Title Insurance Premiums Rose With Housing Boom
Saturday, January 13, 2007
Of all the confusing and expensive things about buying a house or refinancing a mortgage -- and there are plenty -- title insurance just might take the prize.
"A lot of customers don't understand title insurance," said Samuel Ingram, president and chief executive of My Closing Space, which sells title insurance and other services. "It's the largest component of your closing costs, and yet people don't know anything about it."
Title insurance is drawing scrutiny from state regulators around the nation and other critics. They say:
· Title insurance prices -- and profits -- have unfairly soared because they're based on house prices, which skyrocketed from 2000 to 2005. "The real estate boom has been very profitable for title insurers," said J. Robert Hunter, director of insurance for the Consumer Federation of America.
· Some title insurance agents pay kickbacks to real estate agents, lawyers, builders and lenders to get buyers' business, and those kickbacks inflate prices. Some of those charges were detailed in a report last October by Washington state's insurance commissioner, and others last April by the U.S. Government Accountability Office.
· Consumers have not benefited as technology has made public records more accessible, lowering the cost of title searches.
· Real estate brokers and lenders are increasingly becoming owners of title agencies, creating potential conflicts of interest, according to the GAO.
The American Land Title Association defends the $17 billion industry. As an example of how title insurance can protect a homeowner, the association offers this story: A buyer purchases a home from a widow and her daughter. But then a child from the deceased man's first marriage turns up, claiming to be the rightful heir to at least part ownership of the property. In such a case, the title insurance would kick in to pay the missing heir's claim and preserve the buyer's ownership of the house.
Another example would be a lien on the property resulting from unpaid taxes or an unpaid contractor's bill. Occasionally, fraud turns up -- for example, a man who owns a house with his estranged wife sells it without her knowledge or consent.
Usually such problems are cleared up during the title search. Industry experts say only about 4 to 6 percent of title insurance premiums are paid out to satisfy claims. That's much lower than the 70 percent-plus rate typical of other lines of property and casualty insurance.
When they buy title insurance, which is required by mortgage lenders, most people pick companies recommended by their real estate agents or lawyers.
Several Web sites have sprung up, offering to help buyers find the best deals on title insurance. But in some states, comparison shopping for the insurance offers little payoff, because title insurance rates are set by a state insurance agency.