Title Insurance Is A Scam. Help Is Coming. In 2009.

We've wanted to weigh in on the title insurance scam for a while now, but Blown Mortgage beat us to the punch with this excellent piece that should make your blood boil, unless of course you are part of the title insurance game.

As Kenneth Harney pointed out here six weeks ago, a Congressional report concluded that title agents pocket up to 90% of your premiums, and the business is rife with scams, kickbacks, and inside deals that prevent competition and consumer choice.

What confuses us (and we are easily confused) is the behavior of California's new insurance commissioner, Steve Poizner.  On one hand, he says California home-buyers are paying "unnecessarily high rates" for title insurance, and that in general the industry "is broken and I intend to fix it."

OK. So why not order changes in industry behavior right now? Poizner's new regulations take effect in 2009. And according to Inman.com, he delayed until 2011 implementation of the rate caps pushed by his predecessor, John Garamendi.

So if you buy a house between now and 2009, expect to pay "unnecessarily high rates" for title insurance.

Comments? Thoughts? Insights? Send story tips to lalandblog@yahoo.com.
Photo Credit: www.ourcampaigns.com

 

Comments

[Morgan Brown]

It's funny - the first thing everyone says when they read the post is that title insurance is necessary and that I must be confused about its purpose. I am not disputing the importance of title insurance in protecting lenders. I get it. What amazes me is that a huge chunk of premiums go to commissions - a very small amount of the charge goes to funding the commissions.

[Bill]

Everybody participating in a racket hates to have the light of day shine on their little games. Go along, get along, and take home your share of the spoils. Thanks to Viles and the Times for exposing this ripoff. When is Poizner going to do his job and put in reforms NOW ? Why the big delay, it did not take two years for the US constitution to be written !

[Morgan Brown]

In my first comment I meant to say "a very small percentage of the charges goes to the insurance itself"

makes much more sense that way ;)

[Arnett]

Do people really realize that title insurance is a ONE TIME premium? Why does this fact always get lost in a discussion about title insurance? You're not paying monthly or annually, you're paying ONE TIME. Do people realize what title insurance does? PROTECTS YOU- from fraud, from claims and from your neighbor encroaching his new fence onto your property. I think it gets a bad name out of ignorance. Its not like points you're charged on a loan. That is a "rip off"! Since we recently haven't had many claims in California add to that soooo many people have refinanced multiple times during the past few years and have had to "buy" new insurance each time, it seems like a "rip off". But if I steal your identity, collateralize a loan with your home, default and skip town you will be VERY happy that you have title insurance.

[Mr Income Stream]

Arnett-

It's just an example of what America has become and it's sad really...everybody wants a free ride. No one wants to pay their dues and wants everything given to them.

There are so many other larger issues looming on the horizon that spell the demise of the American way, why anyone would bother with something as trivial as this is mind boggling.

[Tim Keller]

In reference to the other comments concerning this issue I would suggest that nobody is arguing that title insurance is not necessary, only that its cost is well above its value. One thing that needs to be stressed is the significant number of exclusions present in today's lawyered up title policies, not to mention the Japanese-game-show antics that the issuer demands of the claimant in order to collect. It's worse than trying for that $150 rebait on that cool desktop computer you bought last year.

[Freedomlover - Michigan]

Once again, people make uninformed comments about the purpose of title insurance - or how the finances of it work.
1) You can buy any house you want without it - assuming you're an idiot. The reason you must buy it for getting a mortgage is that the banks are mitigating their risk. By the way, title insurance has zero to do with the mortgage crisis. Go get a private mortgage if you don't want rules of common sense.
2) Sure the company "pockets" 90% of the premium.....That's sort of like saying McDonalds gets 100% of the price of a BigMac. Title insurance premiums pay for claims, staff, processing fees...and the 10 year average of 6% profit margins taken by the industry. Folks like the author obviously have never run a business -- which explains the total lack of understanding.

[John Ogle, MD]

I am another outraged consumer. I'm doing a refinance in Colorado and the $800 title insurance fee is astonishing. Some unnecessary middlemen are riding the gravy train of big bucks flying around at closing. They will just squeeze in their additional fee. Who will notice? Who could understand?

In my refinance case, the previous owner was me, new owner is me. There are no liens. I realize I must demonstrate that (again) to the lender/underwriter, but it is simple because liens are all centrally registered in a local database. The "search" takes a few seconds once the searcher puts in the address. The title insurance charges have zero correlation to the effort required and value of this service. In this day and age, we have a simple central location to register liens, the local county courthouse. Anyone can walk in and do a 5 minute title search (computers have actually been around for a few months now).