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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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80 Responses to “Title Insurance: A Totally Legal Scam”

  1. BK says:

    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 – 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.

  2. Rich Cecere says:

    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!

    • Huge Legal Scam says:

      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.

  3. Anonymous says:

    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

  4. Anonymous says:

    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,

  5. Anonymous says:

    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.

    • TitleKing says:

      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.

  6. Only me says:

    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.

  7. Only me says:

    Here’s a perfect example: The following came from a lawyer who wrote about title insurance on the website:

    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.

    • TitleKing says:

      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.

  8. kat says:

    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.

  9. steve says:

    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).

  10. Only me says:

    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.

  11. Tina says:

    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.

  12. Mac says:

    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.

  13. RSR says:

    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?

    • John says:

      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.

  14. Bombo says:

    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!

  15. Only me says:

    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.

  16. Only me says:

    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.

  17. Anonymous says:

    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?

    • TonyVA says:

      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.

  18. Dave says:

    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.

  19. B in Texas says:

    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!!!

  20. Nina says:

    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.

  21. Joe says:

    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?

  22. Mike says:

    Exactly what I think. Even on a new purchase in Florida if I’m not mistaken once a title Sear

  23. Vito says:

    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….

  24. Anonymous says:

    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?

  25. Jeremy says:

    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.

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