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Article about Title Companies I read at the Title Company...

I was at a closing a little early last week and I read an article in Forbes while I was waiting for my clients to arrive and I have just been thinking about it ever since. The article was about Title companies and how they sell a largely outdated product for an inflated price and consumers are required to use them. It further went on to say that the largest offender (FA) who's market share is about $8 Billion Yearly gives away an exasperating amount of illegal kickbacks to Lenders and Realtors on a monthly basis.

The average Title policy in America, according to the article, costs consumers around $1400. Only $70 of this money goes to pay actual claims. The rest of the money pays for the overhead and sales people and generates a massive profit for these companies on a yearly basis.

The article argues that since Titles and Liens are all well documented by computers the chances of finding an error on Title have dwindled significantly and Title policies have in effect become outdated. The states could provide this service at a much cheaper rate to consumers and create the same amount of jobs. The only benefit from having Title companies, the article suggests, is the plethora of kickbacks it generates for the Real Estate Industry and for the profit of shareholders.

The article was compelling at worst and the more I think about it the more I agree. Anybody else out there feeling this way?

Posted by Joe Long - Purchase Perfect on 07/05/2007 05:25 AM

Comments (63)

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63 Comments on Article about Title Companies I read at the Title Company...

JUL

2007

Very Interesting. I agree that title insurance could be cheaper. I disagree about the errors I have had two clients that have had to call their title insurance due to neglectful errors.

Very interesting post. In this day and age you could call anything over charging. The fact is yes title companies do a search, but they also handle the closing and guarantee the results of their search. Worth the price, I think not. Illegal kickbacks? You bet. The problem with real estate in general is every company from brokers and agent through mortgage and title services is that we are doing business in 2007 with 1950's rules.

i always felt like that

and i know of some cases where i saw very high fees on titles ordered by buyers attys and knew the only reason that hoigh was because atty had to be getting a kickback from title co

its sad. it really is

Absolutely not!! I don't know about Wisconsin, but in Florida title agencies earn their keep.

When you refer to "finding an error on title" I assume you mean an error on a deed. To find an error is one thing. Do you have any idea what it can take to get that error corrected? I cannot begin to tell you how many corrective deeds my company needs to prepare and find the former parties to execute them in order for the new owner to have clear title to the property. (Most of these deeds are prepared by attorneys who do not specialize in real estate. Imagine how much worse the problems would be if state employees handled this very detailed work. Have you ever visited your county's recording office?)

Also, while computers make it easier to discover a lien, it often takes an incredible amount of research, work, and diligence to get the lien released. Preparing the paperwork to do so is usually routine, but finding the parties to sign the paperwork, getting their cooperation, getting them to have the document notarized and then returned to the title company is often nearly impossible.

Also, realtors and lenders only have their client to consider. The title agency has the buyer, seller, listing agent, selling agent, mortgage broker or loan officer, lender, title insurance underwiter, and sometimes others' interests to reconcile. Miss one item from any one of them and the title agent is crucified and must pay for out of their fees.

The risk retained by the title insurance company is limited to the specific items in their policy. But the risk retained by the title insurance agent is limited only to someone's imagination. Everyone believes that we are responsible for everything-title related or not.

No, my esteemed colleague, I do not agree that title insurance agencies are overpaid. Like anything in life, you get what you pay for.

well if title is wrong then title company is on the hook

not the borrower

When I first went in the real estate business (1964), title insurance wasn't all that common throughout the US.

Instead, people had attorneys run abstracts and tell them via a written opinion what breaks in the chain, if any, they found.

Then the seller would have to do his best to correct the breaks to the satisfaction of the attorney representing the buyer before the closing (which was in an attorney's office.)

The only guaranty the buyer had was in the warranty of the deed. A lot of good that did if the seller was broke when a claim needed to be filed against him.

As time passed, more and more title offices moved into more and more states. I personally think that was and is a very positive thing.

But in all transactions I'm involved in, I do insist that the title attorney show me the chain he compiled for every one of my buyers and sellers, and I have for years, and I study them and search for errors.

I do this because the facts are, many title companies will go to great lengths to get out of paying a claim, all the while having actually found breaks in title chains, but thinking that no one will ever catch them, they issued the policy and collected the premium. Premium greed, I guess, is what it is. They knew all along they couldn't guarantee clear title.

And so often the seller (via his agent) is insistent upon using their favorite title company (translate that to mean the AGENT'S favorite escrow officer/closer), they don't have a clue as to what that company's record is in claims and settlements, nor has the burden ever been put on them by our professional ethics to know.

My clients are so used to my idiosyncratic representation, like reviewing loan documents and deeds and actually calling the preparers and making them correct errors, disagreeing on language and such, and checking title chains, that I guess they assume all agents do that. I just think it's my job. Others may not think it's theirs.

And that's why I have no intention of ever compromising what I have set as my commission fees.

Forbes is right. Title insurance IS too high, and at least in Texas, the state insurance commission regulates and determines those rates That's where the public should go to get this straightened out. The last thing I want is for the states to get into the title insurance business.

And I for sure don't ever want to go back to there being nothing more than an attorney's legal opinion backed by the warranty of a deed, as the protection to my clients that they have gotten what they were told they bought.

I think you have a point, but I have seen the title insurance required to pay off liens, so it's not totally out of date. It gets weird when you have a spouse that died, the home was left to the son, he sold it to his friend 10 years ago and now the friend is trying to sell it and you realize they never did the 1st transaction right. Messy and expensive.

JUL

2007

I agree it could probably be done cheaper, but it came in handy just last month when we discovered errors had been done at closing. It was a real mess but because of the title insurance, we got it all fixed.

Yes, title insurance is waaaaaaaaayyyyyy overpriced. They have a license to print money

I still wouldnt buy a home without it.

LOL. I recentl had a real estate investor buy a home for cash without a title policy. he had his friend at the title company run a search and that was god enough for him.

Wow -let the states handle it? Putting up with all of the government agencies in this business is already hard enough. Let's not even think about adding another layer of bureaucrats to wade through. I'm for less government involvement in our lives.

If you are an agent , find a good title company with a reputation for paying for claims and recommed them to your client. It goes way beyond researching the chain of title on a computer. I have had title companies pay for several unusual situations. Once when a client purchased a home where the surrounding land had been sold off by the previous owner it turned out the septic field lines from my clients home were in the adjoining property. The title company paid up for the new field lines.

Good post, interesting topic.

The cost of title insurance is too high if you never have a claim - just like life insurance. However, if you are ever involved in a situation where there were some errors in the previous deeds, and someone is about to take your home away, the cost of title insurance is cheap, cheap, cheap.

I have to agree that in some areas there is too much beauracracy in the insurance industry. But the costs should not be your concern as much as what are the reserve levels for these companies? have you ever seen what can happen when a developer build a street onto someone elses property or easement?

Thanks all for the comments and I hope this spurs a few more blogs from others. I still agree that title Insurance is overpriced but necessary and it seems that is what I am hearing from almost everyone else here. I am also hearing people say that more government in the Title Industry would be a bad thing. Then I ask, "If we have an issue with the price and not the service, how do we positively influence the price without diluting the product without using Government controls?"

Technology opens the door to very serious problems. I would not buy a title policy from the trunk of someones car, but ALWAYS purchase title insurance on the properties I buy.

As a loan officer, the title company I use amkes me look great, by offering the highest level of service possible. Most importantly, they protect my borrowers!

Ask about reissue rates. If the same attorney appears on the deed, there may be a discount to the policy rate.

I am not speaking of the closing agent when I speak of Title either, only the policy they put in place. So my question on price should be directed only towards price of insurance, not paying the notary. Thanks.

Lenders title insurance is right up there (or down there depending on your perspective) with credit life insurance for over priced products.

More education and more competition in that business would level the playing field pretty quickly.

I read a similar article and it certainly is disturbing.

THat's about right Jim, except in places like PA, the actual Insurance rate is regulated. EVERYONE in the state follows the same rate schedule.

Regarding INSURANCE being a money maker....heck, all insurance is a money maker....if the claims are low. However, that is Revenue, not Profit.

Joe started this thread and mentioned ILLEGAL kickbacks yet I didn't see much commentary. I'm pissed at the LEGAL (RESPA APPROVED KICKBACKS).....AfBA's.

In Arizona, we would be in dire straits without a title company. I have never ever been aware of any kickbacks to Realtors. We don't use attorneys here though, so maybe that's where the difference lies? I completely rely on my title officer to take care of things and she does and is worth every cent both to me and to the buyer.

As for the dollar amount for title insurance, it is based on the price of the home. Title only gets about $400 for their job, and title insurance ranges about $1,000 for a $300K home.

I agree with Teri. Here in Arizona I have NEVER EVER been aware of any kickbacks to Realtors. The work that the escrow officer does for the buyer is worth every penny that is charged. I think that the title companies are getting a bad rap with all this talk about illegal kickbacks.

Someone pinch me. 'Defenders' of Title companies on AR?

WOOHOO !!!!!!!!

I was very interested to hear about this. The title policies are so generic - I have often wondered what the true level of research was. How do we initiate reform?

First we rid ourselves of the RESPA LEGAL KICKBACK AfBA's....(of which many Realtors on AR belong)

THen you will see the Big Title Guys fight it out with the Little Title guys..true competition.

I read that same article. I've felt title insurance is too expensive for a long time. I think that the insurance commissioners need to let a little loose on the regulation to allow for more competition, price wise. The industry is too protected by the states.

Let the State do title insurance? Ridiculous. They can't even spell title.

As mentioned earlier, I WOULD NEVER BUY A HOME WITHOUT IT. Think about it, the banks and other lenders won't lend without it, why should I buy without it?

Oh, I forgot to mention - KICKBACKS? Are you even serious? Kickbacks have been squeezed out of the title business. We get pens and notepads - marketing pieces at most. Once in a while, a title rep might buy lunch or a drink. Kickbacks? I don't think so. One company was in trouble with the State of Washington a while back, but the info I recieved looked like the State was way to picky.

I think title companies to a great job and if everyone thinks people in our industry are over paid. I know that problems do arise on title that a computer can not fix. My title rep has helped me out at the end of a lot of closings in order to clear up some last minute mishaps. They are in sales just like we are and believe me a computer can not do our job either although some like to argue that.

very informative post!!! I'd agree that title companies do over charge... But i haven't ever heard of any kick backs

Joe

Gee I don't know about other states but in the state of California they have severely cracked down on what title and escrow companies can and cannot do. For example even taking a real estate agent out to lunch would be a no no. In the area of California I work in they are very strict so I don't see how you can make a blanket statement about kickbacks to Real Estate agents. :/

Hi Joe-

Interesting article and topic. For me, it's a lot like auto insurance...... legalized extortion. Lenders and banks require it, the average consumer doesn't even know what they're covered for. It is however, a necessary evil and when needed becomes invaluable.

JUL

2007

Kelli - Great Response.

Roberta - I am simply summarizing an article. Please follow the link, the kickbacks are explained there.

Joe,

I realize that, but Scott Wooly should do some better research. I think the Title companies provide a great service and like I said, here in California, although in any profession there are those that skirt the law, we have some great title reps.

My experiences with title insurance claims have been cited in remarks for several blogs recently that addressed the title insurance question. Suffice it to say that I'm a believer, because I've had cases saved by title insurance. I really don't care how much goes to whom - I just want it to be there when my clients need it.

JUL

2007

Interesting.....I'll have to research this one some more.....my concern would be over people that know how to manipulate information on computers and can this possibly come back to haunt you?

JUL

2007

I think part of the reason their claims are so low is the research and housekeeping thats done before the policy is issued.

They said the states could do it for less, they were kidding right. When was the last time you heard of the government providing something for less?

Terry - Did you read the article?

JUL

2007

The title bus in pa is regulated but we have a title com in delaware county that charges basic when the state rate sheet says reissue, how about 55 courier fee,40 notary for two documents,200 for recording mtg 17 pages should be only 150 pa/nj is the title co located in ridley,stay away.

JUL

2007

I've heard that a LOT of Title companies try and charge the basic rate instead of the re-issue rate. Some clients (Realtors/Mortgage Brokers) are not paying attention and assume they are using a reputable company. We ALWAYS look for the opportunity to provide the re-issue rate. Repeat business is much more important than scamming a buyer.

Look closly on line 1101 I think it is of the HUD... this is where some garbage is often tossed in by Title companies.

JUL

2007

I've been in the title business for over 35 years. I have an empty desk in my office . You are welcome to sit there for an 8 hour day. Then tell me if title insurance is over-priced.

Fran,

What is your response to the record profits recieved for the minimal effort the Title companies actually put forth? This is a forum for discussion, please justify to us, your reason for believing that Title costs exactly what it should.

Thanks.

Joe - you didn't ask me....but I will say flat out, that Title rates.....REVENUE, do not equal PROFITS.....

If anyone knows about operating costs...... thy would clearly specify the 'MINIMAL' efforts.

I mean....geeze.....we go 'crazy ' every day....... Minimal?

THAT IS EQUAL TO A CLIENT SAYING TO A REALTOR....."hey, you showed us two houses, why am I paying you 6% on $400,000?"

In other words....do you KNOW what it takes to provide Title Insurance?

From the Title company side..not the underwriter.

Rob,

Based on the article it costs the title companies about $25 per search, then they must pay overhead. Clearly there is a large profit margin.

Thank you for your spirited response.

JUL

2007

Rob, I'm glad to see another opinion coming from experience on this blog.

I think it is always a good thing to examine efficiencies, service, etc. in all areas of real estate, but am saddened that some colleagues criticize the profits earned by the title agencies. I was a realtor before crossing over into Title Insurance and was SHOCKED at what goes into a file to get it clear to close.

Even though the title search is automated, the examination of that search is not. An examiner must read many documents and determine whether or not they were prepared properly, executed properly, cleared properly, taking into consideration state laws that do not remain stagnant. Why are they being faulted here for doing a good job?

In addition to the search and examination of the public records, accurate payoffs from current mortgages must be ordered, reviewed, and calculated good through closing. Add to that collecting estoppels from condo or homeowner associations and bringing them current on outstanding maintenance and assessments, municiple liens or things that may give rise to a lien, county taxes, not to mention any Notices of Commencment, Judgements, the list is endless.

Add to that list reconciling all matters of the Sales Contract, and the 8-24 pages of Lender Instructions received with the bank package, and escrow reconciliation and monthly reporting of the disbursement of their funds.

All of these items are collected manually, reviewed manually, and resolved manually. All of this equates into a lot of risk. The higher the risk, the higher the cost. One mistake, and the title agency is on the hook and hung out to dry. Those mistakes are paid for out of their profit margin.

Have the profits increased in the last few years during the "boom"? Yes, premiums are based on Sales Price for Purchases or Loan Amounts for Refi's. Prices and Loan amounts have increased in recent years.

The same could be said about the income of Loan Officers and Real Estate Agents and I respectfully submit that their risk is minimal compared to the risk carried by the Title Agency.

JUL

2007

I am always amazed at how much easier the other guys profession is and how much they cheat! How they are getting to much money for what little they do. We hear this about loan officers, Realtors,escrow companies, and now title officers. It seems to me we are all needed and should appreciate the job done by each of our respective professions.

Are there unethical individuals in each of these professions? Of course, but by in large part most of the individuals are hard working, honest people.

Amen, Roberta!!! The perfect response!

I don't have any issue with the pay of Title Agents or question the hard work these people do. And we have clearly all agreed here that Title is a necessity. However the profit margins are massive, even after all of the employees are paid and my clients end up paying that cost.

It's Sunday night , and I don't want to write a litany.

Let me ask you Joe.... you deal with a Title company, or multiple, correct?

You use the word 'massive'.... so I'd just like your GUT feel with the companies you are dealing. Is the owner wearing a lot of gold? Employees driving Farrari's? Etc.

My company and MY COMPETITION.... this is not the case. The overhead is significant and no one around MY area is 'rollin' in dough'. Profitable, I sure as heck hope so as I'm an employee. I also have been privy to cash flow numbers, revenue and I know what MY commission is.

If you can give me your own EXPERIENCE and of course just your observations and thoughts on the people you deal with, and this massive PROFIT .....maybe I need to move, hook up with one of your Tiltle companies.

Good idea, Rob....title must be doing a lot better in Wisconsin than here in Florida.

JUL

2007

I have worked with 5 title companies in Wisconsin over the past 23 years. I have asked every one of them if they ever paid out a claim since they were in business. I also asked if they ever heard of any other title company paying out a claim. The answer form each of them is always exactly the same. None of them ever paid out a claim or even heard of any one paying out a claim. My question is, what other insurance company is there that can collect insurance premiums and never have to pay out a claim? Even if they would have to pay out a claim or two once every 23 years or so, I can not think of a better legal scam.

One more comment. I have never received any compensation from any title company I have ever worked with, before or after sending them a customer or client. Please send me the name and number of those who do so I can get in on this.Thank you.

My company was just challenged in a claim for the first time in 3 years (the start of the company). Turns out , after research, another company (Title) has liability. We were clean - we always were...someone SCREWED UP and put the claim against us. WOULD we have paid if we made the mistake? Of course. WHY NOT?

But to the subject of 'INSURANCE " in general.

I pay for example, Home Owners Insurance..... have never submitted a claim. I never submitted a claim for life insurance :^). Have never submitted a claim for car insurance. Etc., etc....

It is what it is.... INSURANCE.

The LENDERS are 'requiring' it from the clients (borrowers). If a person wants to buy a house cash... they certainly do not HAVE to buy Title Insurance.

I THINK the biggest misconception here is that the BIG GUYS.... Fidelity, First America, etc..... are making a ton of money..... and many of you in the field (Real Estate) think the 'little guys' are ALSO rolling in dough.

YOU ARE SO FAR FROM REALITY.

Who is getting investigated by the Feds among other agencies? (See Colorado, Washington, California....news)..... NOT people like Bertrum Settlements of Allentown, PA. Heck, our competition in the Lehigh Valley is laying people off. Thankfully, we are not... our business model is working.

The 'Mom and Pop" places are NOT making a chunk of change.... far be it.

My company COMPETES with our own underwriter for business..... guess who has more clout to get business? Guess who can move money in their organization easier?

Everyone here that belongs to an AfBA, and getting RESPA approved kickbacks (yes , you may call them dividends), should not even comment IMO (my opinion)...as you are TOTALLY driving the customer your way for your commission/dividend from your Title Company , regardless of fee structure and services. (Is every Title company equal? NO)

I'm in PA..... how many counties do you think are 'on line' for searches? ..... uh.....a FEW.

I have NO PROBLEM with this industry being investigated, regulated, etc. I DO have a problem with the broad brush being placed on 100's and 100's of Title Companies that work their arses off to meet client needs....and NOT driving Lamborghini's.

JUL

2007

Thank you very much for sharing, I knew they made money, but I had no idea!

Rob,

I commend you for your energy in defending our title insurance profession. Keep up the good work. I have always said that ours is more a vocation than a career because of the many ways we help people through the closing process, and with no fanfare or very little recognition for our efforts. We are an industry that does little or no advertising and yet has endured for over 125 years. There are Lexus's, BMW's, and Cadillacs in our parking lot only when there is a closing and the realtors and mortgage guys show up.

Fran

Rob,

I think you hit the nail on the head. The title insurance COMPANIES (underwriters) are making the money. The AGENCIES are hardworking small businesses trying to make a living. People are getting the two confused. It is like referring to Allstate's profits as being made by your local car insurance agent.

JUL

2007

Laurie,

I wish I was able to say as much in so few words. Thanks for your perspective. When our underwriter friends start showing an interest in leveling the playing field by chiming in on AR, our industry will be on the road to recovery.

Fran Gaspari

Thanks, Fran. I agree. The title industry is so misunderstood. More education will definately help!!

JUL

2007

Aparently know one out there has any clue what I was trying to point out in my comment. At no time did I suggest that Title companies are making a ton of money as I have no idea who actually profits from the policy, except maybe for the corporate office of the company issuing the policy.

I was just trying to point out that at least in the part of Wisconsin where I work, Title Policies are a legal scam. As I stated in my comments, title companies very seldom if ever have to pay out any claims. If any one has actually read the standard lists of exceptions in a policy, it is easy to see that the only real insurance the policy offers is to the insurance company so they do not have to pay out on a claim.

I would never criticize the title companies I work with as they always do a great job and to date none of them have ever screwed up a policy. I am only referring to the title companies that actually issue the policy, not the title offices that work on the policy for a closing.

Then you have an issue with the Underwriters. AND perhaps the LENDERS who 'demand' the borrower obtain Title Insurance.

I'm glad you clarified your position on 'Title Companies' reaping massive profits. it sure as heck isn't happening in my neck of the woods.

Don't you truly find most 'Insurance' odd? IT'S INSURANCE. If the title job is done correctly, there will be few claims.

If you want to buy a house for cash, no one is suggesting you obtain Title Insurance. heck, you can even do it without a current owner search.

HOWEVER, if you want to BORROW money - you will play by the rules of the people LENDING you the money. Think it's excessive? OK. Tell the Lenders.

IMO, so are CC rates, Starbucks coffee, school taxes, Life Insurance, Medical Insurance, Auto Insurance and Income Tax.

JUL

2007

I'm sorry to take so long to get back on this one...

Rob, I believe I made it clear the profits I am regarding to are the profits in the article reaped by the Insurance companies, not the title agents. Please consider this topic from my customers eyes, and pretend you are paying out the money. Does your opinion change? Also, I agree that Title Insurance is necessary, just that it is overpriced.

Broker, Thank you for your hands on style of comment. I appreciate a voice from right here in my backyard on this subject. The kickbacks referred to by the article are actually going to brokers and Real Estate Agents.

I would like to ask everyone else commenting on this blog from here on out to read the article I linked to, not just the summation I gave, because this blog is simply in response to that article.

The profit numbers are not in the article. (Unless I'm blind - possible).

From the Article: "Yet First American and its two main rivals--number two Fidelity National (no relation to Fidelity mutual funds) and third-ranked LandAmerica--are fat and thriving in an $18-billion-a-year business that has quadrupled in ten years."

In many cases there aren't any title issues but when there are you'll be glad the title company was there to resolve the problem so the closing can happen on time... SUCCESSFULLY! Then if there is a problem down the road, we won't get sued. It's a CYA issue for all of the parties in the transaction.

David, I think you have cut to the chase on this issue. Title insurance was created in the late 1800's by lawyers to deflect responsibility from them as practitioners onto the corporate title insurer. If, however, a lender can see its value from a perspective of 60 to 80 LTV's, then the more money down one puts into a property, the more value there is in the insurance. Also, as one builds up equity in their home by making mortgage payments, the greater the value of the insurance, especially since the policy has already been paid for at closing, without the need for annual renewal fees.

Fran Gaspari

Joe, when one says "an $18 billion a year business".....they are quoting REVENUE.

Everyone in the world (Corporate America) tosses out revenue numbers.

I am saying that , yes, just looking at the graphs - there is undoubtedly a profit increase percentage-wise. But please do not assume those dollar figures in the report are profit.

Those monies also went into the overhead to automate. Probably a nice chunk of change.

Hey, I'd LOVE to see FA get their behind beat.... but I'm not going crazy over a reporter with an agenda (non-disclosure of profit, loose with the facts on electronic seaches of counties (3,600 counties in the US I think) regarding what % are in fact on-line.)

THe writer should have laid out facts to go along with his fear mongering , eye catching article.

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