“Ever feel like you’ve been cheated?” singer Johnny Rotten famously asked at the end of the Sex Pistols tour of America.
I sure did when I refinanced my home last year and I had to fork out $625 to Chicago Title for title insurance.
Title insurance for a refinanced home loan? This makes no sense.
I paid title insurance to ensure there were no issues when I first bought my home in 2002, so why was I paying for it again?
The answer is simple: Title insurance is a swindle. A scam. A shakedown, a hustle.
When Title Companies Compete, You Lose
Title insurance is less than 1 percent of the price of the home, so we tend to overlook it.
In economics, this is “inelastic” demand, meaning it is not sensitive to price.
Title insurers can virtually charge whatever they wants — even, as in my case, for doing nothing at all.
The result is an industry devoid of competition.
A 2005 report to California Insurance Commissioner John Garamendi found that competition for title insurance and escrow services in California “does not exist.”
A total of four companies control virtually the entire market for title insurance. Chicago Title is owned by Fidelity National Financial Inc., which is the nation’s biggest title company with more than 45 percent of the market.
In California — the big money maker for the industry — title insurance is marked by “reverse competition.” The title insurers don’t compete for business from homebuyers like me, the ones who actually pay for the service. Instead they pay illegal rebates and kickbacks to a real estate agent, a lender or homebuilder in exchange for business referrals.
The California Land Title Assocation’s Title Wizard service lets you compare prices for title insurers. Here is what the big four would have charged for my home refinance:
| Chicago Title | $625 |
| Old Republic | $645 |
| Stewart Title | $625 |
| First American | $605 |
This is a pretty clear cut picture of what collusion looks like.
A toll on the road to home ownership
Title insurers would do quite well in Afghanistan and Iraq or any place where nothing gets done unless certain people are paid.
You don’t get a mortgage without title insurance. It’s that simple. My title insurance “expired” when my first mortgage was paid off. If I wanted to refinance, I had to have title insurance.
Title insurers have managed to set up a toll booth at the entrance to the U.S. housing market, which at its peak was worth more than $20 trillion.
All those tolls add up: During the housing bubble, operating income for title insurers grew 270 percent, soaring $4.8 billion in 1995 to $17.8 billion in 2005.
The money pours in, but it doesn’t come back out. Do you know anyone who actually filed a title insurance claim?
Chicago Title paid out a meager 5 percent on nearly $4 billion worth of title premiums, according to the company’s SEC filing.
In the insurance world, this percentage is known as the “loss ratio.” The loss ratio for title insurance is among the very lowest in the insurance industry. Auto and home insurers pay 80 percent of premiums.
What is Chicago Title doing with my money? The biggest expense on Chicago Title’s 2009 income statement isn’t personnel costs. It’s the whopping $1.9 billion in commissions paid to agents who drum up business.
What you can do.
Title insurance is not required by law in California. However, it’s standard operating procedures as most lenders won’t fund a mortgage without it. But you can shop around.
One alternative is Entitle Direct, which sells title insurance direct to the consumer. Entitle Direct doesn’t pay agents so it is able to charge a third less than most of the big title firms.
I could have saved $268 if I had gone with Entitle Direct. If you don’t feel that it’s worth the trouble, well, I guess then Johnny Rotten had it right.
I was in the title insurance business for 31 years before I was hit by the industry downsizing. I have seen numerous articles like this over that time and seldom has the author done his or her homework in an attempt to really understand title insurance. This article is no exception. I have no reason to defend an industry that terminated my position after 31 years but I am tired of people ranting about something they do not truly understand.
Unlike auto or homeowner’s insurance, title insurance is incredibly labor intensive (even with the progress of technology). Whether the 5% loss figure is accurate or not, the writer makes it sound like the other 95% if pure profit. The truth is that after making payroll, paying medical benefits, renting office space, paying for supplies, paying government insurance requirements, and reserving money for future losses (which the company can’t touch for several years), the majority of title companies would be pleased with an 11% PRE-TAX profit (though most companies don’t reach that goal). In fact, it would be interesting to see how many title companies have closed their doors since 2008 or even what percentage of companies have made any money at all in that period of time. I think you would be suprised.
All of us would like to save money these days, but using the media to complain about something one does not even understand is a bit irresponsible in my humble opinion.
Whether it’s for a refinance or purchase transaction, title insurance has protected the American dream of homeownership for more than a century by providing behind-the-scenes work that strives to eliminate claims and assures homeowners that their investment in a property is protected.
Title insurers are not allowed to “charge whatever they want.” How title insurance rates are set varies from state to state, but in most states, rates are set by a regulator. By statute in most states, the rate cannot be excessive and must allow a return commensurate with the work of local title agents to underwrite and the risk of insuring the title. Also, consumers have always received discounts where they have obtained a prior policy of title insurance. Lenders require homeowners obtain a new lender’s title insurance policy on a refinance transaction to protect the lender from any liens against the property that may have occurred between the time the previous policy was issued and the time of the refinance. Basically, a homeowner is getting a new loan and a lender will want to make sure it is protected. Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, you might have incurred a mechanics lien from a contractor who claims he/she has not been paid. Or you might have a judgment placed on your house due to unpaid taxes, homeowner dues, or child support for instance. The lender needs reassurance that the title to the property they are financing is clear. A homeowner’s title insurance protects the owner for as long as they or their heirs on the property. And only need to be paid for once.
The local and often independently owned title insurance agents retain a premium split that covers the cost of title examination, title plant maintenance and other expenses provided by local employees and contributes to the local economies in every county of the United States. These types of cost are not incurred with other insurance products.
Unlike insurance agents that sell other forms of insurance, title insurance agents spend the majority of their time and resources preventing claims and protecting homeowners’ property rights. The majority of the one-time title insurance premium covers the cost to discover, identify and repair events that occurred in the past. Before a policy is issued, a title agent examines the history of a property contained in public records, where they find issues in one out of every three title searches. In order to make sure a homeowner has clear rights to a property, the title agent will scrutinize prior deeds or mortgages, divorce decrees, court judgments, delinquent taxes and child and spousal support payments, vesting, covenants, conditions and restrictions, general encumbrances, and utility or other kinds easements.
Because of these preventive measures, title insurers pay out significantly less in claims and is fundamentally different from all other forms of insurance, which charge yearly premiums to provide insurance protection for future events. Besides minimizing the possibility that title hazards will threaten ownership or use of property, the concentration on risk elimination greatly reduces the number of claims to be defended against or satisfied by the insurer. The curative work performed by title agents also minimizes the fear, disruption and distress that title claims have on homeowners.
When shopping for title insurance, consumers should compare all of the associated costs. Some rates may or may not include other services provided by the title company such as conducting the closing, preparing and notarizing documents, adding endorsements to the policy which may be required (usually by the lender or buyer), and other services. When comparing one rate to another, be sure to get detailed information on what is included in that rate, so you are comparing equally.
Consumers do have a choice in selecting the provider of their title insurance related services. They can either select their own title insurance company, or choose to designate a third party, such as a real estate agent, to make a recommendation. The American Land Title Association is working to help educate consumers about title insurance so that they can better understand their choices and make informed decisions. ALTA urges homebuyers, regulators and legislators to check out its consumer website, http://www.homeclosing101.org, to learn more about title insurance and the closing process.