The Scam Known as Title Insurance

“Ever feel like you’ve been cheated?” singer Johnny Rotten famously asked at the end of the Sex Pistols tour of America.

I sure did when I refinanced my home last year and I had to fork out $625 to Chicago Title for title insurance.

Title insurance for a refinanced home loan? This makes no sense.

I paid title insurance to ensure there were no issues when I first bought my home in 2002, so why was I paying for it again?

The answer is simple: Title insurance is a swindle. A scam. A shakedown, a hustle.

When Title Companies Compete, You Lose

Title insurance is less than 1 percent of the price of the home, so we tend to overlook it.

In economics, this is “inelastic” demand, meaning it is not sensitive to price.

Title insurers can virtually charge whatever they wants — even, as in my case, for doing nothing at all.

The result is an industry devoid of competition.

A 2005 report to California Insurance Commissioner John Garamendi found that competition for title insurance and escrow services in California “does not exist.”

A total of four companies control virtually the entire market for title insurance. Chicago Title is owned by Fidelity National Financial Inc., which is the nation’s biggest title company with more than 45 percent of the market.

In California — the big money maker for the industry — title insurance is marked by “reverse competition.” The title insurers don’t compete for business from homebuyers like me, the ones who actually  pay for the service. Instead they pay illegal rebates and kickbacks to a real estate agent, a lender or homebuilder in exchange for business referrals.

The California Land Title Assocation’s Title Wizard service lets you compare prices for title insurers. Here is what the big four would have charged for my home refinance:

Chicago Title $625
Old Republic $645
Stewart Title $625
First American $605

This is a pretty clear cut picture of what collusion looks like.

A toll on the road to home ownership

Title insurers would do quite well in Afghanistan and Iraq or any place where nothing gets done unless certain people are paid.

You don’t get a mortgage without title insurance. It’s that simple. My title insurance “expired” when my first mortgage was paid off. If I wanted to refinance, I had to have title insurance.

Title insurers have managed to set up a toll booth at the entrance to the U.S. housing market, which at its peak was worth more than $20 trillion.

All those tolls add up: During the housing bubble, operating income for title insurers grew 270 percent, soaring $4.8 billion in 1995 to $17.8 billion in 2005.

The money pours in, but it doesn’t come back out. Do you know anyone who actually filed a title insurance claim?

Chicago Title paid out a meager 5 percent on nearly $4 billion worth of title premiums, according to the company’s SEC filing.

In the insurance world, this percentage is known as the “loss ratio.” The loss ratio for title insurance is among the very lowest in the insurance industry. Auto and home insurers pay 80 percent of premiums.

What is Chicago Title doing with my money? The biggest expense on Chicago Title’s 2009 income statement isn’t personnel costs. It’s the whopping $1.9 billion in commissions paid to agents who drum up business.

What you can do.

Title insurance is not required by law in California. However, it’s standard operating procedures as most lenders won’t fund a mortgage without it. But you can shop around.

One alternative is Entitle Direct, which sells title insurance direct to the consumer. Entitle Direct doesn’t pay agents so it is able to charge a third less than most of the big title firms.

I could have saved $268 if I had gone with Entitle Direct. If you don’t feel that it’s worth the trouble, well, I guess then Johnny Rotten had it right.

28 comments

  1. MIchael Gish

    I was in the title insurance business for 31 years before I was hit by the industry downsizing. I have seen numerous articles like this over that time and seldom has the author done his or her homework in an attempt to really understand title insurance. This article is no exception. I have no reason to defend an industry that terminated my position after 31 years but I am tired of people ranting about something they do not truly understand.

    Unlike auto or homeowner’s insurance, title insurance is incredibly labor intensive (even with the progress of technology). Whether the 5% loss figure is accurate or not, the writer makes it sound like the other 95% if pure profit. The truth is that after making payroll, paying medical benefits, renting office space, paying for supplies, paying government insurance requirements, and reserving money for future losses (which the company can’t touch for several years), the majority of title companies would be pleased with an 11% PRE-TAX profit (though most companies don’t reach that goal). In fact, it would be interesting to see how many title companies have closed their doors since 2008 or even what percentage of companies have made any money at all in that period of time. I think you would be suprised.

    All of us would like to save money these days, but using the media to complain about something one does not even understand is a bit irresponsible in my humble opinion.

    Like

    • jennyct

      When one is refinancing, a lot of the situations the new homeowners can run into (ie liens for different owner) are non-existent. There should be a steep discount for refinances, especially within a short time frame.

      Like

      • DKR982002

        In Texas, there is a discount for refinancing within 7 years. However, that does not mean the title insurer does not do the full research required, for a portion of the full premium amount. Very often there are issues that appear on a title commitment the homeowner knows nothing about. Maybe there was a judgment filed and attached to the property against someone with a similar name as the homeowner. This is just one example of something that may appear.

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    • Michael

      But you’re not adding anything to the discussion, Michael Gish. If you were in the insurance business for as long as you say you would know that title insurance is the most profitable portion of the insurance industry — far, far more so than property casualty, life, health. The loss provision is currently less than 4%, which means gross profit for these companies is 96%. Most banks ADD the services of an attorney to do a title search to the title insurance. For example, Michael, I’ll bet you didn’t know that in 2008 there were just 4 companies writing 92% of the title insurance in the US, so there is virtually no competition and they can and do “collude” to set rates much higher than is necessary. Perhaps, Michael, you would like to understand more about this type of insurance yourself. You can start here:

      http://www.naic.org/documents/topics_title_insurance_brief.pdf

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      • DKR982002

        In Texas, title insurance rates are set by the department of insurance. Every 2 years, the department of insurance holds hearings to adjust title insurance rates. The department of insurance audits approximately 95% of the title companies each year. Title insurance companies’ margins in Texas generally range from 5-10%. The national underwriters may be getting rich, but I can assure you the hardworking title professionals that abstract, examine, and close real estate transactions are not.

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    • Jeremy Bolesky

      I guess all of the overhead is why Fidelity National Title Insurance is so broke? Every insurance business has the overhead you mention. Labor intensive? HA! The majority of that labor is finding ways to wiggle out of claims and hide the fact that title insurance covers so much less than consumers reasonably assume.

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  2. Jeremy Yohe

    Whether it’s for a refinance or purchase transaction, title insurance has protected the American dream of homeownership for more than a century by providing behind-the-scenes work that strives to eliminate claims and assures homeowners that their investment in a property is protected.

    Title insurers are not allowed to “charge whatever they want.” How title insurance rates are set varies from state to state, but in most states, rates are set by a regulator. By statute in most states, the rate cannot be excessive and must allow a return commensurate with the work of local title agents to underwrite and the risk of insuring the title. Also, consumers have always received discounts where they have obtained a prior policy of title insurance. Lenders require homeowners obtain a new lender’s title insurance policy on a refinance transaction to protect the lender from any liens against the property that may have occurred between the time the previous policy was issued and the time of the refinance. Basically, a homeowner is getting a new loan and a lender will want to make sure it is protected. Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, you might have incurred a mechanics lien from a contractor who claims he/she has not been paid. Or you might have a judgment placed on your house due to unpaid taxes, homeowner dues, or child support for instance. The lender needs reassurance that the title to the property they are financing is clear. A homeowner’s title insurance protects the owner for as long as they or their heirs on the property. And only need to be paid for once.

    The local and often independently owned title insurance agents retain a premium split that covers the cost of title examination, title plant maintenance and other expenses provided by local employees and contributes to the local economies in every county of the United States. These types of cost are not incurred with other insurance products.

    Unlike insurance agents that sell other forms of insurance, title insurance agents spend the majority of their time and resources preventing claims and protecting homeowners’ property rights. The majority of the one-time title insurance premium covers the cost to discover, identify and repair events that occurred in the past. Before a policy is issued, a title agent examines the history of a property contained in public records, where they find issues in one out of every three title searches. In order to make sure a homeowner has clear rights to a property, the title agent will scrutinize prior deeds or mortgages, divorce decrees, court judgments, delinquent taxes and child and spousal support payments, vesting, covenants, conditions and restrictions, general encumbrances, and utility or other kinds easements.

    Because of these preventive measures, title insurers pay out significantly less in claims and is fundamentally different from all other forms of insurance, which charge yearly premiums to provide insurance protection for future events. Besides minimizing the possibility that title hazards will threaten ownership or use of property, the concentration on risk elimination greatly reduces the number of claims to be defended against or satisfied by the insurer. The curative work performed by title agents also minimizes the fear, disruption and distress that title claims have on homeowners.
    When shopping for title insurance, consumers should compare all of the associated costs. Some rates may or may not include other services provided by the title company such as conducting the closing, preparing and notarizing documents, adding endorsements to the policy which may be required (usually by the lender or buyer), and other services. When comparing one rate to another, be sure to get detailed information on what is included in that rate, so you are comparing equally.

    Consumers do have a choice in selecting the provider of their title insurance related services. They can either select their own title insurance company, or choose to designate a third party, such as a real estate agent, to make a recommendation. The American Land Title Association is working to help educate consumers about title insurance so that they can better understand their choices and make informed decisions. ALTA urges homebuyers, regulators and legislators to check out its consumer website, http://www.homeclosing101.org, to learn more about title insurance and the closing process.

    Like

    • jennyct

      So it should cost me 1600 dollars to see if there are any liens on my home within the past 2 years? I would really love to see how many people actually do make a claim. I’m sure that the profit margin is much higher compared to other insurance industries.

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    • Jeremy Bolesky

      Right. “…rates are set by a regulator.” And they are impartial. Like this: web-Pat_Ihnat2nd
      Patricia Ihnat | SVP – Counsel
      900 SW Fifth Avenue, Mezzanine, Portland, OR 97204
      O 503-223-8338 | F 503-796-6611 | pat.ihnat@fnf.com

      Patricia Ihnat has been with the Company for more than 20 years, and she currently serves as counsel for Fidelity National Title’s Oregon operations. She is active in the Oregon Land Title Association; she is a past president of the Association and currently participates as a member of the Legislative, Education, and Trade Practices Committees. She also serves as an executive board member of the Oregon State Bar Association Real Estate and Land Use Section, and is a member of its legislative subcommittee.

      Prior to Fidelity National Title, Patricia was in private practice with a focus on real estate litigation and appellate work. She also served as a staff attorney for the Arizona Court of Appeals.

      Originally from Indiana, she received her B.A. in Mathematics from Franklin College, and her law degree from the University of Arizona College of Law. Pat is a member of three state bar associations, Oregon, California, and Arizona. She enjoys yoga and backpacking/hiking.

      Fidelity National Title Company and its parent Fidelity National Financial constitute the nation’s largest title insurance company that collectively issues more title insurance policies than any other title company in the United States. In the Tri-County Metropolitan area, the company has nine branch locations and maintains a local market leadership position.

      Like

    • Jeremy Bolesky

      A press release from the state:
      “(Salem, Ore.) Governor Kate Brown appointed Patricia Ihnat as a public member of the Oregon Real Estate Board.

      Pat Ihnat is an attorney who serves as Oregon counsel for Fidelity National Title, a national title insurer and escrow settlement provider. Pat has been with Fidelity for 22 years in various positions as a litigator, claims manager, and underwriter….”

      A gubernatorial appointee, and a “public member.”

      Who will she advocate for?

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  3. Steve

    This article was written by someone who obviously has no clue of the value of title insurance or how it works. I recommend that people disregard this bitter person and what he’s written.

    Like

    • Michael

      Rather than this silly ad hominem two sentence argument, Steve could have actually contributed something useful. But he didn’t.

      Like

      • Liz

        From my personal experience, I think Seth is pretty right on. We have title insurance on our house and only found out recently that they never did a basic check to see if what the city had for our property line matched the Torrens Certificate. The people trying to buy are house found it when they had a survey done. We’ve been paying taxes on a piece of property that should have been part of our Torrens Title but the Title Company completely missed it. With this strip of land NOT being part of our property, our house is actually too close to the property line. It was built in 1951. The company who in theory owns this piece of property is the same one that built our house. Now the Title Company is not doing anything to help us fix the title so we had to hire lawyers for thousands of dollars and our buyers are asking for tens of thousands of dollars off the price of our house because of the delay. A basic check would have caught the problem years ago.

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  4. 4Gs

    I’m the first to freely admit I know nothing about title insurance or what it’s supposed to do for a person who is making the largest purchase most citizens ever undertake. I do know that we very nearly were locked into the purchase of a home that was nothing more than a mobile home situated in a gated community of regular homes. The title never showed it was a mobile home. Ever, since the day it was first deeded.

    We came very close to spending nearly half a million dollars (average sale price of a home in the region) on a manufactured home. If that transaction had completed, as I understand it, the title insurance company would have been liable for a huge chunk of money. Is that right?

    We nearly sued the listing agent, who represented the sellers. They knew the property’s correct designation. She represented them. Unfortunately, had we taken action against the seller our own (buyer’s) agent would have suffered financial fallout as well. Not wanting to punish our agent, we did not pursue the case.

    So what IS title insurance, and if it’s so good – why didn’t it protect us in this instance?

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    • David Ihnen

      Real property is real property; whether it was assembled stick by stick on site, or if the sticks were assembled elsewhere and bolted down on site. The house is exactly as immovable. Title-wise, there is no difference to be made. You made an incorrect assumption and were getting burned by it. (by implication here, you were going to spend 500K on a house you hadn’t even seen? bwahahahaaa*wheeze*)

      Like

    • Kimbie

      Title Insurance insures against someone else claiming ownership of the same property (land alone or land + structure), and nothing more.

      It makes no promises about the condition of the land and/or structure…it’s only about the paper [deed].

      Your loss is a classic case of “buyer beware” – you needed to put yourself in the same space as what you thought you wanted to buy or have some trustworthy person there in your stead.

      Imagining its the title company’s job to look out for your best interests is simpy naive. Sorry.

      Like

      • Jeremy Bolesky

        Exactly right. Their job is (obviously) to look out for their best interests, not yours. You paid them. You hired them to provide something. In the case of Title Insurance, you are fooling yourself if you think you are a client and not an adversary. Their real job is not to advocate for you, it’s to protect their company’s interests. You should probably research everything they won’t cover, and decide if this is actually insurance against most issues you could face, or just a widely accepted, highly lobbied industry. https://www.statista.com/statistics/257368/total-lobbying-expenses-in-the-us-by-sector/

        Like

  5. Brian Prince

    Why does Chicago…pop-up over and over again in everything I read about these days? Hmm? Chicago Title Company. Is anyone else…sick yet of GANGLAND POLITICS?

    I hate politics as much as the next guy, but when and where does it all end?

    Please tweet this to my twitter zerrubabel@zerrubabel as the article has an Evangelistic appeal to others who want to get out of the toilet too.

    Like

  6. Attorney Abuse

    I had a very difficult time working with Bryon Harmon. Getting a summary of my legal fees was impossible…

    Donald R Gustafson of Shipman & Goodwin was assigned in 2007 to be the Administrator of my father’s estate. He worked with Bryon Harmon to handle Trust and Estate issues in the Norwalk, CT Probate Court. Bryon was brought in due to his background in Trust and Estates. During the 4 years of the estate Bryon never submitted any of the Probate Court approved documents. I had to File a Motion to force Bryon Harmon and Donald Gustafson to submit my father’s estate documents – which was a Trust. Because Bryon Harmon and Donald Gustafson did not submit Trust documents it allowed his law firm Shipman & Goodwin to work on the Estate for about 3 extra years. Most of the work Bryon and Donald performed was not required and not needed. There was no need for him as an attorney to clean houses, work with utility companies, and talk with land keepers. By Bryon and Donald not admitting my father’s Trust to the Probate Court they were able to bill me for work that most people would do for free. Just recently the total bill for legal services of Bryon Harmon and Donald Gustafson was over $1,000,000. In my opinion he was over billing me and his legal fees. His fees were really only about $50,000 to $100,000 worth of legal fees. They even billed me for attempting to sell land in Greenwich, CT that I instructed them not to do. They wanted to sell land to have extra cash in my father’s estate so they could bill me more legal fees. I would really recommend people looking for an estate attorney have an agreement first about billing and oversight. I asked Bryon and Donald to have a review of their legal fees and he refused and suggested I should file a complaint in Superior Court. They became very nasty when ever I requested to review their so call “legal fees”. I think all clients should have a right to review their legal bill with their attorney. Bryon Harmon and Donald Gustafson never actually reviewed their legal fees with me even though I requested several times.

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  7. Johnny

    I’ve a friend who owns a title insurance company. He pays on average the underwriter company about 17% of what he collects. On a average home in his area of business he will collect $4000 5000. So in his pocket he collects on average 4000 to $5000 per policy minus the 17 % He has virtually no overhead expenses. He himself is shocked at how profitable this businesses is.

    Like

  8. gordon grey

    how about this? being dunned twice for the same service, buyer and seller? somehow my mother was being charged for title insurance as the seller, when she sold her house in California in 2000. i asked the agent~broker if the buyer was going to be able to use the same ‘work already done at the same time’ (a carbon copy report) if their title insurance would subsequently be with the same company, unbeknownst to us. at the time Chicago Title was in the news as well one other company for abuses in California. i never trusted a real estate agent in my entire life and never will, and in this instance he had no answer for me. i did one better. i negotiated a reduction of HIS commission, with him, from 6% to 5%.

    Like

  9. Ann Z

    Four years ago a claim was filed against Fidelity National Title Insurance Company on my behalf by their own Title Officer for the loss of an almost mile long easement to an 80 acre parcel on the ridge overlooking the Napa Valley in California which they then valued at $0 based on an appraisal done by an appraiser from Boise Idaho. I have now had to file a lawsuit against Fidelity National Title Insurance Company in order to settle the claim.

    Three Claims Offices, six Claims Counsels and now three attorneys for Fidelity National Title Insurance Company and they still are two weeks late in producing documents.

    I cannot help but wonder if they represent the insured or their stockholders.

    For more on my story please read my blog:

    http://www.fidelitynationaltitleinsurancecoclaim.blogspot.com

    Like

  10. RPS

    and shame for this misleading statement, as well as for the plug for a title agent in your blog:

    “It’s the whopping $1.9 billion in commissions paid to agents who drum up business.” This refers to title agencies (not real estate agents, if that is what is implied)which are a very large part of the title industry. In fact, Entitle Direct uses and pays title agents.

    Title agents realize the majority of the title revenues collected in transactions for the work they do, then remit a percentage to the insuring companies to cover premium taxes, reserves for losses, etc. These are not kickbacks; accounting standards require them to be listed as they are on the insurer’s balance sheet, but as opposed to the commissions the author clearly believes they are, those dollars are revenue for all the work performed by title agents.

    Interesting, from Entitle’s website:

    “Founded in 1978 as Guardian National Title Insurance Company, we changed our name in 2008 to better reflect our mission for the next 30 years and beyond. EnTitle Insurance Company will continue to deliver title insurance through agents, as Guardian had done for three decades…”

    Like

  11. peter

    Entitle Direct defraud customers by concealing they don’t offer office to close. They falsely advertise their title insurance is 25% cheaper – Their Abstract/Search fee is 100-200% higher, and eventually it is not cheaper. They don’t offer office to close either.
    After several inquires, Laura Burns had concealed they don’t offer office for closing. They suggest to use public library for closing. Elizabeth Weigand sent wrong form to fill out. Title Commitment Letter signed by President and CEO has numerous judgment/liens of wrong individuals. Their title commitment letter is nothing but copy paste from court records which have same first/last names. They don’t have expertise or professionalism to remove before their President and CEO’s name on it. Their service is slow due to inadequate employees who have low knowledge and experience. They cancel clients at the last moment when they cannot handle situation. This is an irresponsible business.

    Like

  12. linnie badgley

    Valuable ideas , For my two cents , people are looking for a NV Short Form Deed of Trust , my husband saw a template version here https://goo.gl/NlqPKj

    Like

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