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Title Insurance Scam v. 3: Local Service

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July 15, 2009 – Comments (12)

Anyone following this blog (all 3 of you) has already seen some of my title insurance/settlement company rant. Basically, I believe these companies use deceptive business practices, cozy relationships (some no doubt illegal under RESPA), and scare tactics to keep regional prices fixed far above what they would be in an actual, competitive market. From where I sit, the proof that there's no real competition is that everyone charges the same thing.

Well, one of the arguments that the shills of the unhealthy status quo in title insurance use is the old used car-lot special "customer service." It's followed by the even more laughable "we want to build long-term relationships," side-splitter, but I won't bother poking holes in that one today, since even a grade-schooler knows that as soon as your settlement agency has picked your pocket for a few thousand bucks worth of unearned fees, you'll never see the guy again.

So, on to the customer service. You may recall that the agency that I'm stuck with tried to scare me out of using www.entitledirect.com by emailing me this warning:

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.

This was followed by breathless phone conversations where the lawyer representing the settlement agency stumbled over his words, suggested that I had no right to complain about prices, that I should take my concerns about his pricing "to your senator," and finished up by telling me what great service he provides.

It's easier to tell people that you provide great service than to simply provide great service, at least for this bag of donuts. As you may also recall, the estimates this agency sent me were obfuscated, didn't have proper HUD line numbers (making it difficult -- on purpose, I believe -- for me to compare costs) and didn't even include a proper total for the settlement agency's charges.

That was a big contrast with entitledirect.com, which sent me an easy-to-understand, full estimate in minutes.

Now that we're a few days closer to close, is the gap narrowing between those "generally avoided" discounters and the great service provided by the locals?

Big surprise, it's gotten wider. While entitledirect always answered my phone calls and emails promptly, and has an online system that allows you to see how things are progressing toward close, the local guys have been completely MIA.

Worse yet, the local guys are screwing up royal. The first actual HUD-1 estimate they sent me was missing several thousand bucks worth of fees that I know I have to pay the lender. They already had complete loan and lender information, yet somehow they didn't manage to transfer a few line items into their system. How's that for service?

So, 6 days ago, I told them I would need an updated estimate pronto, so I could have my bank (out of state) send me a cashier's check in time for closing. Nearly a week has passed, and not another word from these jokers. These are the guys who tried to tell me that they deserve their $1,000 overcharge because they provide such great service. In fact, their service has been bad, or nonexistant.

I am formulating a theorem. It's this: "If I can do your job better than you can do your job, you're not providing me with any service. And you don't deserve an extra thousand clams."

My spreadsheets provide me with a more accurate estimate of what total fees at close are going to be, and I only got familiar with the costs and the processes a couple of weeks ago. How is it possible that I can keep more accurate records than people who have been in the business for decades ("We've been around for a century," is a very typical claim from the title insurance script that they read you around here when you call to shop prices...).

It's possible because, in fact, they're not providing any high-level service or thinking. They collect giant fees up front and farm out the actual work to low-paid subcontractors or other flunkies who, being low paid, not so bright and/or under significant stress, simply don't do a great job. That would be fine by me if the prices weren't insane, but with title / settlement agencies keeping 80% to 90% of title insurance premiums, plus charging an assortment of fat fees for every step in the clearing process, I'm more convinced than ever that the title insurance and settlement business is an utter scam. The only reason it hasn't attracted more of the scrutiny it deserves is that 99% of people buying homes have no idea about this one last ripoff, and in the grand scheme of things, where the entire transaction costs hundreds of thousands of dollars, the couple of hundred or couple of thousand dollars stolen from them via junk fees seems like too little money to worry about.

But that's real money, coming right out of consumers' pockets at closing.

Please folks: If you're buying a house, be very careful about taking on a local settlement agency. Shop those out-of-state discounters that the locals warn you about, and save yourself a thousand bucks. In my experience, the highly-recommended local is proving he doesn't deserve his reputation, my cash, nor my trust.

Sj

12 Comments – Post Your Own

#1) On July 15, 2009 at 11:29 AM, stonewaredog (< 20) wrote:

So, is McDonald's a scam?  All those crazy fast food places charge within pennies of each other, must be a scam!  Or wait, what about the gas stations, never more that a penny difference across town, price gougers.  What about Home Depot and Lowes their prices are very close to each other they must be making money hand over fist charging those high prices. 

You're too funny.

Still several days away and a week ago you wanted your final figures.  So do we!  We would love to have your final figures 2 weeks, 1 week or even 2 days out from closing.  Lenders fees are not static they change from week to week on the same size deal.  They are different from one lender to the other.  We would love to get you your final figures if only we could get them from the lender.

Before the big refi boom of the late 90's and early 00's we would have figures from lenders 2-3 days before closing.  Then the boom hit and everyone was scrambling.  At least twice a week you wouldn't get figures until hours after the closing was scheduled and this was from pretty much all the lenders, though there were some that did this more than others.  Since the bubble burst we still seldom get figures before the day of closing though it is generally several hours before closing.

You think you are pretty close with your spreadsheet.  Let us know how that goes for you.

As for the fees a title company receives, check your spreadsheet and check the fees everyone else is getting and list them from top to the bottom and if you check near the bottom you will find the title company.  And no one is getting rich on any of these fees.  If you would like to check it out, you would find the profit margin on pretty much all of the people you are paying to get you a house with a marketable title, low interest rate, termite free, known defects in your inspectors report, and an honest appraisal that gives you a fair market value for your house, then I think you can find a whole lot of industries whose profit margins are much, much bigger.

We all have stories of individuals and individual companies who give us poor service, to many stories today.  If you think that entitle.com is really giving you better service then order their search and compare it to the one from your local guy.  That is what you are paying for, the quality of the search.  I have never seen a national companies search that was anywhere as accurate or complete as that given by a reputable local title agent.  I have personally seen 100's of these national searches and they are trash, though I have never seen one specifically from entitle.  The nationals are the one's who use the local guy to search the courthouse and get poor, cheap searches.  The local guy has to work in his/her county(ies) every day and sees the trash that is put on record by the national searchers/agents.  The local guy has to clean up the mess left by the national guy.  Because the local guy cares that your records are correctly filed, the national guy doesn't.  The chance that the national will have to work with that piece of property again are nil, the local guy will work with that property several times and needs the records to be correct.

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#2) On July 15, 2009 at 12:09 PM, ByrneShill (74.33) wrote:

Hey Seth, are you aware that most developped countries maintain databases of who owns what piece of land, and the total cost of closing a real estate transaction is laughable. When I bought a 150k$ condo, the total closing cost was... wait for it... 850$! And it is a  fixed cost, the price doesn't matter, wheter you buy a house, a condo, an 100 acres cornfield, it doesn't matter, the closing cost is fixed. And 850$ is because I didn't shop around, it could have been closer to 750$. I've never heard of anyone paying more than 1100$.

That price would include ALL closing costs (except mortgage insurance, but you don't need that here if you have 20% downpayment or more). It includes the mortgage fee, escrow, titel insurance (not really like your title insurance, cause title insurance doesn't really make sense with our system), name it it's included. That whole "we're gonna look in our century-old database" thingy looks really medieval to me. You guys need to get to the information age like the rest of the western world and get rid of those leeches.

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#3) On July 15, 2009 at 12:54 PM, ValueIsValuable (76.32) wrote:

As an aside, refering to someone as a 'bag of donuts' is very, very funny.

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#4) On July 15, 2009 at 12:55 PM, TMFBent (99.81) wrote:

Stonewaredog, please reread my OP and rethink your replies. Some don't make sense, others just reinforce my conclusions.

Lemme correct some of your some of your faulty assumptions and blatant misrepresentations for subsequent readers:

Still several days away and a week ago you wanted your final figures.  So do we!

I didn't ask for final figures. I asked for something closer to final figures. When the estimate they send me is off by more than $4,000, I know they're not doing their job right.

Lenders fees are not static thy change from week to week on the same size deal.  They are different from one lender to the other.  We would love to get you your final figures if only we could get them from the lender.

Huh? Exactly what are the big variables here?  My lender is locked in, my rate is locked and so are my fees. (Some of them are prepaid, and the local guy hasn't figured this out yet either.)

The mortgage is a done deal. If there are a few small items that might wiggle, they don't come anywhere close to the magnitude of the $4,000 ommission the local guy made -- and persists in making even today. The update they sent me isn't updated at all. So much for that great local service.

You think you are pretty close with your spreadsheet.  Let us know how that goes for you.

Please. If you're betting that I can't add a few figures in excel and have them come out closer to reality than an estimate that I already know is off by $4,000, you'd lose that wager.

If you think that entitle.com is really giving you better service then order their search and compare it to the one from your local guy. 

I would love to have done that, but they were straight with me and said that, given the time-frame, they couldn't guarantee everything would be completed in time. As I explained in previous posts, I didn't get to comparison shopping until I found out how bad the ripoff was from the highly-respected local guy. By then, he had a week's head start.

As for the fees a title company receives, check your spreadsheet and check the fees everyone else is getting and list them from top to the bottom and if you check near the bottom you will find the title company. 

100% false. Laughably false. You should really review the original posts. According to the GAO report of cited a few times, these guys are likely collecting as fees 80-90% of the insurance premium as well. Therefore, they're collecting  -- or tried to, before they lowered their prices -- $1,900 or more in excess of what they send to the title insurance company, plus another $700 in associated fees.

The only people earning more on this deal are the mortgage lender (who has to take on a big loan) and the RE agents (who are scalping the guy on the other side of the table.)

That is what you are paying for, the quality of the search.

Bogus. The evidence they've presented me shows hat they hire out the search and examination to someone else. They even let it slip how much it costs them. Hint: it's a couple hundred bucks. Meanwhile, Mr. High Quality Title Search is pocketing a few hundreds bucks just for forwarding the job to someone else. For all I know, the "national guy" might just hire the same someones else.

The local guy has to clean up the mess left by the national guy.

What on earth are you talking about? first you presume that the national guy won't do a good job, then you presume that the local guys play cleanup.

However, ss I also related below, not 30 feet from me sits a guy whose "respected local title provider" came to closing with a horrible mess of an uncleared title, and when he questioned it, was told "Just sign it. That's why you buy title insurance."

And lest we write this off as a non-representative anecdote a bit too quickly, I'd like to examine it a bit more. On the one hand, you want us to believe that tile searches are vitally important because of the messes in the records. On the other hand, you want us to believe that the "national guy" is making the messes. But given that the vast, vast majority of these are done by the local guy, (and have been for decades) it seems pretty clear to me who, in general, is making the messes: the local guys who do the majority of the work.

During this process, which is as pleasant as plucking nostril hairs, I have heard an amazing amount of yammering from title insurance / settlement companies over the past couple of weeks about how much they deserve their fat fees, even though most of what they do can (or already has been) completely automated in many other places. I have heard them try to justify their prices by telling me how great the local service is, while they simultaneously provide me with horrendous local service. I have heard them tell me that the quality of their work is what justifies the prices, only to find out that they simply hire out this work at a very low price, then pocket the difference.

Best of all, when faced with the prospect of losing this fat, unearned revenue stream, I have seen the local guy fold faster than superman on laundry day and give back half of that fat profit he claimed he wasn't getting, rather than risk losing me to the national guy.

Myths busted.

Byrneshill, you are 100% right. This industry needs to go the way of the dodo. I'm betting that the process is not only better in other developed countries, but better in some third-world countries.

Until then, we'll be stuck with leeches, and if the title agencies' lobbyists have their way with the backhanders in Congress, I'm sure "until then" will be longer than anyone would like.

I'm still harping at my representatives so that I can get their ear on this. I won't hold my breath, but maybe the best way to sell it is this:

How would you like to be able to offer every prospective home buyer in the U.S. a several hundred or several thousand dollar incentive -- and not cost taxpayers a dime?

Clean up the title agency biz, remove all the junk fees and cozy relationships that rip people off. Install real competition, and you might just get that. It's pretty difficult to create anything worse than what we have now.

Sj

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#5) On July 15, 2009 at 1:02 PM, TMFBent (99.81) wrote:

As an aside, refering to someone as a 'bag of donuts' is very, very funny.

I think I stole that from Bill Mann. I'm not sure where he ripped it off.

In related news, Bag of Donuts is New Orleans' favorite party band. Their agent's Web site says so.

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#6) On July 15, 2009 at 4:57 PM, clearingtitle (< 20) wrote:

There will always be situations where a company does not meet the expectations of a customer, this seems to be another case. At the American Land Title Association, we promote behavior within the title industry that serves the needs and interests of consumers through our Principles of Fair Conduct. 

The principles are simple:

1. To engage only in business practices that are lawful and consistent with a high standard of ethical behavior.
2. To encourage a culture of compliance within their organizations for federal and state laws that govern the title insurance business and for these Principles.
3. To treat consumers in a fair and ethical manner.
4. To provide consumers with timely and comprehensive information regarding their policies, services, products, and prices so as to enable consumers to shop effectively among providers of title-related services.
5. To encourage and assist consumers to be educated purchasers of title insurance and title-related services.

Despite technology advances and records being online in many jurisdictions, it still costs money to produce a title insurance policy. Beyond the risk, the actual work must also be factored. There are five factors that go into the cost of a title insurance premium. They include: the cost of maintaining current title information on property local to that operation; the cost of searching and examining the title; the cost to resolve or clear defects to the title; the claims cost covering title defects including legal fees, and the allowance for a reasonable profit.

Look around. How many title agents do you see driving around in Mercedes? Thousands in the industry have either lost their job or closed their agency over the past couple of years. Why? Loss and loss adjustment expenses, which include the expenses associated with settling claims, legal fees, court costs, expert witnesses and investigation costs, account for approximately 6.1 percent of revenues. In difficult economic times that rate increases as incidences of identity theft and forgeries in the public record directly affect the title industry. Operating expenses in the title insurance industry – which include the expenses incurred in the search, examination, curative, and policy-issuing functions – average around 92 percent of revenue. On a combined basis, the total of operating expenses and loss expenses of title insurance amounts to 98.3 percent of revenue, while the remaining 1.7 percent comprises the historical profit margin in the industry.  

For consumers looking to learn more about the title insurance industry and the closing process, please go to www.homeclosing101.com.

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#7) On July 15, 2009 at 9:01 PM, TMFBent (99.81) wrote:

Look around. How many title agents do you see driving around in Mercedes?

Come on... That's your defense? Seriously?

Are you a representative of the ALTA? I notice you have no picks in Caps, no profile, no board posts, and only joined July 9. Surely you didn't just join up to come onto my blog and ask tell us that profit margins in your industry are 1.7%, and that proof that prices are right is that I can't name a single title agent driving a mercedes?

Sorry Jeremy, I guess I missed your last post, where you did identify yourself, and it becomes clear that you did indeed join Caps just to defend the current title insurance regime. That's your prerogative, of course, but let's make it clear who's talking, and why.

(For the record, everyone, "clearingtitle" is officially a communications director at the industry trade group. That, of course, explains a lot about the justifications we're seeing in his posts.)

Jeremy Yohe, director of communications, American Land Title Association, www.alta.org

I notice, Jeremy, that you don't have much to say about the practice that's caused me so much aggravation: the code of negativity shared by the "local" guys, who do everything they can to scare consumers like me out of using a national provider. Care to comment on the actions of my agent (quoted above, the email) where they're disparaging ALTA member entitledirect.com in order to try to hang onto me and rip me for a full 30% more than the same service I was being offered by entitledirect?

Does the ALTA have a more specific code of conduct for its members, suggested or otherwise, that treats the common scare tactic I have witnessed? If so, to whom could I direct an account of this thoroughly unprofessional behavior by the established, well-respected, "local guy?"

And, while you claim that profit margins are 1.7%, you don't tell us what typical expenses break out to be. How about more detail on just what those typical operating expenses are? I don't really care if the local guy is throwing the extra $900 he tried to skin me for down the toilet, or if it goes to corinthian leather for his office chairs. What matters is: can title insurance and settlement be provided more cheaply?

The answer, from the evidence I've seen from entitledirect, is "Heck yes." The next question, therefore, is "why do local and regional settlement companies all set their prices so much higher than outside competitors, and why do they seem to fix their prices so close together?

My hypothesis, expressed over and over again here -- and supported by some of the findings in that GAO report -- is that the locals use cozy relationships and soft collusion, along with scare tactics, to prey on homebuyer nerves and ignorance, and then pocket the rest.

Answer a few of those queries, and we'll have ourselves a real discussion. Regurgitate ALTA talking points, and the skeptical Fools here are probably going to give title insurers an even hairier eyeball.

Thanks again for dropping by. And, Fools, after you visit the industry's pages of talking points, finish up with: www.entitledirect.com

and

http://www.gao.gov/products/GAO-07-401

Sj

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#8) On July 15, 2009 at 9:16 PM, TMFBent (99.81) wrote:

One more question for Jeremy (clearingtitle) who is a director of communications for the industry trade group (ALTA). These questions were posted on a prior thread by  NeedaClue7.

They were not answered in that thread. Perhaps Jeremy missed it, or perhaps they were too tough to answer.

Jeremy?

clearingtitle:

With all due respect, your defense of the current regime sounds like the sound bites that some public affairs department wrote. The fact that it only costs as little as $28 per year and comparisons to homeowners insurance is completely irrelevant. The point is that if the normal market mechanisms (competition, supply & demand, etc.) are in play then title insurance will be priced appropriately. There is a growing body of evidence to support the conclusion that the title insurance industry is not operating in a normal market environment and the public is being gouged. Here are some questions that come to mind from my own experience:

1. Why should title insurance be quoted based on the value of the property? Other than the pure insurance element in the event of a loss, the amount of work done to research the title, clear defects, et. al. bears no correlation to the value of the property and 70-90% of the premium is for this.

['bentnote: This point has been particularly galling to me as wel. Clearly, as the prices of RE rise, the only readily apperent increase in cost on the title insurance side is the policy itself which needs to cover a higher-priced property. As we have seen in the GAO report, the policy coverage itself only represents 10-20% of the fees charged. In the mean time, title agents are charging per $1,000 fees on the entire cost of the home, and pretending that the whole amount is necessary to cover increased costs. However, with costs of search and examination fixed and completely independent of the cost of the house, clearly, there's no need for the cost of the entire premium paid to continue going up. Why do they do it? Because they can...

2. Why should an owners policy cost more than a small incremental amount when someone is already financing the property and obtaining lenders insurance? Again, all the work associated with the title search is done in connection with the lenders policy so the title agent has almost no work to do in connection with the owners policy, but yet they put 70-90% of that premium in their pocket as well.

3. Why should title insurance for a refinancing cost more than a small incremental amount (especially if one is using the same title agent as was used for the original financing). It seems that the only work required for a refinancing is to update the title search by verifying that no leins, easements or other encumberances were filed against the property since the last search.

The above issues have come to light just in my experience. I'm sure others have noticed other obvious abuses. The fact is that most people don't pay attention to title insurance. It is a relatively small cost imbedded in a major transaction which for most people is too complicated for them to ask the questions they should be asking. They rely on the closing attorney and their real estate agent, neither one of which has any incentive to act in the best interest of the consumer. All of which virtually guarantees that the industry has taken advantage through overpricing.

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#9) On July 16, 2009 at 12:29 AM, ByrneShill (74.33) wrote:

Something still doesn't add up. How is it possible that no branch of any government knows which piece of land belongs to who? I mean, for Pete's sake, don't municipal governments want to tax every square inch of land? If so, who do they send the bill to? The owner of "123 ballard street"? Don't they know that John and Jane Doe own "123 ballard street"? Wtf? Title insurers shouldn't even exist already.

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#10) On July 27, 2009 at 6:17 PM, NeedaClue7 (60.53) wrote:

Looks like Jeremy decided to take a pass.

I'll make one other observation on Title Insurance. I can't prove this and it is entirely anecdotal and based on my own observations, but it could explain a lot.

I suspect that Title Insurance regulation is under the purview of State government rather than the Feds. As I mentioned in an earlier post, at least in my home State of Georgia, a considerable amount of Title Insurance is written by agents that are also your closing attorney. When one ventures outside the large metropolitan areas into rural parts (as I do because I have a cabin in the mountains), you learn that the cottage industry for your typical rural lawyer is to have a second job in politics. This likely means that there tends to be a lot of rural lawyers in the State Legislature. Now what do you suppose is one of the major practice areas for your typical rural lawyer and part-time politician? My guess from my observations is (wait for it...) real estate! So I'm just hazarding a guess that there is a large block of Title Insurance Agents who have legislative oversight of Title Insurance in your typical State government. Anybody think there might be some valid connections here?

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#11) On August 04, 2009 at 6:27 PM, StopGain (< 20) wrote:

I am the President of a small title insurance underwriter.  We are also and agent for several national title insurance underwriters.  I have met with the man who purchased the company that is now EntitleDirect.  He wanted to purchase our company to launch his product. 

 I agree with you that, like any industry, there are bad eggs that make the industry look bad.  In the stockbroker industry, look at boiler room stock brokers or those that push variable annuity projects.  In our local title industry, I see "cozy relationships" all the time.  They cost me business;  they probably violate RESPA; and the cozy relationships are probably the only thing keeping them in business.  I, like you, wish there was more federal enforcement to put them all out of business, but title insurance is just a blip on the insurance industry radar.

Please take note how title insurance is different that car or homeowner's insurance.  Those types of insurance insure against a future loss.  The agent might look at your house or get a copy of your car title, but the front end side of the business is not labor intensive.  The agent makes his commission for the labor involved in getting you as a customer, whether it be through advertising on a national level (tv, internet) or a local level.  The underwriter then pays roughly 25% in claims and the rest goes to handling the claims, etc.  Title insurance is different in that you are paying to protect yourself against a loss that has already occurred.  The labor is on the front end.  We do the title search, correct the problems (25% of the files in our office have problems that need correcting...and, yes, most are because of the bad eggs), issue the final, and insure the title forever, for a one-time premium.  As part of our closing fee, we work with the buyer, seller, realtors and lenders, and then we close the deal, handle the escrow and record the docs...for a very nominal closing fee that does not cover our costs.  The work is spent insuring that there are no problems, so we don't have to pay and you don't have to deal with a claim.  That is why the inustry only pays 6% in claims.  If the title agents retained any less than they did, they couldn't pay the labor expenses to produce the policy for the underwriter.  It is an entirely different form of insurance.

To generally respond to one of your points, in many states (and in my state), we all charge the same because we are issuing the exact same ALTA form policy. Therefore, my company relies on service to set it apart.  I will give a customer all of our fees on the phone, during his first call.  As long as his loan amount doesn't change, his title insurance and recording fees won't either.

 Yes, we offer a 40% re-issue credit if a customer produces a prior policy.  Why, because we take the risk and rely on the prior insurers search to lessen our search time.  We save time and pass that on to you, but we take the risk that the other search was worth a darn.  With certain companies, I don't trust the search, so I do a full search anyway, but I still give the discount.

 Our discounted rates take us down below EntitleDirect's rates, and I gurantee our closing fee is less...and I guaruntee that we give better service.  EntitleDirect also gives a 30% reissue credit in our state.  It's in their filed rate, but they don't advertise it, because they wouldn't be able to do business here if they did advertise it.  Also, notice that they pay for very little advertising.  They have a PR guy who puts them in mostly newspaper articles, magazine articles, twitter, etc.  With our title rates, no title underwriter can afford to advertise to the general public like State Farm, Travelers, Allstate, Metlife.  When you pay those premiums, you are paying for all that advertising.

I work 60-80 hour weeks, and you wouldn't do what I do for what I make.  In this downturn, we had to cut 25% of our staff.  We are in the top 3 companies in our market, and I am working those hours just to try to make our payroll and pay our health insurance premiums (now there's an industry to attack).  I invite you to come down (or over) here from wherever you are and watch what I do for a couple of days.  It would change your perspective and your mind.

One last response to an issue raise on this blog:  Owner's policies are more expensive than lender's policies because owner's policies last forever, and lender's policies only last for the life of the loan (until it is paid off).  That is also why you have to get a new one for your refi...but, at least in my state, you should also be getting the reissue credit. You also get a simultaneous issue credit when you purchase and get both an owner's and a lender's...makes the lender's cost only $40.00, which is less than it costs us to process it.

Instead of bashing the industry, just tell the state and federal governments to start enforcing their title insurance laws, and the bad eggs will go away.  They take our income and premium tax money, and we get nothing in return. I have begged and pleaded, and they just tell me that we are a blip on the radar. 

Those politicians, people, and customers who attack us don't know and/or understand all that we (the good eggs) really do...and it's a shame.

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#12) On August 11, 2009 at 6:41 PM, NeedaClue7 (60.53) wrote:

StopGain

I appreciate your candid responses. Your post is the first defense of the title insurance industry in these blogs that contained any substance as opposed to posts by others that are primarily PR gimmickery. So in the spirit of an honest dialogue, I'd like to ask a few questions and perhaps challenge a few of your points:

1. "...title insurance is different that car or homeowner's insurance." Why is this relevant? The main premise of the blogs is that normal market factors (supply & demand, competition, et. al.) are lacking in title insurance. Even agreeing that title insurance is different, it's hard to see that market factors are working if everyone charges the same price, offers the same reissue credits, etc.

2. "As part of our closing fee, we work with the buyer, seller, realtors and lenders, and then we close the deal, handle the escrow and record the docs...for a very nominal closing fee that does not cover our costs." Interestingly, that was the only defense my closing attorney could offer me when I asked her recently (while refinancing a property she had previously issued the owners & lenders title insurance policy on) why I was repurchasing insurance I already owned. It seems to me that perhaps the closing costs are too low and people are making up the difference on the title insurance side where the real margins are hidden. Frankly, if firms like EntitleDirect are allowed to enter the local market and bring competition to the title insurance purchase, thereby unbundling the separate fees, I would expect closing costs to rise when the hidden margin disappears. This would be healthy as it would bring more transparency to the process. My bet is that the overall cost would decrease.

3. "...we all charge the same because we are issuing the exact same ALTA form policy." Why should this mean you all charge the same? Presumably, you all have different cost structures for the legwork so there should be different fees if competition forces are at work. Again, I believe I understand that 70-90% of the premium goes to the agent, specifically for the legwork.

4. "...we offer a 40% re-issue credit if a customer produces a prior policy." If that is common practice in your state, there may be some competition happening. I'm under the impression that in many states this is not the practice, which would make our point that in those states where the title agents don't offer a reissue credit there is definitely price gouging going on. Would you agree? Also, it seems that if the "bad eggs" issue defective title insurance, because they don't do the research or whatever, then the issuing insurance company would drop them as agents creating a self-policing environment where you could rely on a previous policy.

5. "EntitleDirect also gives a 30% reissue credit in our state.  It's in their filed rate, but they don't advertise it, because they wouldn't be able to do business here if they did advertise it.  Also, notice that they pay for very little advertising." What is the "filed rate"? Is there a place one can go and look up the fee an agent should be charging? Regarding advertising, I don't recall ever seeing title insurance advertising by the established agents who are already getting the title insurance business because they handle closings. It seems to me that EntitleDirect probably has higher advertising because they are trying to get a foothold in the market and establish awareness, etc.

6. " I work 60-80 hour weeks, and you wouldn't do what I do for what I make." Not to disparage your work, but you are in a "boom or bust" business. I have a relative who is an architect and it always used to be a pain to be around him because he was always bragging about his swanky condo, 30-foot boat, twin-engine plane, etc. Lately, to my smug satisfaction, he doesn't say much (I suspect the plane, boat and condo are history). My point is that your business is squarely in the middle of the real estate bust so you should have tough times right now but you also should have enjoyed a lot of awfully good to great years before this. Not to be glib, but they go together.

7. Regarding your comments on owners policies, if in your state it only costs $40 to get the lenders policy (after purchasing an owners policy), then my point is not valid in your state. In Georgia, the best I have ever been able to do is to get a 50% reduction on the owners policy (which is still excessive) and I have to make it clear that I am shopping around before I get any concessions at all. It does seem to me that your point that owners policies last forever is minor because only a small portion of the premium ends up in the underwriters pocket any way. The real abuses are likely connected with the much larger portion retained by the agent for commissions & "legwork".

8. Your post didn't address the question regarding why title insurance premiums continued to be quoted at the same rates during the strong increases in real estate values over the past 10-years. I understand, and you don't need to explain, that the underwriters were insuring against larger loss events but only 20-30% of the premium goes to the underwriter. The other 70-80% goes to the agent for "legwork" and I can't believe that legwork costs were increasing like real estate values. If market competition truly works in this industry, shouldn't rates have declined fairly dramatically?

9. Finally, I would be very interested in your observations concerning my post appearing immediately before yours. Are the bad eggs running the show?

Thanks!

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