Owner's Title Insurance.95% Buy It, 10% Know Why!


(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.

  1. Lender’s Title Insurance. REQUIRED
    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.

  2. Owner’s Title Insurance. OPTIONAL
    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?

  1. It is snuck into the the closing documents (HUD1) by default with NO mention of it being Optional. Sometimes the “premium” policy is put in by default. That really bugs me.
  2. It is sold as being a blanket coverage that protects you from everything and the fear of losing your house, and going bankrupt. I have yet to get any stats on how often this happens. 1 out of 100? 1 out of 10,000? Once in the USA every year? Or does the insurance cover the costs to cover the $500-$5,000 in legal fees to clear up the issue?
  3. It isn’t disclosed that the title company selling you this insurance is making a 80% commission on selling you this policy.
  4. Realtors do not get a bonus for pushing this (thank God), but if a Realtor doesn’t say “you must get it” they will be exposed to potential future liability. For example, if they sell 100 homes and they tell their client NOT to get it, and 1 has an issue, guess who they will sue? So it is easier for Realtors just to say “buy it.” It doesn’t cost them a dime. We like to say “Learn about it, and then decide.”

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:

  • Know what it is.
  • Who makes money if you buy it?
  • Are you getting the basic or premium?
  • Ask your Realtor or Title company for some statistics on how often these policies are engaged. (I’ve yet to get an answer for this one)

    Examples to ponder:

  1. The closing company pitches Owner’s insurance as a nearly 100% coverage if something goes wrong with your title. However I spoke to a woman that had to sue her title company to get them to perform on her insurance. She put it this way… “I paid $1,000 for a policy, $800 goes to the closing company as a commission, $200 goes to the policy writer. For $200, how likely are you going to be protected from a $500,000 loss?”
  2. I was once at a closing in Falls Church. The buyer was a President of the Closing company. THE PRESIDENT OF A CLOSING COMPANY DID NOT BUY TITLE INSURANCE FOR HIS HOME. Keep in mind that he would effectively get a 80% discount and he STILL didn’t find it necessary for his personal home. I asked him why he wasn’t buying it and he said “I do the title search personally and I double checked and made sure there was nothing wrong with the Title history.” Then he had the nerve to say “But you should bring your buyer clients here and make sure they do buy the Owner’s policy.” This made no sense to me. Was he not going to double check my client’s Title history as well as his own personal search?
  3. Remember that you are buying the Lender’s policy too. If something was hugely wrong with the title, wouldn’t the Lender’s policy kick in to clean things up (as in legal fees)? This part isn’t clear to me. If the house is $500k and you put down $25k 5%), are you really paying to insure against $500k, or is it more of an insurance to protect the $25k you have put down?

    On the other hand…

  1. I have spoken to a Realtor that has been in business for 20 years and she says you would be nuts to not get the policy. She has seen first hand one person that would have had major trouble if they didn’t buy the policy. Now does major trouble mean the loss of the house? All $500k or does it mean they would have had to pay $1,000 or $2,000 in legal fees. I would never pay $500 to insure against a 1 in XYZ chance of having to pay out $1,000. But I might pay $500 to cover $500,000 (if it really even covers you.)
  2. One of my favorite closing companies in Alexandria says that they use the Owner’s title insurance all the time to clear up title problems that come up. So A buyer buys a house in 2002, and buys a policy. IN 2007 they sell th house but something pops up on the title. This company says that since the seller bought the policy, they were able to close. If they hadn’t bought it… (it isn’t clear if the alternative was a) losing the home (probably not), cover legal fees to clear it up c) ability to close immediately vs delaying closing weeks or maybe months (most likely)

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:

  1. Out of your last 1,000 deals, how many times did an owner’s policy get engaged.
  2. Take the last 5, what would have happened to them if they didn’t have a policy?
  3. What actual real life “worst case” (because that is how policies are sold) examples do you have of somebody NOT having the policy and being adversely affected by this? What did they lose? $500 in legal bills or a $500k house?

Again, I’m not saying to get the Owner’s coverage or no
t. 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

  • 3
  • January
  • 2007

117 Responses to “Owner's Title Insurance.95% Buy It, 10% Know Why!”

  1. Geoff in VA says:

    So what does optional title insurance actually cover? Defaulting – or loss in value?

  2. Frank LLosa Broker says:

    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!

  3. Diane Cipa, The Closing Specialists® says:

    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. ;)

  4. Frank LLosa Broker says:

    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

  5. Diane Cipa, The Closing Specialists® says:

    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

  6. Diane Cipa, The Closing Specialists® says:

    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.

  7. FRANK LL0SA Broker says:

    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!

  8. tchaka owen says:

    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.

  9. Matt Doyle says:

    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!

  10. FRANK LL0SA Broker says:

    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

  11. Diane Cipa, The Closing Specialists® says:

    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.

  12. Anonymous says:

    great discussion. Frank, keep at ’em! very relentless, that’s what us buyers need from a realtor.

  13. Sean Purcell- Mortgages says:

    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.

  14. Tim Maitski- Realtor Atlanta says:

    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.

  15. Leigh Brown ABR CRS CLHMS ePRO Broker/Owner North Carolina says:

    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.

  16. Jennifer K. Giraldi, North Atlanta REALTOR® says:

    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.

  17. FRANK LL0SA Broker says:

    Jennifer!
    Thank you so much for your comment. I love getting actual stats. I love the lightening reference!

  18. Diane Cipa, The Closing Specialists® says:

    “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.

  19. Martin- Homebuyer says:

    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.

  20. FRANK LL0SA Broker says:

    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

  21. Martin- Homebuyer says:

    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

  22. FRANK LL0SA Broker says:

    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.

  23. FormFiller says:

    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.

  24. FRANK LL0SA Broker says:

    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

  25. Anonymous says:

    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.

  26. FRANK LL0SA Va Broker- BLOG.FranklyRealty.com says:

    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

  27. Joe says:

    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?

  28. FRANK LL0SA Va Broker- BLOG.FranklyRealty.com says:

    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

  29. Larry says:

    Great dialogue Frank, Diane, & others. For industry stats, attached is a link to a recent analysis of industry results. Among other things, actual losses in past 10 years appear to be 4.9% of premiums.
    But I'd want to read the article more closely (which I haven't) because in a legal-intensive product like title insurance– where the title insurers are continually clarifying liens, which probably has preventive benefit from good legal hygiene– the lines between "losses" & "administrative costs" may be a bit blurred.
    http://www.alta.org/industry/AMBest08.pdf

  30. Fred Kauber - Entitle Direct says:

    To followup on Joe’s question above regarding purchasing owner’s title insurance directly from a title insurance company, there is indeed a way to do so via Entitle Direct. I am the CIO of the company; we are a 30 year old title insurance company that now sells direct to consumers at a savings of 35% or more. We currently provide coverage in 28 states, with more being added on a regular basis. Please review our website at http://www.entitledirect.com to confirm that we are available in your state and to obtain a free quote. We also offer an online Control Panel feature which consumers can use to manage their entire closing process.

  31. Bonnie says:

    For what it’s worth, on the last 2 properties I purchased, I got an insurance quote outside of the settlement company we were scheduled to use and had them match the rate. I’m the type who pores over every item on the HUD-1 in advance verifying the accuracy and necessity of each line, and while I couldn’t stand dropping thousands for something I wasn’t convinced I totally needed, I was still uncomfortable foregoing it altogether without being further informed (which is why I love your blogs Frank, b/c they always cover things I’ve been wanting to know more about).

    The settlement company even suggested it. I basically said, “hey, I got a quote for thousands less, um, I think I might use theirs instead,” and they came back saying they’d match it if we stuck with theirs. All they requested was a copy of the quote. For example, on a $435K property, I got a combination lender/owner policy for $825.80 (and of that, the optional owner’s portion was only about $300). The settlement company’s policy was going to be about $2400, and yes, I compared the coverage on both and they were essentially the same.

    There have been properties I had declined buying it for in that past (my lender said it was a joke), but now I figured if I can get it for an extra $300 bucks it’s definitely worth my peace of mind. So it may not hurt to shop around and ask the closing company about it…
    (BTW, I’m in VA)

  32. Bill says:

    Great Blog!
    Bonnie I like your idea about going outside for a quote and then asking for a price match. I am in the process of purchasing and have received Is there a difference in the Title Insurance Company strength. The recent closing of LandAmerica has me wondering. I have also received the following quotes from 2 local (VA) closing agents and not really sure why there is such a difference.

    Lenders $1,176 $1,000
    Owners Standard $2,529 $1,500
    Owners Enhanced $3,075 $1,900

    Thanks!

  33. Anonymous says:

    As an attorney, albeit not a real estate attorney, I don’t understand why a purchaser ahould have to get insurance to cover possible faulty work on the part of the title attorney. I wouldn’t expect my clients to have special “attorney screw up insurance.” If I make a mistake, shouldn’t they just go after me and my malpractice insurer? Or am I misunderstanding the type of things that title insurance covers?

  34. FRANK LL0SA Va Broker- BLOG.FranklyRealty.com says:

    Anonymous, I think it covers things that were impossible to find in the first round. But I still don’t fully get it.

  35. Anonymous says:

    I used to invest in a title insurer. Their public statements are available on Edgar (this is Investors Title out of North Carolina).

    In 2008 they wrote 63 million in policies, and had reserves of 15 million (insurers create a reserve when they write a policiy to pay for expected future claims).

    So while it doesn’t tell you how many claims they expect to be made, it does tell you that they expect to pay out about 25% of premiums. The key is like all insurance, it’s over priced (very few insurance products aren’t priced with an underwriting profit) but the costs of having a claim should be weighed against your fiances (so people with bigger liquid savings should require less insurance).

  36. Anonymous says:

    Frank,

    The anonymous post on April 21, 2009 is correct (as is most of the information in this blog thread). The stats are readily available to all title agencies (they just don’t like to disclose it). And since these companies are publicly traded companies, you can also find it in their financial statements. The 2-3% claims are just minor corrections that are not complicated to correct. That’s why you may see indemnity letters at the closing table on occasion. Complicated title issues that may need some work, are closer to 0.001% claims.

    This comes from a former CRESPA certified title agent with both a background in real estate and mortgage lending. I have purchased over 12 pieces of real estate. Both homes as investments and primary residencies, as well as commercial property. And, you will be interested to know that, I have never opted to buy the owner’s title policy. And yes, I did end up having title issues on one of the properties. However, we got a couple of signatures from previous owners and the problem was fixed in a matter of days….as is usually the case.

    I wouldn’t go as far as calling title insurance a scam. Although, the sale of title insurance is illegal in the state of Iowa. However, I do believe it is one of the most profitable types of insurance policies in the whole insurance industry….along with baby life insurance (go Gerber!). At the end of the day, warranties and insurances are just a peace of mind payment that most people (at least Americans) are willing to pay.

    It would be nice for there to be more disclosure to have a better informed consumers. But their lobbying is strong…and the reality is that the title companies would not be highlighting the stats all that well anyways, if a disclosure ever came about.

  37. Paul Rummel says:

    Great blog here. I myself am opting out of an owner’s policy for a property I am purchasing. I was very surprised that my real-estate agent AND lender did not know that an owner’s policy was optional (or were simply playing ignorant). I have opted out for the last three home purchases as well with no issues. I dug a little deeper and ran across this article. You want actual payout numbers? The testimony at this link is VERY educational:
    http://www.consumerfed.org/pdfs/Title_Insurance_Testimony042606.pdf

  38. Hi Frank,
    You provide great information for buyers, sellers, AND agents. Thank you! I wanted to mention that the new HUD-1 now discloses the amount of “Agent’s portion of the total insurance premium”. When they say “Agent”, they don’t mean your real estate agent, they mean the insurance agent. For example, on a $250,000 home, the total premium (lenders, owners with enhanced) is roughly $1300, of that roughly $1100 is the INSURANCE Agent’s commission. If you want to know the commission split for the lender’s only policy, ask for a quote on just lender’s title insuracne (and the breakdown), then ask for another quote for lender’s and owner’s title insurance (and the breakdown), and finally, lender’s and Enhanced owner’s title insurance as shown on the HUD-1. You can ask for a HUD-1 well before settlement, but all the numbers will not be available. However, the title insurance numbers will be.
    Good luck with your title insurance issue, unfortunately, the new HUD-1 made it a little more clear in some respects, and a little more confusing in other ways.

  39. Lauren Garrick says:

    The comment “why would you want to gamble with the most important investment in your life?” really hit home with me. I am a first time home buyer in Mississippi, and while not in Virginia, feel like I learned a lot just by reading this. Thanks Frank!

  40. Ken says:

    Hi – I’m bought a house and did not buying owner’s title insurance. I’m wondering if I have a change in heart at some point if I can buy an owner’s title policy later on.

  41. The Accidental Alaskan says:

    What a great thread! An excellent site in general and I will be a regular viewer. I am in process of my sixth real estate purchase and finally getting around to asking about this cost. This conversation is helpful but, as all point out, it is one’s own decision.
    Ms. Cipa’s presentations were disappointingly vague, but expected. I find most office-sited folks related to closings, nice a persons as they may be, quite like foxes guarding the henhouse. Real Estate in general is based on energetically pursuing our own self interests, and nowhere is this more evident in the Aura of Mystery surrounding the Ritual of Closing.
    I have never had a disasterous closing, but the inevitable various bits and pieces of hassle have always come from closing (as vs. agents or the seller/buyer across the table).
    My gripe with issues like this: Call me old fashioned, or even a curmudgeon, but as one who puts up the money, does the design and renovation work, runs to and from the dump, store, etc, and in general breaks a sweat, I am often annoyed to see others make money off my projects with so little risk or effort on their own parts.
    Like all of us (I am an architect as well), you and your guests need to cover our legal butts for liability so we can’t come out and say “don’t buy it”, but I find this site (and in particular your own perseverance Frank) really great! Thank you for sharing all this.

  42. robert josephberg says:

    Dear Frank,
    I purchased an owners title insurance in NY (Old Republic ) on an empty lot 15 years ago . I then built a house . The builder who also sold me the property made a lot line mistake and sent me a corrected deed and filed that along with the new survey to the local town and county. . I am now on my third refinance. The original owner’s policy bought by me unfortunately has the original lot line and wrong description of the empty lot I bought before the house was built and after I purchased the empty lot. > the builder owned all of the lots > there is no dispute . How can I get my original owners policy corrected to reflect the right corrected deeded property that both the bank , lender and mortgage company , county and local authorities now have on file . Ironically , the same title insurance company (Old Republic)was also used by the lender but was originally corrected 15 years ago. In essence 15 years ago before my subsequent refinaces they owned both the lenders and owners policy with different lot line descriptions.My owners policy was purchased one year before the leneders policy was purchased since I built on an emty lot but before my builder made a mistake and had to change the lot line description >I financed my house one year later. I did not realize this mistake until recently.. Do I have to pay a full fee or a service fee to Old Republic?? How should or can I correct this. I am refinacing next week with Fidelity National as the new lenders policy.Thank you
    Robert

  43. robert josephberg says:

    Dear Frank,
    I purchased an owners title insurance in NY (Old Republic ) on an empty lot 15 years ago . I then built a house . The builder who also sold me the property made a lot line mistake and sent me a corrected deed and filed that along with the new survey to the local town and county. . I am now on my third refinance. The original owner’s policy bought by me unfortunately has the original lot line and wrong description of the empty lot I bought before the house was built and after I purchased the empty lot. > the builder owned all of the lots > there is no dispute . How can I get my original owners policy corrected to reflect the right corrected deeded property that both the bank , lender and mortgage company , county and local authorities now have on file . Ironically , the same title insurance company (Old Republic)was also used by the lender but was originally corrected 15 years ago. In essence 15 years ago before my subsequent refinaces they owned both the lenders and owners policy with different lot line descriptions.My owners policy was purchased one year before the leneders policy was purchased since I built on an emty lot but before my builder made a mistake and had to change the lot line description >I financed my house one year later. I did not realize this mistake until recently.. Do I have to pay a full fee or a service fee to Old Republic?? How should or can I correct this. I am refinacing next week with Fidelity National as the new lenders policy.Your direction would be appreciated.Thank you
    Robert

  44. FranklyRealty.com says:

    Wow. Start with calling the closing company, then the warranty company and if you get nowhere and you think it is important to do now (vs waiting until you sell) call a real estate lawyer. Sorry I can’t be of more help.

  45. Ricardo Estrada says:

    Frank, thanks a billion for your posts. I found this website by googling on Title Insurance as I did not know what was that charge all about. After I read your posting and all the comments, I exposed the idea to my agent, and I encountered a tremendous resistance from him since I decided not to take the Owner’s Title Insurance. But later on, to ease everyone’s emotions, I went ahead and follow your advice of getting re-issued from the former owner. At that time, my agent was happy to hear me say that. However, if my agent knew about this process, I questioned “Why didn’t he present me with the different options, rather than just say that I must take the insurance from the Title Company?” . . . It might be laziness or ignorance . . . two attributes that makes me wondered how someone could be successful in their endeavors. Anyhow, I decided to donate 10% ($30.00) from my savings vice $10.00 to your charity, http://www.stbernardproject.org/ I like to see my money going into a good cause rather than pocketing in someone else’s wallet. By the way, I am from Miami, but living in Virginia now

  46. Nikki Smith says:

    Hi Frank,

    I’m the marketing director for Federal Title, an independent title company that serves DC, Maryland and Virginia. I could not agree with you more about how irritating it is that many title companies fail to disclose all the facts to their clients leading up to settlement. We have heard stories on our end, too, of companies that “sneak” the enhanced policy into the deal or lead their clients to believe the owner’s policy is mandatory. By the way, have you seen the Quick Quote closing costs calculator? May be a handy tool for your and your homebuyers: http://www.federaltitle.com/quote

    Our company prides itself on being completely transparent. We have a pretty active blog, too, where we right on this very topic with some frequency. I would love to chat more with you about title insurance and how your homebuyers can get the best price on closing costs. I might even be able to get you some numbers on title insurance claims in our area.

    Your blog is great. I referenced it many times when I was doing my own home search a couple years ago (For what it’s worth: I work in the industry and after talking to our attorneys, I chose to buy a title insurance policy. They all have policies, too.)

    Have a great week! Hope to hear from you!

  47. FranklyRealty.com says:

    Thanks for your comments Nikki!

  48. Bill says:

    Looking at title insurance should be like looking at any other investment (yes, any type of insurance is an investment; in this case you are investing to cover future uncertainty, kinda like a covered options bet in the stock market), you should try to arrive at an expected value of the investment. Using the numbers presented in this discussion and in some easily found actuarial publications on the industry let me provide a quick example. I recently read a white paper saying that insurers payout about 5% of their revenues to claims (this is not a probability of a claim for all the math nerds out there, it is a payout in dollars, which is what we are interested in). Let’s say the policy costs $600 as set forth in an earlier discussion. Let’s then take an extreme value, say $10,000 in legal fees that may be incurred in the future due to a claim. Here is how that breaks down —

    .95(-600)+.05(10,000) = -570+500 =-$70 so the expected value of this policy is to lose $70. Substitute a more reasonable potential loss in fees of the $100 or so suggested earlier in the discussion and you get an expected value of -$520.

    As stated before you have to be comfortable with the risk and have the means to cover fees in the future if things pop up but I don’t like to bet on the long shot.

    The other issue worth brushing on is the perceived underhandedness of the policy. I agree that if you stripped the commission out (at one time this was about 60% of the companies expenses – and most of it goes to people who have a captive audience as a consumer who basically just put it on the HUD (and it shows up as such a small fee when you are spending 500-1mil on real-estate (at least here in the DC area this is pretty normal) and hope the buyer just moves past it as a normal fee.

    I agree that if offered it at a more *reasonable* price it may be worth it however due to the backwards set up and the very low competition that is not likely to happen.

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