… and only 3% to 5% of premiums collected going to paying claims.
Why does everything connected to Real Estate seem scammy and corrupt?
{{ Some policymakers have questioned whether title insurance is necessary in all cases. In March, the Biden administration announced a pilot program that would allow buyers to waive title insurance on certain refinancing deals, citing an independent analysis that found these insurers typically only pay out 3 to 5 percent of premiums in claims, compared with more than 70 percent for other types of insurance.
Title companies paying agents for referrals is a practice that has occurred for decades, said Doug Miller, an attorney and former title company executive who is now executive director of Consumer Advocates in American Real Estate.
He recommends that home buyers insist on an independent title company that isn’t affiliated with their agent.
“Agents are supposed to be representing their clients’ best interests,” Miller said. “When you’re an agent and you steer business into your own title company, it’s called self-dealing.” }}
And this is rampant in my industry (high tech) for some reason, where lots of people want to invest their money in rental properties. I say no thanks. I don’t want an “investment” that requires insurance, maintenance, property taxes, bad tenants, etc. I’ve never understood the appeal. The only reason it makes money is because they are highly leveraged. And I don’t leverage investments.
Is there such a thing? Let’s say in neighborhood A there’s a 3 bedroom house that rents for $1500/mo, and in neighborhood B there’s a 3 bedroom house that rents for $3000/mo. The cost to manage each of them is roughly comparable (collect the rent, make sure bills are paid, respond to leaks and other issues, etc). Yet the management company charges $180/mo to manage the first house, and charges $360/mo to manage the second house.
Similar can be said about title insurance. The cost to do an exhaustive title investigation is similar for a $200k house and a $2M house, yet they charge close to ten times as much for the latter. It’s not an exact analogue because the amount insured is higher, but probability of paying that insurance is close to nil.
Likely true. However, what is continuously not reported is the time frame over which claims can be made. Claims could be made 30 yrs later, so from where does the money to pay those claims get drawn?
I am aware of someone who bought a property (to be a landlord) and had an attorney do the title search. Attorney reported clear title, so no title insurance needed. The owner decided to sell 4-8 yrs later. Turns out, the title attorney missed some critical (and publicly available) claims/liens/etc against the property. Settled out of court because it was the attorney’s (admitted) liability for not finding and advising of those liabilities against the property.
I am also in favor of title insurance. Never purchased a property without it. I was just commenting on the excessive prices being charged for it due to lack of competition and due to legal rent seeking.
Claims can be made 100 years later. Owners title insurance lasts for as long as you own the property. Of course, many people don’t buy owners title insurance, they buy lenders title insurance (because it is required by the mortgage lender), and I am not exactly sure how long the latter lasts (could be only until the loan is paid off or could be length of ownership?)
Unknown factor(s). Why the need for refinance? That is a key question. Does the first title insurance lapse when the property is refinanced? If not, then another title policy is superfluous. However, if there are claims/liens against the property (say a remodel or other extensive work was done), are those covered by the original insurance? Or not? IMO, any work done after the first title insurance was issued would not be covered–which is a risk to any future/subsequent buyer/owner.
You aren’t buying the same thing again, you are buying a different thing. Let’s say you bought a house in 2003, and you bought title insurance for it. That title insurance covers any defect in title up until the date you purchased it in 2003. But then you refinanced in 2021 when rates were at rock bottom. When you buy title insurance “again” in 2021, it covers all defects in title up until the date you purchased the policy in 2021. Two quite different things!
How would the mortgage bank know if there was some sort of odd title defect that came into existence between 2003 and 2021? Like a divorced spouse that lays claim to half the property? Or an overlooked mechanics lien? Of some other random loan that was secured by the house but not properly recorded, or not recorded clean enough for some reason (errors in record reporting happen all the time - wrong plat by accident, etc). This is why the refi bank required a new title search and insurance.