Found in the closing costs of all new home purchases and refinances is the great American rip-off: fees for the Title Insurance. It can range from several hundred to several thousand dollars, yet it is an unnecessary and archaic product that should go the way of the dinosaur.
In days past, Title Insurance was necessary to avoid competing property claims. It involved a lengthy search of records of paper records, was time-consuming and offered a value to bona fide purchasers of real property against future actions. However, in the age of technology--the search is simple, the title virtually guaranteed and future title actions are rare as a result. Nobody really needs this service anymore.
Title actions for property are almost nonexistent and most title companies can issue a title report in a matter of minutes, if not seconds.
Forcing individuals to repurchase Title Insurance when refinancing is especially egregious, a title report alone should be sufficient evidence to show no new restrictions, liens or taxes are owed on the property since the initial purchase.
The reason this "insurance" still exists is that mortgage companies routinely require the policy as a condition of financing. But State Government can provide the same service, at a lower cost to consumers and cut-out this predatory industry altogether.
The Title Industry is awash in illegal, unfair and unethical practices. The problem stems from an unholy alliance between lenders, real estate brokers and title agents. Although illegal, the Title Industry offers incentives to these agents who are supposed to work for their clients. The result is that brokers are rewarded for their referrals.
The solution is a state-run Title Insurance Program modeled after Iowa. In that State, Title to land is guaranteed by state government, rendering the need for Title Insurance moot. In fact, it has been illegal to sell Title Insurance in Iowa since 1947. Yet, even there the Title Industry is working hard to remove this consumer protection law that has worked for its citizens for over 60 years.
Iowa consumers are not fleeced by an industry that utilizes kickback schemes and incentives to brokers, collects premiums and rarely pays claims.
Recently, the California Department of Insurance announced new regulations for the Title Industry. However, these new regulations fall far short of actions needed to protect consumers. The regulations were, indeed, a victory for the Title Insurance Industry which continues to lobby the State Legislature and Department of Insurance for less stringent regulations such as licensing and strict conflict of interest penalties.
And the abuses continue. LandAmerica Corporation was recently fined $3.5 million for abuses and ordered to cease and desist their unlawful conduct. LandAmerica was abusing its own rating and underwriting system and overcharging their customers by failing to follow their own rates. LandAmerica isn't an anomaly.
Consumers, who have no knowledge of the underwriting and rate process, are routinely railroaded into buying over-priced Title Insurance recommended by their broker or lender.
But there is an answer: The California Department of Insurance has a website that helps consumers choose the most inexpensive Title Insurance available. An informed consumer can actually insist their broker utilize their choice of Title Company. This information can help save consumers hundreds of dollars every time they refinance or buy a new home.
But because few people know of this service or their rights to choose their own Title Company, most fall victim to the cozy relationship that has developed between their broker and the Title Company.
The real answer lies in putting these pirates out of business completely. It won't happen without public pressure, but the California Legislature should immediately enact the Iowa model for Title Insurance. Why should Californians pay more for Title Insurance than residents of Iowa?
We, in California, should look forward to the day when Title Insurance goes the way of the T-Rex and California Consumers are not routinely fed to an industry that has no justifiable purpose to exist.
Sometimes extinction can be a good thing.
Onward;
Richard Alexander
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