If you're buying a home, you're probably spending hundreds of thousands of dollars. The required title insurance comes to about a thousand dollars - pennies compared to the total amount you're spending. However, recent investigations show you should pay close attention to the price of title insurance. Some companies have been over-charging many customers.
What Is Title Insurance?
Unlike insurance bought to protect you from future accidents (such as life insurance or car insurance), title insurance protects your home from past occurrences. It's protection against loss from claims and problems with your house's title that arose before you bought the property.
Before buying your home, the house and land the house sits on probably went through several owners potentially causing problems at some point. As part of the real estate closing process, insurers search public records to see if the property has a "clear title." If the search identifies a problem, the agent helps fix it before closing. If a problem arises after closing, the title insurance policy fixes the problems, such as unpaid real estate taxes or liens on the property, or other issues that may arise.
What Does Title Insurance Typically Cost?
If you get a mortgage, title insurance is mandatory so you're at the mercy of the agent. Property values dictate title insurance premiums. The average consumer pays premiums between $500 and $1,000.
The investigation found consumers were typically overcharged $100 to $200. While this seems like pennies when dealing with buying a home, companies profited significantly because of the volume.
Either way, many people think title insurance is overpriced. First, most of the money collected is never paid out in claims. A federal report showed that in 2005 property and casualty insurance policies covering cars and homes paid out 73 percent of the money collected from customers to cover claims. While title insurers paid out 5 percent of what they collected from customers. This means 95 percent was never used.
Attorney agents who research property histories are usually paid to conduct the title search and typically get to keep the majority of the premium paid for the title policy. Furthermore, prices are pushed up by "reverse competition."
Title insurance companies don't market to consumers but to agents who have an incentive to opt for higher-priced policies, because commissions are usually based on a percentage of the premium. Investigations in other states discovered illegal kickbacks to realtors, builders and others for referring title insurance business.
Why Are Costs Different Around the Country?
The cost of title insurance varies from state to state. It can also vary within counties based on services covered by the title insurance company. Each state has its own regulatory system. Costs will depend on those regulations as well as competition in the market.
Also, title insurance costs depends on the value of the property, the risk and the work involved.
In Georgia, charges were brought against one of the country's biggest title insurers, Stewart Title Guaranty. Georgia's Department of Insurance explains that these inappropriate activities are rampant across the industry and have found similar abuses with many other title insurance companies.
Georgia is one of the states taking a hands-off approach to title insurance. Insurance companies can set their own premiums and the state doesn't require the complete licensing process it requires for other insurance agents. As a result, some title insurance companies have been abusing this freedom and overcharging consumers thousands of dollars.
Georgia's Department of Insurance has accused Stewart Title Guaranty of breaking the state's insurance laws more than 600,000 times from 2003 to 2007.
The Department accused the company of breaking the laws by:
- Illegally allowing closing attorneys to charge consumers whatever they wanted, instead of requiring them to follow the company's official rates
- Allowing agents to charge people with the same risk profiles different premium amounts
- Failing to give appropriate discounts if you bought both lender's and owner's policies
Tips for Buying Title Insurance
When buying a home, you may not pay much attention to title insurance because it's a small part of a much larger transaction, but you should keep these tips in mind:
- Find out if you're buying coverage for the lender only or coverage for yourself
- If buying homeowners and lenders coverage, ask if you're being given a discount for multiple policies
- Find out how the rate is calculated for the policy, ask the attorney to see the rate manual to make sure you're not being charged more than the official rate
- Ask if the closing attorney has a financial interest in the insurance company and how compensation works
- Shop around before closing to see if you can get a better deal on the coverage
Title insurance is a good idea, but be a well-informed consumer. It may be simpler to let the real estate agent or insurance agency tell you what you need to pay since you're already overwhelmed, but be sure to read the insurance policy.
Questions for Your Attorney
- Can I buy a house with no title insurance if I pay cash and don't have a mortgage?
- Can I sue my title insurance company if I think I'm being overcharged?
- How can I get involved in the claim against Stewart Title Guaranty?