A reporter finally questions Title Insurance! 95% profit vs 30% for most other types of insurance?
I don't want this blog to be about reposting articles but
news articles, but this is the first that I have read that showed some actual stats and questioned Title Insurance. Too bad it was a nationwide article so it wasn't able to address Virginia specific matters like the required Lenders Title vs the Optional Owner's Title policy (Va specific).
First you have to have read my
Owner's Title Insurance.95% Buy It, 10% Know Why!
Then you can read Washington Post's article Title Insurance Premiums Rose With Housing Boom
Here are some highlights:
Again, this isn't a recommendation, just food for thought.
NEW: This is a website from somebody that found my blog on title insurance. He got so ticked that there wasn't proper disclosure that he made the closing company refund him some of his payment and he made a website to make people more aware. I think his facts might be off a little, (also rules change by state) but the point is to get another perspective: http://www.title-ins.com/
- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don't like looking stupid. If you like this post, sign up for new blogs daily, use the form on the right of the page.
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Keywords: Housing bubble? Arlington, Alexandria, mls, homes, Real estate, Virginia, Alexandria, 22201, 22314, Fairfax Va, DC Realty, Realtor
1/2/07
(Optional) Owner's Title Insurance: Part 2
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13 COMMENTS SO FAR. ADD YOUR COMMENTS.:
So if only 5% goes to pay claims, that either means that a) the frequency is so tiny (like catching the plague) or b) the claims are so tiny that you might be better off waiting for that 1% chance of a claim and paying the lawyers to fix it then.
$1,000 is a lot of money. If only $50 (5%) is actually used to pay the average claim, that seems like a rip off.
This is an insurance you only pay for when you purchase a home or refinance. It's not like auto insurance (or worse) home owners insurance, where you pay forever and then are penalized for using it. Add up how much you pay in your lifetime for auto, home and title insurance and THEN make a comparison. When there are claims with title insurance, there are significant...usually involving vesting issues. In Washington State, if you're using a title company's escrow division, they pay out "claims" on that as well.
Hello and thank you for your comment. I wish you had left your name so we could start a conversation.
Whether something is paid out once or annually shouldn't matter. SO if title insurance was $10,000 for a $500k house, that would be ok? The question is value.
In Virginia it runs about $1,000. However in Pennsylvania it runs $250 (correct me if I'm wrong).
As for your recommendation of adding up things like Auto etc. That is a perfect example. Over a 10 year period lets say you put in $1,000 a year or $10,000 total. The difference is that the average pay out on claims is $7,000. (based on the 70% number in the article). That sounds about right to me, I will probably get into 1 or 2 small accidents in 10 years. Probably over a 50/50 chance of that happening.
So you might only pay the $1,000 one time, but if the average payout is $50, how much real insurance are you getting?
I frequently hear the "when there are claims" excuse. I just want somebody to show HOW OFTEN. When there is terrorism in the US it is horrible, but who is buying terrorism insurance?
One agent in Georgia found that it is more likely that you will be struck by lightening then need Title Insurance for a total loss claim. So why not buy lightening prevention insurance?
People deserve to know the frequency of claims for a total loss. If there is only one per year nationwide I don't think anybody would buy it. If it was 5%, I think many would. But we don't know. Instead everyone justs get scared into it.
Also it is sold as being the "end all" policy that covers you no matter what? I wish I had the name of the lady that told me she had to sue the title company to actually pay out.
Have you seen the recent State Farm lawsuit with Katrina? Apparently people with insurance that covered wind were denied as they said the home ruined first due to rain.
Missed this thread when I posted below. Some thoughts:
1) the "missing heir" scenario in the WP article is highly unlikely; mechanics liens & unpaid taxes/assessments are not.
2) I don't know the title insurance industry sets its reserves, but I will guess tht the major portion losses paid (and consequently premiums charged) goes to fraud; i.e the closing attorney or escrow co. pres. spends the closing proceeds in Vegas instead of paying off the seller's mortgage. Or where mortgage docs or releases are forged (cases like these recently occurred in NY & CT). Just as a portion of your car insurance premium reflects overall claims, no matter how good of a driver you are, title premiums reflect the whole universe of claims.
As a side note, state govt's that regulate rates really don't save consumers money; they simply remove price competition.
Frank, I tried to return my policy. They instead refunded me $300.
Hey Frank,
Thanks for your Blog!
My curiosity got me wondering why is Title insurance so much and is this all required, what can I do here to cut costs.
Then I researched and found your site. which has a wealth of information on the blog - most of the information there is accurate or true putting figure facts aside. People guessing or having a good assumption on this.
So I wanted to make sure and confirm - mostly about the closing attorney getting a commission and then how much! BECAUSE, this is the last thing they will tell you - if they even tell you this!!
As for Massachusetts, Lenders is a required insurance and Owners is optional but as you said
1/ Most people have no idea this is optional
2/Its already included in the closing costs for you!
How convenient! A-Holes!.
What I'd like to research about this further is the difference between Basic and Premium coverage (Owners Policy). If this applies in Massachusetts and what the difference is. My assumption is a lesser commission to the Attorney for Basic.
Thanks again!
-Martin
The Washington Post article says the title insurance industry is a $17B one. What I want to know is what the yearly total payout come to. I believe the problem isn't (or shouldn't be) whether or not to get it, rather it should be whether there will be intervention (ie, Federal) to ensure there isn't consumer gouging. Insurance companies need to profit, but it shouldn't be a cash-cow. Does anyone have numbers on the yearly claims in terms of dollars?
- Tchaka Owen
http://tchakaowen.blogspot.com/
Visit http://radicaltitletalk.blogspot.com
and search for the A. M. Best report. It's all in there.
I just heard a great story from an attorney.
She had a buyer that had a problematic settlement (loan issues) and her buyer ended up just buying the home with $1.5M in CASH. Anyhow, the closing company was annoyed by all the re-paperwork.
When the closing company returned with the paperwork and heard that the buyer was refusing the optional owners title insurance, the closing company rep slammed the papers down and ran out of the room.
Somebody else had to conduct closing.
Why does this matter?
It shows you that closing company "fees" are really a LOSS leader. Their profits are in the title insurance 80% margins.
I'm not saying not to get it, I'm just saying that the person telling you to get it wants to not lose money on you.
Hi Frank
Great blog. We just closed recently in Maryland and we opted out of the owners insurance policy. We had already made the decision before we got there that we were not going to get it. btw, No where on the HUD drafts or in their letters to us did it say the owners policy was optional.
We were appalled because after we told the closing attorney that we did not want it, her whole demeanor changed. Then, our real estate agent asked her to explain the policy again and she proceeded to tell us that she does about 2,000 closings a year, and only 5 people do not get the policy. Also, she takes care of "so many claims in her office on a daily basis" Then, she proceeded said "we have to let you know this information because I don't want to get sued by you. I don't want to get a letter that you guys are suing us." At that point, the sellers looked concerned and said "this doesn't effect us, right?" She turned to them and said "No, they would sue you too. They would sue all the previous owners." The sellers looked scared and it made us feel guilty, but we stuck to the decision we made before we got there.
We felt the whole experience was unprofessional (she later made a snide comment about us too under her breathe) since we had never been to a closing before, we werent sure if it was typical. It would have been nice if she had told us it was optional, given us the pros and the cons, and not told the sellers that we would sue them. It really tainted our otherwise exciting day.
Thanks for the blog and letting me share my experience. Samantha
Hey Samantha,
How did you know it was Optional? How did you decide it wasn't needed for you?
Next time ask, "Just so I understand, you are selling this policy right? Do you a) have a fiduciary duty to do what is in my best interest? No? And do you make 80% of the policy?"
Also make sure you read part 1, there are some juicy comments there too.
Hi Frank
Our real estate agent told us it was optional. She told us so that we could do our research and make our own decision.
To me it's so strange that settlement companies DO NOT HAVE to disclose that its optional. I think that buyers should make informed decisions. If you look at our HUD, the owners policy is written in like a mandatory deduction. Kinda sneaky if you ask me.
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