, he never recorded it. He also had over a quarter of a million dollars in judgments against him. There are in fact papers (not in the public records) to show the church did sell the parcel to him. Problem is, no one knows where the deed is and that guy skipped town. Property tax records show the church as owner. Of course this is worst case senerio but as you can see, if the lady did the right thing, she would have realized in the beginning that guy did not own the property to begin with. So title insurance is good. Only problem is, there’s a huge number of people who are scammers and a lot of the underwriters (title companies) sign them up to become agents knowing lots of business would come in. Right now, those underwriters are paying out the nose for that grand dumbass idea. There are SO many good people who work in this industry and know what there doing. But the ones who wish to obtain kickbacks of any sort? It’s sickening and I’m very embarrassed to be in this business. I’m a tiny title company because I did not play a part in kickbacks. Kickbacks are everywhere in this state.
Why is it that all the real estate lawyers I talked to were also title insurance agents (or their wives were)? Why don’t they have to disclose how much of the fee goes back to them as commission?
I think now they have to disclose what their commission is. I got my HUD-1 today, and I calculated it’s an 80% commission! Says it clear as day on the form:
1107. Agent’s portion of total title insurance premium $2,171
1108. Underwriter’s portion of total title insurance premium $542
That’s for lender and owner insurance together. I’m probably gonna drop the owner’s policy, just due to the nature of the sale and how poorly the agent answered my question about the commission. I’ve been in Sales for 20 years and have never heard of anyone making 80% commission. Plus the settlement fee ($595), plus the Binder Review Fee ($100). He’s making $3500 for what? maybe (maybe) 3 or 4 hours of work? I’m definitely in the wrong business.
Title insurance is complete bullshit – think of it as a loan origination fee, and you’ll feel much better. Unless you pay cash for a property, you will need financing. Title insurance is required for pretty much any kind of loan secured by property. Of course, in the event there is actually a problem with the title, the insurer will not return your calls, and you’ll be the one going to court.
Title Insurance is a scam. I bought it and when I went to sell home (in this market, cash sale) One day prior to closing I found out that there were heir issues. I have PROVED fraud by the seller. Another company (who was closing on my cash sell) had made title on this home with the man I bought from. I have the actual title, he did not disclose it to me, and went to another title company. They showed clear title, and so I never knew about the heirs till I lost a cash sale on my home, and might I add had moved out! Now they refuse to pay title, and today I found out they are doing a quite title, which only lifts the cloud and DOES NOT clear the title. Which means I could be responsible and sued in the future. Now I have had to hire an attorney and pay out of my own pocket, because the title company is not responsible if I want it done right. We need more consumer protection!!!! What a rip off!!!
I am a title agent..I know, shocker, but I wanted to add something to all of these discussions that I have not yet seen on this site.
As a title agent, part of my job is to review title from the last time the property was sold until present. In other words, a check of what the seller has done since the date of purchase. I OFTEN find problems. Here is a short list: 1) Legal description in last deed is incorrect. Either a portion is missing, or the lot number is wrong. Something the homeowner never realized. The title company must fix this before closing. 2) A satisfaction of mortgage is missing. The last time the property was sold, the seller’s mortgage was paid in full; however, the lender that was paid off failed to record a satisfaction of mortgage. This means that for the entire time that the current owner has owned the property, this lien has been sitting against the property and now, must be investigated by the title company. 3) Notice of Commencement found recorded in the Public records. This is a normal document recorded by a contractor (Florida law) to protect his lien rights while working on the property. They are only valid for one year from the date of recording; however, if the property is sold or the mortgage refinanced during that year, this “lien” must be removed. 4) Code violations. A homeowner who fails to cut their lawn for an extended amount of time, a garage that was converted into a bedroom without pulling permits, or a homeowner who leaves his car on concrete blocks for a long period of time (which the city or town does not allow..some do allow, some dont), violates certain City codes and are subject to a code violation. A code violation will become a lien on the property if the violation is not taken care of timely.
These are just a few of the examples of liens or clouds on title that a title agent must clear before the day of closing. Common responses from homeowners are…oh, I forgot about that….oh, I thought my husband took care of that…oh, I was never informed about that…etc.
One of the main reasons that the claims rate is so low with underwriters is because title agents must eliminate these liens, or potential for future liens, before the date of closing. An agent that has too many claims that originated from their office, can lose their license to practice…permanently.
We ALL complain about the cost of things. Take hazard insurance for an example. You could easily pay your hazard insurance for 10, 20, 30 years and NEVER file a claim. My hazard insurance is $2300.00 a year. I have owned my home for over 11 years. That is over $25,000.00 that i have paid for a policy that I have never needed. But, I am happy to pay for it for peace of mind.
Your title insurance policy protects you for the entire time you own your home, something you only paid once for, when you purchased the home. So for me, that is over 11 years. I only paid $825.00 for my policy so, right now, it averages out to be $75.00 a year. Well worth the cost.
One other side note is that if I ever did need to make a claim on my policy, my policy is not going to be cancelled or dropped. I am also not limited to how many claims I can make on my one policy. Be happy that you have not needed to make a claim on your policy. Not pissed off that you had to pay for it.
I also agree with many others who have suggested to shop and compare pricing of title agent’s fees. January of 2010 marked the beginning of new legislation that mandates all title agents to charge a single fee (for all closings that include a mortgage). All of their costs must be combined into one fee on the Closing Statement, making it very easy for consumers to shop and compare. Do not let your mortgage broker or real estate agent “make” you use their title company. If they insist, they are most likely getting a kickback…which is illegal by the way.
It amazed me to find out that the LENDER on my refinance (the same as the original loan) also has the “opportunity” to purchase or pay for title insurance on the search THEY are commissioning but had refused it. My question is WHY commission a search that is meaningless (title companies are exempt from prosecution/liability) if you don’t intend to hold the grantor to any sort of guarantee? Since a title search is part of the lenders due diligence, why should they not be held to assuming their own risk? In other words, they’ve opted OUT of insuring the search they commissioned and instead expect the consumer to pick up the tab to insure them! BIG ALARM BELLS should be going off here, so why aren’t they?
Exactly what I think. Even on a new purchase in Florida if I’m not mistaken once a title Sear
What surprises me is that no one has mentioned the costs of homeowner’s insurance, the commissions earned on the policy, and the fact that it renews annually. The same thing goes for auto insurance. I’ve owned my home for 12 years and paid for owners insurance ONCE. I refinanced once and paid for lenders insurance at the discounted rate. You can do the math. I have paid auto insurance annually for 35 years and have had two claims. Why should I have to pay for auto insurance annually? With homeowner’s insurance, I’ve paid for 12 years and had one claim and still have to pay annually. God forbid I have more than 3 claims in a 5 year period, then the insurer can cancel me and the next company can triple my rates; wow, that sounds fair.
Good luck everybody….
All of the above aside. I have found due to 2 personal experiences that the actual title insurance policy that was bought and paid for was never issued ! Many title companies know that as long as they issue a title insurance “commitment” and that since it is very, very rarely needed or used, they can simply collect the premium but never buy and issue the actual policy. Eight years after i bought a new home I sold it and agreed to provide title insurance for the new buyer. When I phoned the original title company for a “reissue” rate, I was told that they had no record of a policy ever being issued on my property. When I marched into their office with the facts, and the commitment letter, they changed their tune and told me that there was a “snafu”. I demanded and was successful that the title insurance company now immediately issue me a policy. They tried every trick in the book to avoid this but when I threatened them with a complaint to my Insurance commissioner and to the BBB, they quickly changed their tune and issued the policy to me. The average home buyer is not savvy on all of this mumbo jumbo stuff and often do not know or forget that they should receive the actual policy. This is one of the greatest scams there is. If we bought a life insurance policy, why wouldn’t we insist on an actual policy rather than just a “commitment letter?
Keep in mind that other things can change in the time period between your 1st purchase and refinance. An entity such as, the county, state, collectors, home owner’s associations can put liens on the property that the title company collects and cleans up for the borrower. So not really a legal scam and most states offer a discount on Title Insurance for refinances.