Published Articles

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Examining a vital but misunderstood part of buying a house – Bergen County Record

• Title insurance prices -- and profits -- have unfairly soared, because they're based on house prices, which skyrocketed from 2000 to 2005. "The real estate boom has been very profitable for title insurers," said J. Robert Hunter, director of insurance for the Consumer Federation of America.
  
• Some title insurance agents pay kickbacks to real estate agents, lawyers, builders and lenders to get home buyers' business, and those kickbacks inflate the price paid by buyers. Some of these charges were detailed in a recent report by Washington State's insurance commissioner, and others by the U.S. General Accounting Office.
• Consumers have not benefited as technology has made public records more accessible, thereby lowering the cost of title searches.
  
• Real estate brokers and lenders are increasingly becoming owners of title agencies, creating potential conflicts of interest, according to the GAO.

The American Land Title Association and the New Jersey Land Title Association defend the $17 billion industry.
"The fact that there are abuses is not a reason to damn a whole industry," said Carl Samson, president of the New Jersey Land Title Association and president of the New Jersey Title Insurance Co. in Parsippany.

Samson said his company, which is an insurance underwriter, monitors its agents to try to prevent illegal rebates or kickbacks to lawyers or real estate agents. He called on the state Department of Banking and Insurance to monitor agents more closely.

"As an industry, we do a pretty good job of self-regulating, but we have 75 agents in New Jersey, and other companies have more," he said. "It's not so easy to know if one of them is doing something illegal."

As an example of how title insurance can protect a homeowner, the national association offers this story: A buyer purchases a home from a widow and her daughter. But then a child from the deceased man's first marriage turns up, claiming he is the rightful heir to at least part-ownership of the property. In such a case, the title insurance would kick in to pay off the missing heir's claim and preserve the buyer's ownership of the house.

Another example would be a lien on the property resulting from unpaid taxes or an unpaid contractor's bill. Occasionally, fraud turns up -- for example, a man who owns the house with his estranged wife sells it without her knowledge or consent.

Usually these problems are cleared up during the title search. Industry experts say only about 4 percent to 6 percent of title insurance premiums are paid out to satisfy claims. In New Jersey, Samson said, the payout ratio is about 8 percent. But that's much lower than the 70 percent-plus rate typical of other lines of property/casualty insurance.

Samson argues that it's not fair to compare title insurance to other lines, because it's not just insurance, it's also the title search and the title agent's efforts to make sure the seller clears up any problems before the closing.

When they buy title insurance, which is required by mortgage lenders, most buyers just pick the company recommended by their real estate agent or lawyer.

Several Web sites have sprung up, offering to help buyers find the best deal on title insurance. But in New Jersey and some other states, comparison-shopping for the insurance offers little payoff, because title insurance rates are set by the state Department of Banking and Insurance.

The basic rate is $5.25 per $1,000 on the first $100,000 of the mortgage, then $4 per $1,000 on amounts from $101,000 to $500,000. Title insurance related to a mortgage refinancing is cheaper than for a house purchase.

Because the cost of title insurance is based on house prices, it has risen sharply since 2000, even though the title companies' costs have apparently not risen, according to the GAO.

Advocates of comparison-shopping say that although the cost of the insurance itself does not vary, different companies charge different amounts for other services, including the title search and copying and sending documents. So, they argue, a home buyer or owner can save hundreds of dollars by shopping around.

The Record asked for quotes on a $400,000 house purchase, and found total rates in the neighborhood of $1,750. That would cover both the title search and the insurance.

Several states have acted to curb abuses in title insurance, which, like most insurance, is regulated by the states, rather than the federal government.

In New York, two large title insurance companies recently agreed to reduce rates by 15 percent, to resolve an investigation of kickbacks allegedly paid to real estate developers.

In Washington State, regulators recently accused the title industry of giving kickbacks to real estate agents and other middlemen, in violation of state law.

Myclosingspace.com advocates a business model used in Florida, where a court ruled that title companies could give rebates to customers, effectively cutting the price of title insurance. Such rebates are not allowed in New Jersey, however.

Iowa has gone even further and runs its own title insurance program, which charges a flat fee of $110 for insurance, plus an estimated $400 in lawyers' fees and other costs related to the title search.

Hunter of the Consumer Federation advocates an Iowa-style plan for the nation. Another alternative he likes: have mortgage lenders buy the title insurance and pass along the cost to buyers in the mortgage. The theory is that big lenders, such as banks, would have the leverage to get a better deal from the title industry than individual buyers could ever get.

The federal Department Housing and Urban Development proposed such a plan a few years ago, but it was opposed by the title industry and died in Congress.

Samson said that some analysts have suggested deregulating title insurance prices, to allow for comparison-shopping by consumers.

But in New Jersey, changes are not likely soon in the title industry; the Legislature has not recently looked at the issue.