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Title Insurance a Scam?



July 09, 2009 – Comments (12)

This GAO report sure makes it look that way. Another good indication that it's a scam? The Realtors are trying to get it reestablished in Iowa, the only state with the guts to shut it down.

Before I get to the bad, let me give a shout out to the good -- or someone who seemed very good to me in all the dealings I had with them. This title insurance company (one of the evil "dicounters" and "out of state" providers that the local old boys clubs all warn against -- so they can keep their high prices protected) is stand up enough to publish links to articles about the abuses of the whole title insurance scheme.

So, who are you going to trust? The local guys who all magically charge the same price, all warn you against using lower priced providers, and who all vigorously fight to retain their arcane, unearned profits? Or the company that will charge you less, give you more info, and via an online system, keep you up to date in real time with the process?

As I wrote below, I didn't get to use entitledirect because I found out how much I was being ripped off too late to change providers. In the dealings I did have with them, they were courteous, prompt, professional, and straightforward. Contrast that with this, used-car salesman-type scare tactic I got from my local guy, and you'll probably get an understanding of why I trust the online guys more.

The bid from entitledirect came immediately, and was properly delivered, with all the relevant HUD information so that I could properly compare prices. The bid from the local guy didn't come with the relevant HUD line numbers (a tactic also engaged in by sleazy mortgage lenders, as it serves to make comparison shopping difficult). The local guy also didn't have the cuts or courtesy to total up the fee and quote the policy price. Instead, he just included a schedule of $$ per $1,000 in home price. This was obviously designed to catch me napping, make it look like the settlement costs would be $800 or so (when that's just the fees), and to get me to sign the papers, hooking me into a settlement cost 35% higher than necessary, without knowing it.

Great service from the upstanding local, eh? Best part was this obfuscation also contained language indicating that I could choose whichever title insurance provider I wanted at closing with this settlement agent, but when I tried to use another, they said I could not.

Then, get a load of what the "highly respected local businessman" (for that's what he told me he was when I questioned his prices and his tactics)  told me when he decided he wouldn't compete on price (after previously having his assistant tell me they would.) The reason?  because the competitor I was considering wasn't "local":

xxxx xxxx provided me with a competitor's quote for your upcoming closing.  While we are generally willing to match the fees offered by competitors, we do require that they be a local competitor.  I went online to reach Entitle (as I've not heard of them) and found only 4 branches, none of which are located in Virginia.  While I hate to place an additional burden upon you, their prices are well below even the "discount" settlement service providers who are generally avoided in the area.  Just like any commodity -- you get what you pay for, and this is definitely true in the title business.

If you could provide me with a local contact for Entitle, I'm certainly willing to conduct some further research on your behalf.  If you are considering another provider, I would highly recommend that you speak with your agent about many of the hazards and pitfalls of using a discount provider.

Understand why I think the system is sleazy? "Oh, don't shop around, young man. We didn't really mean we'd compete on price. We meant we'd compete with our other local peers, who, magically, all charge the same thing. And if you are still thinking of using one of those "discounters," make sure you get the requisite scares stories from our friends."

But this nice man was "willing to conduct some further research" on my behalf. Great offer, eh? Research your competitor on my behalf instead of just considering the competing, printed bid, as you said you would?

I will never use a local title agency again, and I will do everything I can to make sure others are aware of how lousy this business is.

Here are some interesting tidbits from the GAO report.

title insurance scam 1

title insurance scam 2

title insurance scam 3

title insurance scam 4

title insurance scam 5

12 Comments – Post Your Own

#1) On July 09, 2009 at 7:57 PM, TMFBent (99.47) wrote:

For some reason, CAPS is misbehaving tonight. It wouldn't take my original post (claiming my 2,000 characters were more than 20,000) and then it ripped out my links.

GAO report here.

Entitledirect here.

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#2) On July 10, 2009 at 9:25 AM, OneLegged (< 20) wrote:

The part that really irks me about title insurance is that after charging large fees for very little time invested they DO NOT guarantee the results of thier search.  What's the point?

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#3) On July 10, 2009 at 11:45 AM, stonewaredog (< 20) wrote:

Went to the entitledirect site and put in a couple of quote requests.  First thing I noticed is the search fee was drasticly different if I was refi or purchase.  This is a big red herring that means they are not doing a complete search of the records.  It is a common practice (and a poor one) that on refi you only search back to the last Deed of Trust/Mortgage.  You are not getting a complete search that you would with a reputable local title agent. 

Next I noticed that while their Insurance premium was about half of what ours is their settlement fee and search fee was more than doulbe what ours is.  They pull you in with low premium fees and hit you with high fees on other services.

They also apparently do not know the law they must work under in our state (all title laws are state by state) and apparently are not following the state laws.  In Missouri they must, by law, quote and provide a Closing Protection Letter.  They also must quote state filed rates that are the same for each agnet under a title insurance company and they cannot quote below these rates.

All in all when you take thier total charges as quoted and add the required CPL fees their fees and ours our neck in neck.

Poorer service, same price.

Haven't seen their policy, but most of the national companies did not follow state law in reporting easments and judgemnts.  They would make a blanket statement like "easements and judgements of record if any".  Doesn't give you the consumer knowledge you need to make an informed decision about whether or not you want to proceed with your transaction.  If someone else holds the mineral rights with a mineral easement or the utilty company has a blanket easement across all of your property you need to know that so that when the local utility decides to put in those high power lines running 50 ft over the top of your house you had for warning about it.  Or someone decides to start drilling for oil or natural gas in your front yard, you had for warning about it.

So you get what you pay for.  Most of us professional title persons have a bad taste in our mouths about these national title companies that lure you in with the low premium quote in the big red numbers compared to ours.

entitle $487.75

our premium $1000


add the other fees

entilte closing $425  search $325

our closing $200 search $175

entitle total $1237.75

our total $1375

A litlle over $100 more than entitle for a face you can talk to rather than a phone.  For a complete title search of at least 45 years to make sure you have no problems with your title and a complete detailed listing of judgements and easements. And for the knowledge to follow state laws correctly.

OneLegged - We do guarantee the results of our search by issuing you a title policy that will fix anything we missed or was not correct in the public records that we rely upon.  It may only take us a few minutes to search our computers for the information on your property, but it took us years of work and study to create that database and obtain the knowledge to know what to do with the search.  Much like it takes only a short time to create a work of art, it took years of study and practice to be able to do that.

Do you want the inexpensive painting done in a few minutes by an anonymous painter in thier first year of painting or do you want the work of art done at a greater price that is something you can be proud of.  

It takes them both about the same amount of time to complete that one painting, but the master completes a piece that you are proud to hang on your wall and the beginner you purchase out of pitty and ends up in the garage.

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#4) On July 10, 2009 at 1:37 PM, TMFBent (99.47) wrote:

Another nice defense, and familiar. I heard the same thing from my local agents, whose fees were higher, as were the premiums, and they didn't answer the phone, unlike entitledirect.

Show us a HUD-1 so we can compare, and maybe we'll be on better ground here. Are you sure your closing is lower than Entitles? At my local office, it only looked smaller, but they were dinging the other party for the same price. So the total was more, even though it looked like less based on the incomplete information.

And, of course, if you choose a policy on a small price, the slightly higher fees will take up a much greater portion. Try it with a $500,000 house, and lets see how it stacks up. Not so well, I'll bet.

They also apparently do not know the law they must work under in our state (all title laws are state by state) and apparently are not following the state laws.  In Missouri they must, by law, quote and provide a Closing Protection Letter.

And you know this how? Did you ask them for a full quote? Having spoken with them, I find it hard to believe they wouldn't remedy any quotation shortcoming in minutes, because they got me everything I asked in that timeframe -- far better than the local offices. And as I noted, the quote they provided me was full and complete -- unlike the quote I got from the local office, which left out minor costs like, oh, the $2400 premium.

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#5) On July 10, 2009 at 1:51 PM, TMFBent (99.47) wrote:

It takes them both about the same amount of time to complete that one painting, but the master completes a piece that you are proud to hang on your wall and the beginner you purchase out of pitty and ends up in the garage.

Come on, this is the most in-apt analogy I've ever seen. There's no art to this commodity, and in many places, very little skill. In fact, many of these title agents touting their research skills and databases are doing nothing but ordering the title search from a subcontractor, who makes a couple hundred bucks tops.

You get the same thing in the end: title insurance. Period. And this is the only time you ever see these "master artists," or "plumbers," or "respected businessmen interested in long-term relationships."

Here's a better analogy: Two waiters. Each one of them brings you your burger at a TGI Fridays that you will never visit again in your entire life. One of them demands a $1000 tip, which he pockets, and tells you how you were right to give him the money, because he's such a great waiter, your burger (which he doesn't cook) will be that much better. Also, he comes from a long family of waiters. They've been collecting $1,000 per burger for a century. They know how to bring hamburgers to tables the right way, and they've heard stories about other waiters dropping hambugers, bringing the wrong hamburger, and even forgetting to bring the hamburger altogether.

Now, no matter who brings your burger, it comes with a money-back guarantee. It's part of the $10 you pay before the tip. But surely, you can see why you should pay $1,010 to have your burger conveyed to you by such an expert waiter.

The other waiter works for a $300 tip. He doesn't stand around telling you about long-term relationships or the superiority of his burger-cooking skills, because he knows he's just bringing you the same burger that Chef Lefty always cooks. In fact, you may not even see this waiter. You might just call him on that little phone at the end of the booth and order your burger.

Oh, and by the way, if you order the $15 dollar burger instead, the first waiters tip goes up to $1,500. The other guy's tip goes to $450.

You don't want to give either one the money, but it's pretty easy to decide which tip to pay.

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#6) On July 10, 2009 at 2:00 PM, ByrneShill (82.92) wrote:

Can someone explain foreigners like me what this title insurance business is all about? Do you guys buy insurance in case the guy who's selling you the property doesn't own it and you're getting scammed? I'm not sure I understand what this is all about.

I know here if you buy a house, you merely exchange a pile of money for a tiny bit of land and a roof over your head. I don't get what can be insured other than the house itself.

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#7) On July 10, 2009 at 2:01 PM, jstegma (28.69) wrote:

It's definitely a shady business that most of us don't really need. 

Think about how it works.  The developer buys the land and someone does a real title search going back many years and figures out that the title is clear.  Then they build houses and sell them.  Then someone does a new title search and charges the buyer a ridiculous and unnecessary fee.  The title was searched just a short time ago, so there is no need to go searching 45 years back.  As long as you search it back to when the builder bought it, you should be able to rely on the builder's title insurance for anything prior.

It's just a big fraud that consumers have to put up with.  There just isn't that much risk involved in most cases.


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#8) On July 10, 2009 at 3:52 PM, stonewaredog (< 20) wrote:

I know they don't know the law because the law states that for any quote they have to include the CPL fees and they have to use the filed rates of their underwriter.  They did neither and so broke the law in Missouri.

It is not the same hamburger, they didn't tell you about the toothpick that the bartender can put through the middle of your burger or the dishwasher who can come and suck out the special cheese filling without your permission.

It's not an in-apt analogy, the knowledge and practice is the same.  It takes years to become knowledgable about the intracies of title law or how to handle a paint brush to complete an artistic painting.  Underwriters have questions daily that they have to research and make educated dicisions upon in order to complete a title policy.  All of our senior title people have at least 18 years of experience and will call the underwriters several times a month about laws that have changed and how to apply them, situations that they have never seen.  Someone who has little or no experience has no chance to put together a competent title policy consitantly.

jstegma - when builders develop a new subdivision is one of the time we most often find problems with the title.  Builders like to try and cut corners and that is what causes them probelms and creates their profits.  They figure they can measure from the curb how far the setback line is and can place the house.  Problem is the guy who put the road in thought he could cut corners to and the road is 10 ft off center.  So by the two of them cutting corners, and not hiring a surveyor to lay out the road or the setback line of the house in the sub division that the builder set up, the house is now over the setback line that the builder set up himself in the orginial plat.  Because he measured from the corner the house is now over the utilties easement and the sewer line needs to be repaired. The other people whoose houses are behind the setback line and bought houses from the builder can force him to move this new house.  Selling wrong lots, missing easemnts, mechanics liens, fraudulent building loans, many many problems with to many builders/developers.

Once the builder sells the property to you his title insurance is no longer in effect.  Who knows where he got his search done, maybe he cut a corner there also and had some bad national title company half way across the country do it for him, missing the fact that there use to be a refinery on the property and it is soaked with oil and gas.

Thing is, what you are paying for in title insurance is two things. 

1. Knowledge about your property - whether you have a marketable title, who else has rights to use your property, does the person selling you the property have the right to do so,  are the improvements located on your property (house, fence, garage, outbuildings) on your property and are your neighbors not on your property, are you being sold the property you are being told you are being sold.

2. Assurances that your title agent has knowledge about the local market - are you buying from a builder who cuts to many corners or someone who does the job correctly, are you working with a realtor or lender who will forge documents or trump up an appraisal or a professional.  Is there a lawsuit going on in that subdivision or is it of good marketable title.  Did that property use to be a gas station and the ground is full of old oil and gas.

Can someone halfway across the country  know these things or drive out to the property to check on them? No.  It is the national companies who pay someone a hundred bucks to search the properties at the courthouse not the local guys.  The local guys have thier own plant that they have built and use daily.  They have to many orders in this county every day to not do it that way.

Check with the opinions of credible advisors like Dave Ramsey who says you ALWAYS buy title insurance.  It is a valuable and protective piece of mind.

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#9) On July 10, 2009 at 4:05 PM, theHedgehog (< 20) wrote:

Can someone halfway across the country  know these things or drive out to the property to check on them?

I don't know about the others, but I'm glad I wasn't drinking milk when I read this bit.  This is just too funny.  A title insurance agent getting out of his office to take a look?  hahahahahahahahahahahahaha

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#10) On July 10, 2009 at 4:21 PM, bigpeach (28.39) wrote:

Yeah, this is the problem with lack of competition. The local guys sit there and say they can offer better service because they're right around the corner, they know the neighborhood, blah blah blah. Problem is, they don't because they don't have to.

This reminds me of auto insurance back when I lived in Massachusetts. Sky high rates and lousy service. After moving out of Mass. I switched to a national low cost carrier, do most things online, receive excellent service when needed and have never once missed Joanne (my old insurance broker).

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#11) On July 10, 2009 at 4:25 PM, bigpeach (28.39) wrote:

By the way, you could always ask an agent about their commission rates. I doubt many would answer that question.

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#12) On July 13, 2009 at 2:23 PM, NeedaClue7 (72.19) wrote:

In my experience in Georgia, the title insurance agent is the closing attorney. When buying real estate, I always call around and ask several closing attorneys to quote their attorney fee plus their title insurance fees for both the lender policy and the owner policy. I usually get a reduced fee quote for the owner policy (and I should, because all the research work is done by the attorney in connection with the lender policy).

Nevertheless, I have had my share of frustrating experiences, especially when refinancing. On more than one occasion, I have refinanced properties with the same attorney that handled the original closing. In every case, I was charged lenders title insurance at full rates.

One experience was especially galling to me. I actually have a piece of land that was subjected to a title challenge in court shortly after I purchased it. My closing attorney (who is the title insurance agent) is representing me (at no charge because I had owners insurance). A couple of years after the title challenge (which is now over 5-years old which is another story) I borrowed some money against the property and closed the loan with the original attorney who has been handling my lawsuit. She charged me a full lenders policy premium even though there was absolutely no research involved - pure money in her pocket. I pitched a fit, but it was too late to do anything more.

I had one attorney admit to me that when I was refinancing a property for which I already had an owners policy (which the same attorney had written) that most of their cut of the lenders policy premium being charged was pure profit because they had already done most of the research the first time around. This attorney justified the practice, however, on the grounds that the closing fees for attorney costs was insufficient and their title insurance premium share helped them make a reasonable overall fee.

The bottom line in my experience is that the problem lies with the attorneys that write the insurance who get 70-90% of the premium that is paid.

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