Getting Rid Of Title Insurance For Cheap
Title insurance is typically overlooked by borrowers until they discover a large fee for it on their list of closing costs, which is often the case.
That premium (and often additional fees) supposedly represents the expense of ensuring that the borrower has full ownership of the property. Tax liens and other unresolved claims are found in public records by title agents, who then protect the borrower and the lender from any hidden liabilities.
State-by-state variations in title insurance premiums are common. Insurance companies in New York are part of a rating bureau that presents a state-approved rate schedule. As the value of the property increases, so does the expense of the renovation. Rafael Castellanos, managing partner of Expert Title Insurance Agency in Manhattan, estimates that the premium for a $500,000 house with a $400,000 mortgage would be $2,666 in the New York City region. Considering the security that title insurance provides, he concluded that it was a good deal.
However, the question of whether rates are too high, competition too limited, and insurers too tightly linked to the mortgage and real estate experts who bring them business has raged for years. Some jurisdictions, notably New York, have investigated the relationship between title insurance and referral sources. Fidelity National Title Group and First American, who together account for half of the New York title insurance market, agreed in 2006 to rate reductions of 15% as part of a settlement with the state over claims of improper referral payments and rebates.
There may be a new inquiry taking place. The state Department of Financial Services, according to Mr. Castellanos and two other industry officials, has sent subpoenas to a number of title businesses. A spokesperson for the department refused to comment on the allegations.
When it comes to selecting a title agent, Mr. Castellanos advises borrowers to make the decision independently rather than relying on their mortgage broker or real estate agent to do so. Ask a real estate attorney to propose an independent title firm, and avoid those affiliated with the real estate agency or lender endorsing them.
There is a more transparent solution being offered by one insurance company. Stamford-based Entitle Direct provides premium rates that are up to 35% lower than the market rate in the 40 states where it does business. (In New Jersey, these rates are not accessible.) Founder Timothy M. Dwyer says Entitle is able to provide lower prices because it does not utilize title agents, who generally earn a large portion of the insurance premium for their services, and instead markets directly to consumers. As he put it, "the typical commission in this country is 80% of the premium." "That is not a cost that we have. "The title search product is provided by a third-party partner under contract with us."
The firm has developed modestly since its inception in 2009. Birny Birnbaum, executive director of the Center for Economic Justice, a consumer advocacy group, noted that Entitle's sales represent for barely 0.1% of the total national premium. It was due to "the limited pricing competition in title insurance markets and the strength of institutional relationships between title insurers and those capable of steering title business—lenders, developers, Realtors and builders" that he blamed the slow development.
Scott Penner, an attorney in Milford, says that "very few attorneys would close with Entitle or push very hard against it, since they're not making the premium." "Either they'll raise their attorney's charge, which will eat into the title insurance savings," says the author.