(This is a Virginia specific posting, disregard for other states)
Update: An Atlanta Realtor did research and found that the number of cases of Total Loss in Georgia was less likely than getting struck by lightening! I'm looking into Virginia's frequency of Title Insurance claims. You can't comfortably buy something if you don't know the statistics behind it, but you also can't opt out, so what do you do?
Owner's Title Insurance is OPTIONAL! That doesn't mean "don't get it", it means, "know what you are buying before/if you buy it."
There are two types of Title Insurance when buying a house in Virginia.
This is a fixed price by the state and is required by your lender, so stop thinking about it. It is paid once at closing, it is NOT monthly.
For a $400k loan, this comes to about $1,000.
This is to protect the bank's investments (loan to you) from a problem with the title.
This covers what the Lender's policy does not cover. Also a one time payment.
You have 3 options:
a) No coverage (rarely do people know this is an option!!)
b) "Standard" policy. $700 (reissue rates are less, more below about that)
c) "Premium" or "Alta" Policy. $1,000 ($500k house, $400k loan)
The OWNER'S TITLE policy will be the focus of this blog. This policy is 100% OPTIONAL.
90% to 95% of buyers buy the Owner's policy. I have no problem with this, however I would guess that 80% of people buying this have no idea what it is or that they even have an option. That I have a problem with.Why do people buy Owner's coverage?
I don't mind Title companies making money. What I don't like is the lack of disclosure. It is not clear to the buyer that this is optional and that most of the profits of the closing come from this. Not the token $200 "fee" they charge. They make their money from Title insurance.
Again, I am not saying NOT to buy Owner's Title Insurance. I'm just saying:
Examples to ponder:On the other hand...
Basic vs Premium
The Premium main feature is that it is supposed to protect you beyond your purchase price. So if your $500k house appreciates to $600k, the basic policy will protect your $500k while the premium protects $600k.
My wish list:
1) That Owner's Title Insurance would be renamed to "Owner's Title Insurance (Optional)", so that consumers would know they have a choice.
2) That I could find actual data on how often these policies are engaged. Are we talking 10% of the time? Once in 100,000? And of those what did it actually protect against. Consumers deserve to have this data.
Dear Closing Companies, can somebody post a comment answering these few questions:
Again, I'm not saying to get the Owner's coverage or not. I don't care if you do. If it makes you sleep better at night, great, I won't be disappointed. I will be disappointed if you buy it blindly without understanding it.
Other little known tips:
1) Try and get a Reissue rate. If the former owner bought the property within the last 10 years, they probably have a policy. Track that down and save 20-30% on the Owner's portion of the Title insurance. If lost, the former closing company can send a fax for $25 to prove the insurance was purchased. Take that $300 in savings and use $10 and donate it to StBernardProject.org.
Conclusion
I am in NO WAY saying not to buy Owner's Title Insurance. I am not even implying it. I am just saying to make sure you know what you are getting. I prefer to give information instead of giving recommendations, but I can say that if you are at all uncomfortable waiving Owner's Title insurance, then you SHOULD get it so you can sleep well at night. This is not one of those, "when in doubt, don't get it" issues.
Here is a link comparing the standard policy versus the premium policy. I still don't think this is enough information to make an informed decision. Click for link to Owner's Title Policy Comparison chart. This sales sheet is obviously designed to make the premium policy look like it covers 5 times that of a standard policy.
75% of my clients end up getting the standard. Maybe a couple have bought the premium. I don't personally buy any Owner's title insurance, but that is just me, and NOT a recommendation.
Comments? Anybody use one of these policies?
- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4006
Videos at YouTube.FranklyRealty.com
Housing bubble? Arlington, Alexandria, mls, homes, Real 22201, 22314, Fairfax Va, DC Realty, Realtor
1/3/07
Owner's Title Insurance.95% Buy It, 10% Know Why!
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29 COMMENTS SO FAR. ADD YOUR COMMENTS.:
So what does optional title insurance actually cover? Defaulting - or loss in value?
I'd love to tell you, but you will have to ask the Title company for a brochure telling you what is covered with their basic and premium services. If I were to list services and make one mistake, I could become liable.
I do remember actually reading the examples of what the premium service covered and it included an example of somebody walking across your lawn everyday for 20 years and due to some squatting law (or something) getting ownership of that walkway land. When they like to say "it protects you from everything", it might make you feel good, but do you really need to pay for something like protecting a walkway? Especially if you have a 5th floor condo? Just make sure you know what it covers. If you are still uncertain and think that you might have sleepless nights if you don't get it, by all means... get it!
As for house values. No, this won't protect you from a downturn in the market. But those products are coming soon!
I could write a book here but instead, let me invite you to peruse http://titleinsurancetalk.blogspot.com/ for lots of info.
In Pennsylvania, thank heavens, owner policies are mandatory issuance for purchase transactions. If a homebuyer wants to opt out of owner coverage, they have to sign a strongly worded waiver. The waiver makes it absolutely clear that their $500,000 investment is entirely unprotected without the policy.
I solve title problems every day for owners - some small, some large. The catastrophic title claim is of course total loss due to fraud.
If you read no other section of the blog, please at least read the post comparing title searches, title opinions and title insurance.
I fully appreciate the lack of understanding in the real estate community as the title industry has done such a poor job of explaining its product.
That's the reason I am blogging. Hoping to help.
Thanks for raising the issue and let's hope for a good spring market. ;)
Thank you so much for your reply. I have sent you a long email on the side. I really would love to get SOME sort of numbers as to how often policy issues arise and what would have occurred if they didn't have the insurance.
Can you take a stab at my "wish list?
Frank
Hi, Frank:
You have raised several really good points that I’d like to address. If I’m not answering your concerns sufficiently, please let me know.
Loan Policy: The loan policy insures that the mortgage lender has first lien position. In the event the lender takes title through foreclosure, it converts to an owner policy. The loan policy gives ZERO protection to the homeowner. The loan policy expires with the satisfaction of the underlying mortgage. Let me give you two real life examples of claims under a loan policy:
1. Lender attempts to foreclose but finds that the description of the land in the mortgage and the description of the land in the deed do not match. No one noticed prior to closing that the attorney for the seller had inserted the wrong lot numbers into the deed. These folks didn’t own the property they bargained for and the mortgage lender couldn’t move forward to foreclose. The title insurance company obtained a corrective deed from the seller through their attorney, recorded it, then the mortgage lender foreclosed. The solution was to provide the necessary legal work for correction. If they had been unable to make a correction, they would have had to pay the mortgage lender full damages up to the amount of the loan policy. That would have been a total failure of title from the mortgage lender’s perspective. [Interestingly, this example also shows the total failure of title for the buyers who actually didn’t know they did not have title to the correct property. If the problem had not been discovered at the time of foreclosure but rather at the time of sale, the homeowners would not have had any recourse to the title company unless they had an owner policy.]
2. Lender forecloses, takes title, and then resells the property. The title search for the new buyer finds an unsatisfied lien that predates the foreclosed mortgage. The lien holder had not been given good notice in the foreclosure action and thus still has, is not divested and actually has first position. The loan policy, now converted to an owner policy, protects the mortgage lender and takes whatever action is necessary to satisfy the prior lien.
Owner Policy: The owner policy insures good and marketable title as long as the insured homeowner has an interest to defend. This means it survives a sale; meaning legal action moving back through the chain of title for resolution can be defended by title insurance. Let’s say Mr. Smith buys a property and gets an owner policy. Undiscovered at the time is a defect in a prior transfer, perhaps a fraudulent signature or overlooked heir. Mr. Smith then sells to Ms. Jones who paid cash and decided she didn’t need title insurance. The harmed party, the rightful owner of the property who cites the defective transfer, sues Ms. Jones. Ms. Jones doesn’t have title insurance. Her only hope is to hire an attorney to defend her title. The attorney may or may not be successful in the defense. If she loses, she loses her entire investment in the real estate or whatever settlement the harmed party is willing to accept. Her attorney advises her to go after Mr. Smith for damages. Depending on the type of warranty in the deed from Smith to Jones, she may have a case. Mr. Smith was smart. He bought an owner policy. He simply turns the case over to his title insurance company who defends the title. If Ms. Jones is successful in her suit against Mr. Smith, the title insurance company will pay the damages. If Ms. Jones is not successful, the title insurance company still had to absorb the cost of legal defense. In either case, Mr. Smith was well served by his decision to purchase title insurance.
When you ask what are the odds of having a catastrophic title insurance claim, you need to think of it like fire insurance. What are the odds of losing your house to a fire? They are pretty low, but most people will still buy fire insurance, right? We don’t see title insurance claims on the news so it’s hard to believe they exist. Catastrophic claims are rare but real. Google mortgage fraud and property flips and identity theft and you’ll find lots of real life real estate disasters. When I started Blogging and poking around with Google, even I was surprised.
Most title insurance claims are small, often just corrective legal work, but even small claims usually recoup much if not all the owner policy premium, so it really is a wise purchase. I hope you never have a title problem but if you do, you’ll wish you had an owner policy.
Well, Frank, at this point I feel like I’m writing a novel. If you’d like me to keep going, I will. LOL
P. S. The title company officer who did not buy an owner policy is an idiot. No wonder people have a hard time understanding our product. Most title insurance claims cover losses that could not have been found in a reasonable title search.
Thank you Diane! Especially for your time.
Two follow up comments...
First you wrote:
When you ask what are the odds of having a catastrophic title insurance claim, you need to think of it like fire insurance. What are the odds of losing your house to a fire?
They are pretty low, but most people will still buy fire insurance, right?
Perhaps, but at least there are actual statistics on frequency of total claims and total loss due to fires. So why stop at Fire? Why not buy Terrorism Insurance (this DOES exist), you live in Pennsylvania, but we live near the nation's capital. Chances are "low", but one needs to know HOW low. If (a big if) all of Northern Virginia had ONE total loss last year, I don't think one person would buy it. Numbers have to exist somewhere!
Sorry, I still want numbers. Something.
Out of your last 2,000 closings have you had one TOTAL LOSS where only having the Owner's Policy saved them? (ie suing somebody wouldn't re-coop anything)
Secondly you wrote:
Most title insurance claims are small, often just corrective legal work, but even small claims usually recoup much if not all the owner policy premium.
Sorry, a comment like this might sell somebody NOT get it!
I think Optional Owner's Title Insurance is sold on the Total Loss fear. Where it is more commonly legal fee insurance. It should be called Optional Owner's Title and Legal Fees Insurance
Why pay $1,000 to insure legal fees that usually run about $1,000? (obviously there are exceptions, but how frequently?)
Why not "risk it" and in that 1 in 100 case (note that numbers aren't given, so I'm guessing), THEN pay the $1,000?
And back to my initial posting. I spoke to one lady that had to sue the title company to have them pay!
I don't want to be inappropriate (too late?), but for the sake of full disclosure, can you say what % you get from this $1,000 policy? While you might work hard for it, great, but if you are making $800 of that $1,000, shouldn't the readers think twice about listening to somebody that profits from their advice? (just like I say not to listen to Realtors that SELL you on buying)
Regardless, I do truly appreciate your stepping up. I bet it probably IS a good thing to get, but the information is insufficient to make it a "no-brainer."
No-Brainer us Diane!
Good post, Frank. I read an article over a year ago that put the figure around 2-3% (if I recall correctly). I do agree with the notion of full disclosure because it's the right thing to do. Not only that, I believe most people will still buy it. I'll give you two examples of my personal experience:
1) In March 2005 I purchased a condo in Reston that I chose to flip (I'd moved out of the area) and I didn't buy Owners coverage, thus saving about $800. The place was flipped 2 months later and all's fine.
2) In July 2005 I purchased an investment property in Atlanta that I knew I'd have for more than just a few months. A year later I received a notice from Fulton County for an unpaid lien for $1100 that I knew nothing of which occured before I purchased. I called the settlement company, they acknowledged the error and took care of it. Whether that's due to my Owners policy or their Errors & Ommissions policy, I do not know. What I do know is that I slept well that night.
Personally, I believe Owners is a good purchase when not doing a quick flip. But buyers should educated on what they're buying.
Good conversation guys....I think the % of claims may be closer to 5% by what most stuff I have read. But I will have to research to get some actual figures. I am not an attorney and I know we constantly go back to legal fees costs but to take care of even the most minor claim it could take many hours of attorney time (which you are billed by hour). I know just to do a deed some attorneys could charge anywhere from $500 to $1000 depending on the situation. I have always made it a policy to fully explain how title insurance works, what it covers and give the customer something from my underwriter so that the customer is fully disclosed. I hate for that discussion to happen at the settlement table so I usually try and send out a letter or give them info ahead of time to the client so I can answer any of their questions ahead of time. If you have a title company or attorney that you deal with on a normal basis...ask them for these consumer handouts from their underwriter and make it a part of what you do in preparing you client for settlement. I currently prepare folders for all of my regular clients that includes this info as well as info on who they will be dealing with (credentials etc.), directions, fees, etc. Then if they have questions they can contact us. Makes settlement proceedings much smoother.
As far as you total loss figures who knows where to find those but I can try and find something from my underwriter. I know that in the past 2 years I have delt with a handfull of claims. The client has piece of mind that someone is there working for them, and also that no money is coming out of their pocket. Real estate is probably one of the most stressful things to buy and to have "issues" with. Isn't piece of mind worth something?
Like the previous commenters I could write a book of war stories about title insurance claims but the fact of the matter is why would you want to gamble with the most important investment in your life
I have just purchased a new home and belive me I purchased title insurance! I don't want to be a statisic or horror story!
Thanks for the response!
And thank you for the 5% number. If you have a link to an article or the reference, that would be much appreciated!
Would love to get stats on the total loss. And if possible make it clear that if they did not buy title insurance, they would have lost their house, vs if they didn't buy title insurance, they would have had to sue somebody to not lose their house. There is a big difference.
Also I wish it was more clear about the Lender's title insurance and what % of the time that will cover the fees to clean up a mess.
Thanks!
Frank
Hi, Frank: Sorry - just getting back to the conversation. I don't have figures and that's a shame. ALTA should provide them and maybe they do but I haven't seen any.
I guess it IS a no brainer in Pennsylvania because we have simultaneous issuance. If you buy a $300k house and mortgage $250k, the premium for just a loan policy is $1608. If you purchase owner coverage at the same time the total premium is only raised to $1858. So for the additional $250 you get coverage for as long as you have an interest to protect.
If I ran into any great statistics, I'll be sure to send them your way.
http://titleinsurancetalk.blogspot.com/2006/10/title-search-vs-attorney-title-opinion.html
This post may also help.
great discussion. Frank, keep at 'em! very relentless, that's what us buyers need from a realtor.
Lot of great questions and issues Frank. I especially like the reaction of the president of the closing company not buying owner's insurance because he double checked... but your clients should still buy it. Kind of reminds me of the great and powerful Oz telling us to "pay no attention to the man behind the curtain".
The real issue here seems to be one that is debated quite a bit on this site: full disclosure. There is so much money floating around that it often overpowers the fiduciary responsibility we are charged with when it comes to any aspect of a real estate transaction. The clients are looking at each of us for expertise, direction and support on something they might do 2-3 times in their entire lives. This is should be seen as a tremendous obligation rather than an easy opportunity to make more money.
Very well written post. Thanks.
Frank, I too would like to know more about title insurance. I'd love to be able to find ways to shop and save money on it. I personally wouldn't buy a home without it but I hate not having an option to choose what company I buy it from. In Georgia it's up to the closing attorney to decide. Of course, they are probably going to go with the company that gives them the largest commission.
In my experience, the closing attorneys here in NC are selecting title insurance based on the best negotiated rates they can get. Not necessarily on the commission they may or may not make. Seeing as most people only do a very few real estate transactions in their lives, I agree that better disclosure would be good to explain this. Hoping someone out there has some stats to share with all of us! One of the things we ask sellers to provide is their title insurance policy, to save the buyer some money on title insurance since they can tack on to the existing policy. Every little bit helps.
I never purchase owners title insurance and never recommend it to my clients who are doing 100% financing. The premium is almost 90% profit for the closing attorney and Ins Company.
Last year I checked to see how many cases in GA were filed in relation to homes sold and I was astonished. The stats were similar to getting hit by lightning. This is a secret the attorneys do not want you to know. Now if you pay cash for the home or have a significant or put a significant amount down, I would buy it.
Jennifer!
Thank you so much for your comment. I love getting actual stats. I love the lightening reference!
"I personally wouldn't buy a home without it but I hate not having an option to choose what company I buy it from. In Georgia it's up to the closing attorney to decide." Tim and all - You should know that RESPA gives the lender the right to select the title insurance company in a covered mortgage transaction. Otherwise, it's the consumer's decision. They can and should shop.
Thanks for your blog!
I just purchased a home and I am going to call my attorney and see if I can still cancel this title insurance. It is $955 and a lot of the information about the property and the previous owner are public information and I cannot see any reason as to why I need this insurance. It’s a hefty bill.
-Martin in Massachusetts.
Hey Martin,
Slow down!
Make sure you are fully comfortable before taking such a huge step. There is much more to the process then what is available in the public records. In part the insurance is to protect you against that information being wrong.
But you are on the right track in that you are going to ask your attorney for more details.
How did you find this blog?
Frank
I found you site by googling: “attorneys get commission on title insurance at closing” to see if this was true and found your blog.
I am from Massachusetts.
I am researching afterwards to find out more about this – I knew going in it was optional but my attorney seemed to eager to have me get it. So I was wondering if he got something out of it too… after researching everything about the previous owner and the building itself (public information) I cannot find anything wrong with the title or any leans against the property which is what this insurance is for from my understanding so I am going to try and cancel it if its not to late.
Thanks
-Martin
Martin,
I agree. I wish it was fully disclosed that those that are selling you the product are making a commission off of you.
Just like it is shady for an agent to get a cruise ship trip on the side from the seller (this is allowed and does not need to be disclosed), I think Title companies should disclose better.
Don't get me wrong. I am NOT SAYING that title companies are not worth what they do. They are. They work their tail off and a crappy company WILL make more mistakes (so don't go cheap!). But rather then charging an unrealistic $200 for closing (nobody could profit on that), I would rather that they charge $800 or $1,000 and drop the title insurance to their cost of about $200 (from $1k). THEN and only THEN can you be sure to trust their opinion.
Some other matters to consider:
1. owner's title insurance also covers (a) mechanics' liens, and (b)in some cases unpaid taxes or assessments.
These claims are far more common than the the "total loss" scenario arising from some comeplete failure of title.
2. Many states regulate title insurance rates, rendering price shopping impossible by either a borrower or an attorney.
3. I hope Ms. Cipa does not take this a criticism or her otherwise execllent posts, but in all cases I am aware of the statement "You should know that RESPA gives the lender the right to select the title insurance company in a covered mortgage transaction. " is incorrect and in fact would be illegal. As long as the title insurer meets the necessary standards, lenders cannot steer you to a particular company.
Nice blog, BTW.
Thanks for your post.
Make sure to read my updated Part 2 blog on this subject. It links to a Washington Post article on Title Insurance claims.
Frank
The Atlanta agent who recommends against title insurnace .... be careful, there is a fine line between giving real estate advice and unauthorized practice of law.
And if there were a claim, and your client did not have an Owner's policy, it would be more than just property/money down the drain. Your cleints signed a note, and promissed to pay the bank regardless of title issues. Assuming the stopped paying the mortgage b/c of the title default.... The lender would foreclose and their credit scores would be demolished. Probably have to declare bankruptcy as well. They would never be able to get a loan for the rest of their lives.
And rest assured, b/c you advised them NOT to purchase it, you would be #1 on their list of people to sue.
Not smart, in my opinion.
DISCLAIMER: I AM NOT GIVING YOU ADVICE, I AM JUST GIVING YOU EXAMPLES OF WHAT I SAW.
A quick update.
I had a closing the other day. I was the listing agent.
The buyer was an attorney. When he saw the Owner's Title insurance on his HUD1, he said something to the effect "This is crap, get that off of there" and proceeded to lecture everyone about how it was a scam and the biggest hoax around.
I sat quietly and didn't say anything. The closing attorney also did not debate him.
Frank
One big question I have:
If the closing agent gets 80% commission on the owner's title insurance, is there a way to buy the owner's title insurance directly from the insurance company, thus avoiding the overcharge?
Hey Joe! Don't think I didn't look into a new cottage industry of bring your own Title Insurance. ... Yeah, not possible.
But get thought.
Frank
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