$16 billion for title insurance?

If you could scan the entire American economy for money that is thrown away --  gift cards never redeemed, home gyms never used, etc. -- one of the biggest piles you would find is the title insurance industry. Sixteen billion a year -- that's nearly double the size of what Hollywood movies gross in a year in American theaters.

From LATimes.com: "Americans spend more than $16 billion annually for title insurance when buying, selling or refinancing their homes. But few people question the expense, even though they're probably paying too much, say consumer advocates and government regulators."

More: "What's more, title insurers have been fined repeatedly for illegally giving concert tickets, trips and even cash kickbacks to real estate agencies, lenders and builders. Consumers typically go with a recommendation from one of those sources, experts say, and may not even realize that they have a choice."

How out of whack is title insurance in California?
In California, coverage that protects the buyer would probably cost about $1,200 to nearly $2,000 for a $500,000 home. In Iowa, the only state with a government-run title insurance program, coverage for a $500,000 home -- including lawyers' fees -- totals about $500.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[sfvrealestate]

Five points. First, I think all insurance has a scammy element. Whenever you buy any insurance, you bet against yourself and the house always wins.
2) Not only does the property seller customarily purchase title insurance for the buyer, but the buyer purchases a policy (less expensive) for the buyer's lender. Talk about double-dipping.
3) You don't have to have title insurance on a property. But your bank won't make you a loan without it. And if there's a "break" in the title insurance, subsequent buyers may not be able to get a loan for the property.
4) The U.S. Real Estate Settlement Procedures Act guarantees that kickbacks equal federal prison.
5) Information informing consumers that they have a choice of service providers is right in the standard California real estate purchase contract at paragraph 12 and 23. And it is not in small print.

[Joseph...The Real Estate Guy]

sfvrealestate:

Well done!

I applaud your comments!

[Peter]

Peter H says:

I have an idea. Why don't we get the title insurance companies to help bail out the sub-prime borrowers and lenders? Come on everyone! We all have to do our part. B of A just doubled the interest on my credit cards to help offset their sub-prime losses, so I'm doing my part!

[Todd]

I own a boat load of property and have been stuck with title insurance scam for almost a decade. It's a damn scam I tell you....no ands, ifs, or buts.

This is what gets me for example. I buy Property A in 1999 with Bank A financing it. Then 2 years later I refinance with same bank. I have to buy a whole new policy.

The only trick is to bundle your policy if you know you will sell with in 2 years. It doesn't cost much more going in, but going out your Selling policy is for gratis.

How is it that State Farm or Farmer's Insurance can't offer me policies? They have all my insurance from worker's comp, to life, to auto, to liability. YET, they legally cannot offer me cheaper title insurance.

It's a damn scam, plain and simple

[OCTrojan]

If prices in California weren't so inflated, I would not have operated an escrow office here. I used to do closings in GA, and attorneys there are paid $450 for a closing compared to $2,000 for the same $900,000 home here.

Are we charged too much? Yep, but isn't everything more expensive in California? I know my attorney friends can charge $50 per hour more here than they can in Alabama.

[NoWayinLA]

Title insurance is mandatory in CA? That's ridiculous. What do we pay title lawyers for? It's their job to make sure the title is free and clear. There's your insurance.

Are you still on the hook for title insurance for a brand-new home? Because that would add to the insanity.

I'm one of those who fled CA to buy one of those big houses in pretty neighborhoods for an affordable price someplace that isn't CA, and therefore isn't worth talking about. I just wanted to get into the game while I could still lock in my first mortgage in 2007 dollars. Assuming my salary gets increased to compensate for the massive inflation headed our way, I'll be in great shape.

Anyway... title insurance was not required. Of course, we all know that the insurance industry has been buying CA state legislators for years.

[Steve]

Get real this has been the status quo in the RE industry for years. The entire RE supply chain is on a kick back, commission; pay off, gratuity, etc. Builders are the worse because they typically own or have an interest every step of the process. Do you think for one minute a builder is not going to pressure you or control the entire sales process to insure the deal closes at the highest margin to them? Most morons do not even know it is happening. Bottom-line no one gets paid until the deal closes. It is no different from an arrangement with a pimp and prostitute, only this so called legal.

[robert No longer in L.A.]

You voted for your Left & Right politicians, but the Title Insurance companies trumped you, with MONEY IN THE POLITICIANS' POCKETS! Think it's time to flush our collective political toilet?? Kick 'em where it REALLY hurts - the ballot box!!!

[Diane Cipa]

Great article and it's a giant topic.

1. Title insurance - when produced in the traditional method is an indispensable product. The premium paid in a traditional title insurance transaction paid for the pre-policy work of a full search by a human searcher [as opposed to automated] and professional examination. Potential claims were vetted and resolved before the issuance of a policy. In this traditional system, the policy was meant to be a safety net for mistakes and items that could not be found in a professional examination - fraud for instance.

2. The title insurance industry is absolutely corrupted and has been for about the last 10 years, maybe more. Title insurance is like a parallel universe that moves in tandem with mortgage lending. The forces that caused our mortgage crisis - predatory practices and failure to maintain good standards - moved in and through the structure of title insurance.

3. Federal and state regulators are starting to work at eliminating the corruption and restoring traditional underwriting and sound business practices. It's a tough job and it's just beginning.

In the meantime, consumers should carefully select their title insurer. Find those who perform traditional services - full examination by a human expert - and charge a fair price. Often you can get top quality expertise for a very affordable price. Be careful.

Eventually our collective business of real estate sales, mortgage and title will be restored to it's roots of ethical practice. Untill then, buyer beware.

[JC]

It's easy to take pot-shots at something you don't understand, and to throw figures around that make your case sound legitimate. Try doing some research on title insurance in Iowa--you'll find out that it isn't insurance at all, and falls far short of a standard title insurance policy in what it covers. Don't compare apples and oranges and then question why one costs more than the other. And I've never known a consumer advocate group that didn't say consumers were paying too much.

Title insurance companies have been paying record amounts of claims in the last year as a result of the large number of real estate transactions over the last 5 years, so I know there a lot of home owners who are glad they "wasted" their money on title insurance.

[investedintitle]

OK OK, Gotta ask one question...
So you buy a property and discover one year later that the person who sold it to you wasn't really the seller. Perhapes the real owners were the victim of IDENTITY THEFT and were out of the country during the time when the property changed ownership to you. The "real" owner has to file a claim against you for the full transfer value. Let's say that number is $ 795,000.
WHO IS GOING TO TO PAY THE CLAIM????
....the TITLE INSURANCE COMPANY that's who. Most people have a negative view of title insurance and some of it is justified. However when you need those claims paid I'll guarantee you'll be happy that you have title insurance.

[anon1137]

Title insurance is one more element of the corruption that is inherent in the real estate industry. Yea, you can get your title insurance from a company that isn't "affiliated" with your agent, builder, lender, etc., but that's like choosing the Cosa Nostra instead of the Mafia.

I would campaign for any politician who would vow to take on the REIC.

[Joseph...The Real Estate Guy]

There are excellent "Title Reps" out there.

Just like every profession, you have a few rotten apples.

Remember that Reporter somewhere, in New York, I believe.

Are all "News Reporters" bad? no!

Stop your nonsense Anon!

[Michael Hoskinson]

As a Realtor with many years experience I can tell you that the best service in the industry is from Title reps to their Realtors, the perks are HUGE. The money has to come from somewhere, it comes from Buyer's pockets of course. Title companies have the best property knowledge as well so they know ahead of time that each policy written has a very little chance of coming back as a claim.

[Johnathan]

I cannot believe someone actually said Title Insurance people were knowledgeable. I have bought/refinanced at least 10 times in the past 12 years and never has a title insurance company gotten the documents correct. Endless names and addresses misspelled (including changing my gender!), documents that weren't ready when my appointment was, and so on. At one point I was ready to call my lawyer because they had inserted new documents that changed the terms of the contract. But what summed it up for me was when I was waiting for an appointment and overhead one of these so-called experts on the phone. She was telling the caller she had no idea where Marin County was, even though the office we were in was 5 miles from the Marin border. I've met more knowledgeable real estate people behind the counter at McDonald's.

[FreeTitleQuote.com]

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[Cal]

sfvrealestate: "Information informing consumers that they have a choice of service providers is right in the standard California real estate purchase contract at paragraph 12 and 23. And it is not in small print."

Luckily for the title insurance companies, none of the fiduciaries of the buyers ever bother pointing that out.

[Ace]

Steve said 'Get real this has been the status quo in the RE industry for years. The entire RE supply chain is on a kick back, commission; pay off, gratuity, etc.'

Steve is right on... especially if you use a big name real estate company. Almost every big company has their own mortgage company and title company these days to 'help you'.

Kick backs are regulated pretty well and are very rare... but there is a lot of pressure to use certain mortage brokers and title reps.

[Dan]

$16 billion in premiums? Wow! What are the losses to insurers? I've known tons of people who've bought houses. But, I've never known anyone who has filed insurance claims for title issues. Someone tell me a story where title insurance actually did anyone (besides the sellers of the policies) any good.

Driving a car without insurance is stupid. It seems buying title insurance IS stupid in every instance I've encountered when buying a home for my family. But, hey, maybe I'm missing something.

[Craig Haskins]

Title insurance is not mandatory. If a buyer feels they trust the seller enough, go ahead and settle the deal at the kitchen table. Give the seller a check for the purchase price, less taxes and mortgage payoff etc, and have the seller sign over the deed to you. Would you do that on your next home? If not, why? You can all talk a big game about the lack of a need for a title search, but please note that the alternative is the kitchen table closing. Furthermore, why do you believe your lender wouldn't close without a title search? Do you think they know something that you as an average homebuyer do not? Of course they do. They know that there is a good value for title insurance. It's a one-time premium that protects you for as long as your family owns the home. You don't get a bill every six months like auto or home insurance. As for the goof ball above who says that the title industry lines politicians’ pockets, that's silly. The title industry PAC fund is a drop in the bucket compared to ALL other insurance lines. Here's where I do agree with some of you. The price paid in many states for title insurance is too high. And many states have title rates that are set by the state insurance commissioner, which ties the hands of the title companies to compete on price. These states should be looked at. However, those states are in the minority. Most states are rate-competitive. Real estate agents and bankers typically shop for the best rate available from the most reputable title companies. Lastly, I agree that there are many many idiots in the title industry who tarnish the good reputation of the rest of us by providing illegal kickback. It happens everywhere, in every state. However, it's not limited to title insurance is it? Are there mortgage people who give kickbacks to real estate agents too? Are there bad people in your industry too? Or is it really just limited to the title industry? I wonder. My family owns one of Wisconsin's largest title insurance agencies. And I'd be happy to discuss this with any you if you'd like. Look me up at www.knightbarry.com.

[David Hass]

Craig Haskins, you're a mouthpiece for the title insurance industry.

Looser.... want to tell us why we should buy title insurance when buying a new home from a builder?

Looser.

[Scamed]

I used to work for a Title Company. When I was working for a competitor this Title Company recuited me with a hefty Bonus. Then told me to bring them all the business I had at ANY cost. I did! Flew me out of state to a Lenders Main Branch 3 times. They gave this Lender a kickback for every closing. Then the market changed, people were asking questions. Guess what, they found a way to get rid of me How corrupt is that. Now this "Bloodless Empire", that's what everybody calls them now, gets away with murder. Trust me, this is a "Bad Industry" today. 20 years ago a "Great" Industry and a nessesaty. Today, I've seen so much and can tell you a lot that has gone on, one for instance, is a golfing trip to La Jolla for 2 days including a dinner out in Downtown San Diego on a weekend, ran by a Title Co. Sales Rep in which my company paid for. Also, a golfing excursion to Mexico, Las Vegas, Cocktail parties, Tickets to Laker/Dodger games, a tent at the Buick Invitational. All with R.E agents and Lenders.... I can go on and on!!! You tell me.... Legal????

[Craig Haskins]

David, yes, I am a mouthpiece for the industry since I'm in the industry and this industry is my livelihood. I was honest and pointed that out in my post. All you have done is rant about nothing and provided no useful information at all. But to your credit, you made us all laugh by misspelling "loser" twice. Next time, do us all a favor and have a point.

[Patrick McMurphy]

These are very interesting times. The title industry is suffering some of its biggest losses ever. This is not due to claims from homeowners or banks, but from an attempt to produce a quality product and support the people in the real estate industry (lenders, escrows and real estate agents) during a devastating down turn in the number of transactions. The pressure to capture business and survive is greater than ever. The title companies need to generate revenue to support the title searchers, examiners, customer service reps, title officers and sales people. The overhead for all of the real estate industry does not go away when the volume diminishes. To survive the fluxuation everyone is getting creative. The bottom line is the Mortgage Industry and the Brokerage Community fuel the success of the title companies. Everyone is looking to survive this market and the Brokers and Bankers look to the ancillary industries to support them both in good times and bad. Some title companies will survive this changing market because they prove their worth daily by rescuing deals and making things happen. The next time you have an issue with transferring real property in California look to a reliable title company to handle your family's transaction. Trust your real estate agent to select the company that they work with. Ask them why they use that particular company. If they do not know then make sure you are getting the best price. When Grandma’s house is up for sale and the facts come out that Grandpa died 10 years ago and his interest was never transferred. You want to ask yourself where is that Affidavit Death of a Joint Tenant. And where is Grandpa and Grandma's original Grant Deed that was recorded in 1957 prior to the title companies computerized records, and you are not sure that they were Joint Tenants or not. Ask for help then and see how much it will cost to transfer real property in California. Probate, expensive record searches, you might have to Hegstaad the transfer. Hire an attorney to sort that mess out. A reliable title company will roll up their sleeves and help you close in 30 days. The local title companies work together with the real estate professional to insure a smooth close of a transaction. The real estate industry relies on the knowledge and expertise of the title industry. They serve the public and allow everyone involved to be confident that their investments are protected. The banks and the buyers have recourse when a title policy is issued. The title industry sells peace of mind and security. Kick backs and RESPA violations have been a source of pain for an industry that for the most part provides the real estate community with extensive value. As the real estate market continues to morph so will the title companies. They will adapt to the changes in the market and some will survive, some will not. Let’s hope that the Bankers and Brokerage Community select the title insurers based on ability and expertise. Can’t we all just get a loan.

[Jill Bigelow]

I tendered a claim to my title company, Lawyers Title when a neighbor sued me for prescriptive rights for a sewer pipe that ran through the middle of a property that I had just finished building and listed on the market. It was a covered risk under at least 7 provisions in my policy and they denied the claim several months after I filed it. I have suffered damages into the millions because of this and 18 months later are still in litigation all because Lawyers Title failed to uphold their contract, ignored their duty to defend and as a result committed bad faith.

Title insurance would be great IF the title company were to comply with their contract that I paid a lot of money for.

I'm sure I am not the only one in this situation and am looking to hear from others with similar stories. I would also like to hear from qualified experts that think their testimony could solidify my case. (i.e. claims people, title experts, real estate professionals experienced in evaluating value/ dimished value of clouded title and prescriptive easements) Thank you!

[francis]

Jill,
I've been trying to get Old Republic to honor a five year old claim to clear unknown title defect/encumbrance. They also insure neighbor who knew when he signed his policy he was falsely claiming (by notice to seller and predecessors' affadavits) rights to my 17 year owned property and dock. My legal fees were denied for no proof of claim-though I have fax rec't to agent who said no coverage until lawsuit. Neighbor's title claim to dock accepted while mine was rejected for being on US gov't property. Insurer threatened to deny all coverage for my lack of cooperation by not signing last of their FOUR proposed agreements each ignoring affadavits and my original survey. They wouldn't tell me whether I'm covered against potential lawsuit if I didn't sign... My atty finally got their attention with bad faith letter but then I was assigned unrated "insurance defense" atty while neighbor got assigned AV peer-rated real estate litigation atty. I'll let you know how it goes if I'm still alive.