Part 1. The Title Insurance Racket.

Since regulators came in and forbid Title and Escrow companies from spending lavishly on their referral partners their overhead has dropped significantly.  Yet, their fees have not reflected that savings.  Further, thanks to technology, the cost of a title report can be as little as $25 dollars.  So if this is the case a legitimate question is “why is title insurance so expensive?”

16 Discussions on
“Part 1. The Title Insurance Racket.”
  • In IL it’s the attorneys who keep the lion’s share of the title premiums for reviewing the search. I regularly see them keep about 2/3 of the premium ($2500-3000) and the title company keeps 1/3 plusvalía the closing fee ($900-1300).

    • Attorneys are the legislatures and Attorneys own title companies. “Affraid of Attorneys”, does that answer your question?

  • In Pennsylvania we have the TIRBOP (Title Insurance Rating Bureah of PA) which seems to me like a somehow legal price collusion organization. People think title fees are state regulated, but TIRBOP sets the rates for the state and everyone in TIRBOP (which is about everyone) uses those fees. That is except all the extra random junk fees many title companies still work in like a freakin download a fee. I only know of Entitle that isn’t a member of TIRBOP and they are a little cheaper a good company in my opinion. So there is at least one company not in TIRBOP which means there could be more, but there isn’t.

  • you obviously are not ver familiar with southeastern Pennsylvania… All of the Big Box real estate brokers still have title relationships where the brokers and many times the agents are pocketing up to 50% of the title insurance premium. Between that and gouging the consumer by quoting the enhanced premium in place of the standard to make an extra 15%, the consumer doesn’t have a chance. I’m in complete agreement and have been saying for years, that we could lower premiums if we get the real estate brokers and agents out of the business. We, on the other hand, do not participate in these arrangements and have for years passed the savings onto the consumer. No closing fee, notary fees, doc prep fees, courier or wire fees and in many cases we cover all or part of the county recording fees.

  • The background music makes it very hard to hear clearly your message. I want to listen to your message not the music. Someone listening with me actually said, turn it off, that’s hard to listen to…. Of course I didn’t because I want the info!!!

  • You left out a big part of the fleecing equation. With every refinance, they get the homeowner again with a new lender’s policy. Even though title doesn’t transfer and there’s no additional title risk assumed.

  • I don’t think they do need to lower their prices. They not only insure they assist with compliance. I’m a real estate broker and it would hypocritical of me to say that they should not benefit from the scaled pricing like us. We all work hard in different ways and provide value at key times; yes it has some high margins, so what, I my piece of the pie does too.

  • Dear mortgage shots,
    Can we discuss the importance of title insurance? More importantly, can we discuss who will take the place of title companies if we were not involved? …or maybe we talk about the $74 of claims paid per average of $1400 charged per transaction? Without getting defensive the cost of a mortgage (with or without 3rd party costs) are more than title insurance. And furthermore a mortgage just dictates that a note is placed against the borrower and locks them into an agreement without possible ownership. You’re a lender right? Wouldn’t you like to know that your borrowers won’t default once they commit to home ownership? It’s lenders that insist on a mortgage policy which in most states won’t be possible for homeowners without a sellers or owners policy?
    Let’s talk about title insurance margins vs. mortgage interest gains and selling servicing rights. Or let’s consider that a home sold every five years, how much does that cost for that home in “assumed mortgage costs” or “assumed real estate commissions” or state and local transfer taxes. My guess is that the title costs in most cases are lower than all of the above. In regards to costs not declining in retro to pre marketing days…what have lenders done to lower margins, yields, and compensation? (I know that opens up a can of worms with regulation).
    My question is this…are lenders and real estate more important that we disregard the value of title and escrow/attorneys? (I even argue that the right lender and Realtor are critical.) my follow up question is: if title companies reduce fees what protection will borrowers, real property owners and lenders truly have? Discount marketing is a myth. Competition is healthy but consumer awareness is compromised. If you didn’t already investigate profit margins in title, it is only about 15% on a national average. So in your example of a national average title insurance policy cost of $1400 we profit $210 net taxable. Most tax brackets for corporations are taxed at 38%. We are barely above your proclaimed $74 payout per transaction. Did you also know that most claims (per transaction) are paid at the escrow level?
    Ok, my rant is over. I get it, TI is expensive are big claims are fairly rare. In contrast to 15 years ago the title insurance industry is threatened with 2 way more important issues. Wire fraud and compliance costs. You said it yourself, the CFBP and federal regulators have created an environment that constitutes higher costs. What would your clients say if the closing was cheaper but much crappier of an experience? After all, I assume that you and most lenders guarantee a smooth and expedient closing experience. Call me 616-970-6281.

    Warmest Regards,

    A true follower of your blog and video blog through NREP. Love your stuff!!!

    Rory Byrne

  • I retired 3 years ago from a 30 year career in escrow in the California bay area. I did resales, refinance, and commercial transactions. Just as in the mortgage industry and as in real estate, overhead is large. Commercial office rent, staff (receptionist, escrow officers, title officers, underwriting staff, typists, management, legal staff, sales people… you are familiar with all these people. They earn a wage. They problem solve, prepare title reports and try to keep your customers calm as they are closing that transaction where the loan documents came in 1 day before your rate expires. In a good market, the title/escrow business is in the “red” until mid May. Yes, believe it or not, claims are paid often. From small claims to appease a loan officer who lost their rate lock in the transaction described above, to multi million dollar claims on the house in San Francisco where the last title insurer missed a deed of trust, mechanic’s lien, or tax lien on that mansion or commercial office building in San Francisco. And everything in between. Title and escrow personnel (actual humans) work hard every day at eliminating risk so that you and your buyer, seller or loan customer does not have to experience the stress of such a claim. The recent short sale market was fun. Lots of hours and legal fees spent defending the new buyer’s ownership when the short pay lender claimed that they sold the house on the courthouse steps the same day we closed escrow. And it’s always fun to try to track down that private money beneficiary that was paid off 15 years ago and never released the lien. These types of things are more common than you would think. The best training we received in the title/escrow industry was hearing about the details of those claims from our in house legal counsel. Scary stuff. As a loan officer, you have never called your escrow officer asking for legal advice? And by they wey, the entire industry in California reduced rates for refinance transactions maybe 15 years ago. It’s called the “refi rate”.

    Not sure where your numbers come from, but there is a lot more to title insurance and escrow than a computer generated sheet of recording information. A real live person actually interprets that information and decides what is a risk and what is not. At the title officer’s direction, it gets typed by a real person, etc. I have always thought the fees were quite low considering the hard work and customer service that goes into your title work and closing process. If you’re still doing loans, I hope your escrow officer doesn’t watch your videos. 🙂

    • Great reply Jenny! If Frank wants to pick a legitmate fight he should pick on me, I’m pulling down commissions on some deals that have me making $1,000 an hour; which makes up for the lost transactions and exhaustive transactions by the way — I suppose you could call that my overhead, either way to do a real estate transaction RIGHT in today’s current environment everyone needs high margins.

  • I suppose you just lost a deal because the title costs got in the way of your fees. I’m sorry you couldn’t make another 1K on top of your other thousands of dollars finding its way to your pocket. I’m not even in the title industry but I am well informed of their purpose. What I do know is once your loan is closed, you move on to your next one. A title company, however, lives with that loan as long as it’s open and sometimes even after it’s been paid off. A title company also lives with the home as long as the owner is living there after purchasing an owner’s policy. Are there a ton of title claims compared to other insurance products? No but there are enough to warrant its need. Just like any other insurance policy, you never know when it’s needed until it’s needed. However, the five percent claims ratio is misleading. A lot more goes on behind the scenes at a title company. A title policy covers many more issues that a title search may not reveal. Fraud in today’s day and age is just one of many examples. Although, the title claim ratio is close to five percent, you have to keep in mind that a title policy, unlike any other is only a one time premium. You’re not paying it monthly, yearly, etc….A home is one’s biggest investment, A home is also a lender’s headache when their borrower’s stop paying. Guess who your lender turns to the second they stop getting their money? The title company who insured their loan. Ask your very own underwriter why they require title insurance. As for the costs….A title search that costs $25? Call a searcher in each and every county in our great country, get a quote and reply back with what you find. But that’s only a small fraction of the overhead involved. In fact, a title company’s overhead is just about equal to yours. However, their profit margin is only a fraction. How can that be if they are charging too much? I’m not saying their profit is a fraction of yours, I just wanted to reiterate that I’m taking about profit margin which puts everything into relative perspective. In fact, considering a title company’s purpose and the liability they take on, I believe they are squeezed in costs. One response commented on TIRBOP in PA. TIRBOP; a state organization looking out for their consumers issues their mandated charges after extensive research finding the perfect balance of allowable charges yet recouping overhead costs and remaining afloat in the event of a claim. Their costs are probably one of our nation’s highest but they got it right. All other non-promulgated states have to make up for it in their service fees yet the total average still comes out below PA.