- Title insurance is crucial when you buy a home.
- Lender title insurance won’t protect homeowners.
- Colorado planning to provide title insurance comparisons.
Last year, East Coast real estate lawyer Harvey S. Jacobs fielded a reader’s question about whether a home buyer should buy a title insurance policy.
“The short answer is yes — buy title insurance,”Jacobs wrote in a column in the Washington Post.
His long answer was so emphatically “yes” that he could have been forgiven if he had put several exclamation points behind his answer.
Jacobs, of Jacobs & Associates of Rockville, Maryland, gave a lengthy account of a person he knows who decided to save a few hundred bucks by not buying owner title insurance for the first home he purchased in the District in Washington, D.C. He passed on buying title insurance because he had a lot of student loans to pay.
About a month after buying the home, a woman knocked on the door, asking what he was doing living in her home.
It turned out the woman, who now lives in Nevada, had divorced the man 20 years ago that had sold the recent graduate the home.
The ex-wife owned half the home, but the title insurance company, on behalf of the lender, didn’t uncover that crucial detail because nothing was recorded in Washington, D.C.
The ex-wife learned of the sale when she received a notification from the mortgage company.
Her former husband had wired the money from the sale to an offshore account and had apparently left the U.S. with his girlfriend, who had posed as his former wife.
Long story short: The buyer ended up as a 50 percent owner with a woman whom he doesn’t know who lives in Nevada.
“This is obviously an unsatisfactory situation,” Jacobs wrote. “It all could have been avoided if he had purchased owner’s title insurance.
Skipping owner title insurance can be costly
“He could have simply filed a title claim, and the title insurance company would hire attorneys, at their expense, to sort out the mess,” Jacobs pointed out.
When I told recounted this story to Rich Jones, chairman of the Title Insurance Advisory Council of the Colorado Division of Insurance, Jones correctly finished the tale long before I finished telling it.
He has heard of many such anecdotes during his quarter of century of working in the title insurance industry.
Yet, these tales of woe do not surface frequently enough that consumers realize how important the need is for title insurance, said Jones, a vice president at Old Republic National Title Co.
Many may not even realize there are two types of title insurance: Lender title insurance and owner title insurance.
Most lenders require a title insurance loan policy when they make a loan. That protect’s the lenders interest, but not the interests of the homeowner.
“Only Owner’s title insurance fully protects the buyer should a problem arise with the title that was not uncovered during the title search,” notes the Land Title Association of Colorado, a non-profit trade organization for the industry.
“Owner’s title insurance also pays for any legal fees involved in defending a claim to your title,” LTAC notes.
“The biggest concern facing the title insurance industry is to get the message out,” Jones said.
Indeed, the Department of Regulatory Agencies, which includes the Division of Real Estate and the Division of Insurance, does provide consumer tips on buying title insurance policies. And later this year, the state hopes to provide easy to understand comparisons between title insurance policies.
Title insurance is a type of indemnity insurance that protects home owners from losses because of defects in the title.Title insurance companies will search the “chain” of ownership, sometimes going back 50 years, according to the LTAC.
In 26 percent of the cases, title insurance companies find some problem that needs to be resolved before an insurance policy is issued, the LTAC notes.
Common problems can be fraud and forgery, such as the scenario related by attorney Jacobs. Other common problems unearthed by title insurance companies include conflicting wills and missing heirs, according to the LTAC. Even buyers of new homes need to buy title insurance, the LTAC says.
Back to the future
One way to look at it, title insurance protects homeowners from things that might have happened in the past — such as the ex-wife still owning half of a home — while car and home insurance protects you from things that might happen in the future, such as a car wreck, or your house burning down.
“When you are buying a home, title insurance protects you if there were any unknown encumbrances or covenants or conveyances that might have interfered with your ability to purchase the property,” Jones said.
And, once you own title insurance, you don’t keep making monthly premiums, like you do with car, auto and health insurance.
“It is not like auto insurance,” Jones said. “It’s a one time deal. When you look at it as a one time premium that will last you the life of owning that home, it really is fairly inexpensive.”
(However, experts do advise you to get a new title insurance policy if you refinance your mortgage).
And because a typical consumer only buys a home once every seven or 10 years, it is not something that most people understand.
“It’s not like you renewing your State Farm home ownership insurance every year,” Jones said.
Realtors typically pick title insurance companies
Most home buyers, in fact, rely on their Realtors to pick the title insurance provider for them.
That makes a lot of sense, according to Jones.
“A consumer might buy one home every year, while a Realtor might be involved with 10 transactions every month,” Jones said.
Realtors, he said, know which title insurance companies provide excellent service for clients. And in Colorado, real estate brokers are required to provide the names of three title insurance companies to home buyers.
And, while relatively rare, there have been a number of cases involving title insurance fraud in Colorado.
A knowledgeable Realtor will know to stay clear of title insurance companies that does not have a stellar reputation, he said.
Wolff wants consumers, not Realtors, picking title insurance companies
Still, Gary Wolff, owner of MyTitleIns.com, a locally based firm that claims to compare title insurance policies to each other, thinks the current model is broken.
Many title insurance company officials, however, privately think Wolff and MyTitleIns.com don’t provide a true comparison or a worthwhile service. No title insurance official contacted by InsideRealEstateNews.com wanted to talk on the record about MyTitleIns.com. One title insurance veteran said he would ask his peers if they would be willing to talk on the record about My TitleIns.com, but he found no takers.
With title insurance companies increasingly bundling services, MyTitleIns.com doesn’t provide a true apples and apples comparison, some critics contend.
A number of title insurance veterans privately have compared Wolff with Tom Martino, who charges people and businesses to be reviewed on his site.
Martino, on his web site, Referralist.com, said that he screens businesses that pay to be on his site and he will remove their names if they do not resolved consumer complaints to his satisfaction.
“I don’t like being compared to Tom Martino,” Wolff said. (Separate from consumer protection work, Martino, who was known as the “Troubleshooter” was involved in a high-profile bankruptcy as a result of ill-timed real estate investments that went south.)
Wolff said theres is nothing wrong with his site accepting ads. “It’s no different than a newspaper,” he said. And MyTitleInc, despite what critics contend, does provide an apples to apples comparison, even with bundled services, he said.
Beyond that, however, he said he knows that veterans in the title insurance company industry do not like him.
“They think I am a threat to their model,” Wolff said. Title insurance has historically been sold based on relationship with Realtors “and I want to move the choice to consumers,” he said.
He said consumers can save hundreds of dollars by shopping around for title insurance. In some cases, consumers can even save $1,500, Wolff said, based on his research.
“Realtors will tell you title insurance costs are minuscule, which in a way they are,” Wolff said.
“But when I talk to consumers and I ask them if they want to save a couple of hundred dollars on title insurance, they all want to do it,” he said.
Title insurance typically accounts for 2 to 7 percent of the closing costs when buying a home.
Wolff also opposes Realtors who also own a title insurance company. Brokerage firms that also provide title insurance, say they are providing one-stop shopping for consumers.
“I think it is a conflict,” Wolff said.
And he thinks the handwriting is on the wall for those arrangements.
“I think Realtors are going to be taken out of it,” as the government approves more regulations to protect consumers, he said.
State poised to provide title insurance comparisons for consumers
In any case, later this year, perhaps as early as this summer, the Colorado Division of Insurance plans to offer consumers an easy to read comparison of title insurance costs in the state.
“We’ve had a working group that started studying this last October or November,” said Christine Nelson, a market examiner for the Colorado Division of Insurance.
She said the Nevada Division of Insurance, for example, has a very consumer-friendly title insurance comparison site.
In Nevada, you can type in the size of your mortgage, how much of downpayment you are making and where you are buying the home. Then, the site brings up a number of policies and their costs, with links to the title insurance companies.
Wolff, who said he has offered to provide such a service to the Colorado Division of Insurance for years, doesn’t think the site will be a threat to his company.
“They are light years away from offering what I provide,” Wolff contends.
DORA’s consumer tips on title insurance
Meanwhile, here are consumer tips on title insurance from the Department of Regulatory Agencies.
- Get multiple quotes. Ask your real estate broker or mortgage broker for the names of a few title insurance companies or agents they have worked with in the past, not just one. While real estate brokers are required to provide the names of three title entities, they may refer you to an entity they have worked with extensively. This does not necessarily mean their services will be the best for your particular transaction.
- Find out if your friends and coworkers have had a good experience with a title entity.
- While you purchase title insurance from a title insurance entity, federal and state laws mandate that no one can require the purchase of title insurance from a specific company.
- Remember that price isn’t everything. Some companies use different software platforms that make working with them more convenient, but can also have the effect of raising their prices. Other companies may offer larger discounts off their base premiums depending on how long it has been since a property was last sold or refinanced.
- Don’t be afraid to ask a title entity to justify their services. What goes into their pricing? Why are they the safest or best company to use? What conveniences in the transaction can they offer? What kind of service do they offer after you’ve closed? Answers to these questions can make you feel comfortable that you’re not only getting the best price, but also the best value.
- Ask about the insurer (underwriter). The insurer is the company that assumes the risk. Rates and coverage may vary by company.
DORA summed it up this way:
“Title insurance is a product that most consumers will only purchase a few times in their lives. However, a little bit of research can save money now, as well as provide peace of mind that your investment is protected for the future.”
Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee Co. and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.