I am still not even sure if owner’s insurance is a good deal, and I am considering taking a day off work to do my own title search at the courthouse like the buyer you blogged about, even though I have no experience, it doesn’t seem like it could be that hard.

Worst case scenario for the owner though, as explained by my agent, is you lose your equity in the house, because the lender is covered on the lender’s policy, you can’t be out the entire value of the house like you wondered about. So since I am putting the FHA 3.5% on a 200k house, my maximum exposure is 7k, plus the frustration and time of having to search for a different house. It hardly seems worth the risk. Plus, you have another thing on your side, when the title company or insurer does the title search for lender’s policy, they essentially make sure everything is in order so they won’t have to pay out a claim, so that process essentially eliminates most of the risk. It is like they are issuing flood insurance in the Sahara at that point (after a prudent title examination), so why buy insurance against the possibility they screwed up if all the incentives are in line for them not to?

Did you ever receive the stats that you requested? I wish I had seen Mr. Flanders post earlier, I would have used his settlement company.

That is the best response. Finally somebody from a title company had the balls to say what I thought was true all along.

I hope I didn’t imply that settlement companies aren’t worth the total money that they are paid. I recognize the details involved and I fight tooth and nail when a seller tries to enforce their K-mart closing company on us (the # of errors is amazing).

I also acknowledge that the $200 is a token fee, and the real money is in the title insurance.

I have no problem with the total fee, I just hated how it was broken up, and nobody would fess up
for what things really are.

Now the follow up question is, can you guys say “we only take deals that will buy title insurance?” True title insurance is supposed to be optional, but can that option be made up front, and if the buyer doesn’t want it, then the closing company can decide early on to not take the deal? (otherwise they lose money, and nobody should be forced to lose money).

Thanks for being candid. Your reply might be grounds for an entire stand alone post.

Frank
Broker FranklyRealty.com

(ps. I would love to get some stats that I requested in part 1 and part 2 on how frequently these policies are engaged)

I am new to your sites but have spent several hours reading through many of your posts of the course of the last couple of days. I was directed to your sites by one of your new agents (Jeff Royce).

As the owner of a Northern Virginia title company, your post regarding title insurance of course immediately drew my attention. I won't really address the value of title insurance. Others have already said what I might have on that score. I am going to approach the issue from another direction.

Believe it not, I, and many other attorney title company owners like me can't stand the fact that we are forced to make our livings basically selling title insurance. What we actually provide are settlement services. You know, that thing that we can't charge more than $200 for. Just to make a living, not a killing, but just a living, that charge would really need to be about $1000 to each party in a settlement transaction, keeping in mind that every one of these transactions spends about a month in our office being worked and reworked by pre-processors, processors, office managers, attorneys, post-closers etc. These are not simple, cookie-cutter transactions. Each one has about a 1000 details that must be right. Get only 999 details right and my company is on the hook for hundreds of thousands of dollars.

Not too long ago (as recently as the early 90's here in Virginia) all settlements were handled by attorneys and were billed just like any other type of legal representation. Unfortunately, since that time, several things have happened that have turned us into title insurance salesmen/women. Legislation made it possible for non-attorneys to do just about the entire transaction. Large settlement mills which are fed their business from large Real Estate companies (because of the title insurance kickback, of course) sprang up to chew up much of the market share and here we are, the purveyors of title insurance. By the way, the RESPA loophole they use to allow them to share a portion of the title premium with the Real Estate company doesn't allow them to share fees for settlement services (so which do you think is now the most important and highest fee in the transaction?)

Believe me, I would much rather have a system in place that paid me based on the services provided rather than a percentage of an insurance premium which is based on the value of the house. I can assure you that the work that goes into settling a $100k dollar condo is at least (and usually more) time consuming than that necessary to close on a $5 million dollar mansion.

Finally, imagine a system where, as a Realtor, you worked with a client for months, showed him or her dozens of houses, spent countless hours before and after they found their dream house doing all the things you are supposed to be doing. Then, the day of settlement, they were told that 90% of what you are making on the transaction is "optional." They then look to you for your opinion. You get my point. Not a good position to be in.

One more thought to wrap up. If title insurance went away tomorrow, the cost of settlement services would increase by an amount just about equal to the average premium. So, any perceived savings on the title insurance would certainly be eaten up elsewhere without any addition value for the buyer.

Just thought I could add another perspective.

Scott Flanders
NVT&E – Vienna, VA
[email editted out by Frank, so he wouldn't get spam]

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.

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.

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

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.

and search for the A. M. Best report. It’s all in there.

- Tchaka Owen
http://tchakaowen.blogspot.com/