Title insurance companies accused of running "racket"

First Realtors took it on the chin when the U.S. Department of Justice accused them of pushing overly high commissions on consumers.

Now it's the turn of title insurance companies. Here's a critical article from Forbes that's still making the rounds after being published months ago.

Here's a juicy part concerning First American, the country's biggest title insurance company:

First American has doubled its prices in a decade, to an average charge of $1,472 per home for a title search and insurance. Meanwhile, thanks to computerized record-keeping, the cost of searching for a home's ownership records online has fallen to as low as $25. Technology also has helped make mistakes rarer; now only $74 of each policy goes to pay claims--that is, make home buyers with defective deeds whole. That leaves a $1,373 spread for overhead and for profit.

Fancy this: racetracks that keep 93% of your money and return only 5% in winning tickets. They wouldn't last long, not unless they could somehow rig the rules to both forbid price competition and make the purchase of race bets mandatory. That's more or less what the title insurance industry has done to American homeowners.

When I bought a new home last year I certainly felt overcharged by paying more than $1,000 on title insurance. My home site had been a citrus grove for decades - not much chance a tangerine was going to stake a claim to my property.

What do you think?

Comments

[Fuzzy Bear]

First Realtors took it on the chin when the U.S. Department of Justice accused them of pushing overly high commissions on consumers.

It looks like greed has overtaken the entire realestate industry. It's no wonder the consumer has stopped/slowed down in purchasing a home. Not only are homes currently overvalued in the Tampa Bay area, but the closing costs are unaffordable.

The other day a realtor replied back on my comment that they do not set prices. They most certainly do help set the sales price on homes. The higher the price, the more commisions they receive. Ever wonder why the realtors do not bring clients to for sale by owners? They do not want to sell a property that does not pay their higher based MLS listed properties.

The entire RE industry is a referal based industry. There are often kickbacks to the realtors for referals to title companies for the business. In order to pay the kickbacks, the title company must increase it's fee's and pass it on to the consumer. Granted their are many in this industry thaqt are honest and upfront with the consumer, but there are too many who are not.

The time is here for the industry to be put under the microscope to weed out these unethical/illegal activities. The consumer must also step up to the plate and fight back by refusing to pay the higher costs. In the meantime, we are in for a rough ride in 2008, which I believe will be worse than 2007 in the RE industry.

[Doug Miller]

I do agree that title insurance is a racket, but not for the reasons you state. I own a title company in Minnesota and can say that the number you are referring to for claims is skewed.

I believe that most claims don't ever make it to the underwriter. My company retains a large percentage of the title insurance premium. We do the abstracting, the title exam and make the underwriting decisions. In fact, if there is a title defect it comes to us first. If it was due to our error, we fix it and it never makes it to our underwriter. I would say that most claims don't make it to the underwriter. We have some of the lowest claims in our area, but we still pay out quite a bit via our claims department. So I think you're looking at the wrong area if you want to see the problem.

The problem with my industry is what Realtors are spinning as "One Stop Shopping." Keep in mind it used to be called controlled business arrangements until an industry lobby had the name changed at the federal government level.

My industry is plagued with reverse competition. Realtors and their firms, builders, loan officers and even some attorneys are using their special relationship of trust to betray their clients and steer them into over priced in-house title companies. My "competitors" are spoon fed their business, they don't have to earn it and instead of capitalizing on the so-called efficiencies created by this merger, they are raising their prices. Why, because their clients don't know the first thing about title insurance.

The problem is that competition has been carefully extracted from my industry. That's why prices have gone up.

[Fuzzy Bear]

The problem is that competition has been carefully extracted from my industry. That's why prices have gone up.

Your company is one of the few that operate on a legitimate basis. My points are made from a legal basis based on past and current legal cases. You and I both know that the title industry offers kickbacks to the realtor which is illegal in most states.

The title industry markets directly to the realtor and not the consumer. It is often the realtor who decides which title company they refer their business to and not the consumer. The realtor wants a piece of the cut which is why title companies are offering illegal kickbacks.

I agree 100% with your statement that the competition is being carefully extracted from the title industry. That too often leads to higher prices to the consumer and probally violates the antitrust laws.

The fix in this industry and the RE industry is simple, let the consumer make the choices when it comes down to selecting a title company, appraisals, etc. All the realtor/builder would need to do is provide the consumer a complete listing of licensed companies and that provide these services and let the consumer choose.

[FreeTitleQuote.com, LLC]

It's a shame homeowners don't shop around for title insurance rates on their own. Afterall, it is their right! Most FL homeowners are unaware of the "Butler Title Rebate" offering hundreds if not thousands back on your home closing when you purchase/sell/or refinance. Check out www.FreeTitleQuote.com today and Compare.Choose.Close on your next title policy in the state of Florida and Nationwide!

[Sandra]

I speak for many professional Realtors; we give our business to those who provide a smooth closing for the least amount to our clients. Kickbacks are illegal and any reputable title company worth their salt doesn't engage in them, despite what the public perceives. I will admit we regularly receive silly tchotchkes from title agencies, but you can hardly call a flashing fan bribery.

I feel I perform a service to my clients by referring them to title companies. I use my relationship and sales volume to negotiate better rates, avoid nickeling and diming, and to demand re-issue discounts be justly applied. Any questionable title charge to my client is scrutinized. My firm does have an in-house title company; I used them once and only once. They were CHEAPER for my client and supported my broker, but I found the extra money spent on a professional title firm was well worth it. Cheaper isn't always better.

I've had title agents clear up issues, travel to closings and do just about anything. They often do work without getting paid as sales fall apart regularly. I certainly wouldn't classify their rates as a racket.

[Ronnie]

My wife and I own a title insurance company in north Pinellas County. We have been in business for 17 years. When we first started the company, Realtors, banks and mortgage companies called us for quotes. They all shopped around to find the best deal for their client. Today, we seldom receive a call from anyone who has an in-house title company. We have seen many instances where homeowners paid outrageous fees that independent title companies do not charge. It is a shame what is happening to this industry.

As for the insurance premium charges, we charge the same rate we have charged since 1990. However, to look at what is charged and compare it only to claims is not fair. You must factor in our other expenses which have steadily increased each year. These expenses are rent, payroll, taxes, business insurance, employee health insurance, utilities, etc. There is not a business in the world who is not there to make money. If we cannot make money, then we close our doors and our employees are out of jobs.

[Tony]

Ronnie - As for the insurance premium charges, we charge the same rate we have charged since 1990. However, to look at what is charged and compare it only to claims is not fair. You must factor in our other expenses which have steadily increased each year. These expenses are rent, payroll, taxes, business insurance, employee health insurance, utilities, etc. HOW FUNNY it is that you did not mention the rise in the sale price of the home WHICH IS WHAT you base your prices on. The rate may not have changed, but the home prices have risen greatly, so each trans action is worth more to you.
It seems people in this industry also forget how much less work they do becuase of the internet.
You know your margins have gone up, you choose not to mention that becuase you and your counterparts are deceptive at best, outright liars and thieves at worst. Let's not forget the couple who stole all the escrow money to live the high life.