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Friday, August 04, 2006

Title Insurance: Kickbacks, Competition & Prices

Forward:

"I have a keen interest of Ethics in Business, particularly real estate. A good portion of my comments, questions and posts are with this in mind. And, frequently, our office comes across ethical issues that we encounter or observe from clients, loan officers and Realtors that we work with everyday."

- Tim Kane (Blog handles: anonymous, Tim, S-Crow, Chief Errand Boy)
Consumers get the short end of the stick.

Title Insurance is a necessary function in the purchase or sale of a home. I'm posting this topic here and also over at Rain City Guide (a blog predominantly for Realtors and other professionals who work in the industry). It will be interesting to get commentary from both sides. Realtors don't really hang out much or at least post comments in the open at Seattle Bubble and consumers don't really comment that often at Rain City Guide. If only a few consumers new to home buying learn a little about title insurance, then I'll be happy. I believe this will be educational for everyone.

Background:

Title Insurance is one of the least understood, yet one of the most expensive closing costs consumers will encounter in a purchase and sale of a home. Recently, title insurance companies have been under significant pressure to clean up their act. Many state investigations (insurance commissions or Attorney Generals), including here in Washington State, have looked into and filed cases against title insurance companies for alleged kickback schemes involving real estate brokers, lenders and builders. Many high profile cases have led to significant settlements with title insurance firms.

I hope to post the issue simultaneously on both blogs so that, if people are interested, you can get quite a glimpse into how both consumers and Realtors address the issue.

Many facts I'll present are eye opening, controversial and alarming. Title insurance is huge business. Huge. Realtors, lenders and builders steer clients to affiliated business relationships (ABR's) they have, including title companies. It raises questions that I'll try to answer:
  • Are affiliated business relationships created with consumers best interests in mind or is it used to steer/control another profit center in the revenue generated by the transaction?
  • Why do title insurance companies never advertise to the public?
  • Why is title insurance so expensive?
  • Why do only four or five title insurance companies have a stranglehold of 92% of the entire US market?
  • Why does the maverick State of Iowa ban title insurance companies? And how can they self insure at half the cost of title insurance firms in other states?
  • If you own a home, did you shop for insurance or were you steered by the agent, builder, lender or escrow firm you worked with?
In the quest of my "Consumer Driven" mantra, stay tuned.
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5 comments:

jcricket said...

Enough with the stay tuned :-) I want to read about this title insurance scam. It's always the ridiculous line item on the HUD-1 form (along with crap like "application fee" or "origination fee").

Tell us what's going on under the covers here.

S-Crow said...

Jcricket -

I'm in process, but this darn weather and kids b-day's & Mariners games and Blue Angels and Seafair seem to be distracting me, in a good way!

The motivation of this piece is to help consumers understand title insurance, it's role in the transaction, who pays for it and how to identify and decide if they would like to avoid or participate in the potentially costly affiliated business relationships that brokers, lenders and title company's have woven into the fabric of a transaction. Most of all, I want to be a voice of reason and further arm consumers with relevant and unbaised information.

Here's a Link to the recent (April 26, 2006) testimony given to the House Committee on Financial Services & Subcommittee on Housing and Community Opportunity by J.Robert Hunter, former Fed. Insurace Administrator under Presidents Ford and Carter.

It is a .pdf document,an easy read, and packed with information that tells the story.

Go M's!

jcricket said...

Thanks for the link Tim (S-Crow Tim). In that link was this shocking bit.

The $17 billion in title insurance premiums paid by consumers in 2005 was roughly twice the
amount paid in 2000 and four times the amount paid in 1995.


Holy crap

Anonymous said...

Kudos to you on your integrity, s-crow. Look forward to reading it. I hope you don't get fired!

p.s. I was steered to an escrow/title agency.

Anonymous said...

Go M's!

Sat Aug 05, 11:43:47 AM PDT

++++++++++++++++++++++++++++++++

Really. Will they ever?