August 8th, 2011 8:25 AM by Lehel S.
THERE’S not much you can do about title insurance.
If you take out a mortgage to buy a home, you have to buy this specialized form of insurance. If you refinance a mortgage, you have to rebuy it. And comparison shopping may not save you much money, as premium rates throughout the New York area are regulated.
Title insurance is a way to assure that no one but you has a claim on your home — that there are no outstanding liens, misfiled deeds or mysterious former owners. Mortgage lenders uniformly require that borrowers buy such a policy to cover the lender. Borrowers also may opt to buy an owner’s policy to cover themselves.
Local title agents, abstract companies or lawyers search legal records; then title insurance firms, generally big national companies, underwrite the insurance. From the consumer’s perspective, these often seem intertwined. Precisely how they set and split the charges varies among jurisdictions.
“The real buyer is not the consumer,” said J. Robert Hunter, the director of insurance at the Consumer Federation of America and a vociferous critic of title insurance. Mr. Hunter points out that title insurance agents, who receive commissions from the title insurance companies, usually pick the insurer. “No real shopping goes on.”
Like the rest of the mortgage industry, title insurers have been battered by the collapse of the real estate market. They lost money on operations in 2008 and 2009, according to A. M. Best, which analyzes and rates insurance companies. In 2010 the picture improved somewhat; this year, not much “changed materially,” according to the Best analysts Michael Russo and Neil DasGupta.
When a bank forecloses, it orders a title review, and that has become “an increasingly important source of revenue in the last couple years,” Mr. DasGupta said.
Consumers pay one-time premiums for title insurance. An owner’s policy lasts as long as the borrower owns the house, but the lender policy must be repurchased each time a loanis refinanced, albeit usually at a lower reissue rate.
Title insurance rates are usually a small percentage of the home’s cost, but they vary by locale. On a $300,000 home with a $240,000 mortgage in New York City, it would cost $1,164 for a lender policy at purchase, according to the First American Title Insurance Company. Opt at purchase for both lender and owner polices, and it would cost $1,749. A $240,000 refi lender policy two years later on that same property would cost $582.
Claim payoff rates are lower than for many other types of insurance. The industry argues that most of the effort goes into fixing title problems before the loan closes, rather than dealing with future claims.
In New York and New Jersey, most insurance companies join a sanctioned “bureau” that submits one rate request on behalf of its members, which means rates are identical.
In Connecticut, insurers apply for approval individually. “It’s a competitive market,” said Donna Tommelleo, a spokeswoman for the Connecticut Insurance Department.
Treatment of title search fees varies. For instance, New York splits the state into two zones. In one, basically from Albany south, the regulated premium covers search fees. Upstate, it doesn’t.
Rafael Castellanos, a managing partner at Expert Title in New York, argues that borrowers should still shop around among title agents. He contends that borrowers are better served by independent title companies than by agencies owned by or affiliated with lenders. (All of them generally are agents for the same big insurers.)
“The public policy is to keep everybody honest and keep everybody on the same playing field,” Mr. Castellanos said. “The rates will be the same; are you getting great service?”