Title Insurance for Home Purchase

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Invest_Wisely
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Joined: Tue Jan 08, 2019 9:15 am

Title Insurance for Home Purchase

Post by Invest_Wisely »

My wife and I are completing the purchase of a home. We're not needing a conventional bank mortgage, so title insurance isn't required, but it's strongly recommended by the closing lawyer drawing up our paperwork. To be honest, I'm not 100% clear on what all title insurance covers, but I've read enough to determine we should probably have it.

The lawyer is listing $2400 for the title insurance which feels steep. Would it be worthwhile for my wife and I to seek out an independent agent to acquire title insurance instead?
Luke Duke
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Location: Texas

Re: Title Insurance for Home Purchase

Post by Luke Duke »

In Texas, the price of title insurance is based on the sales price of the house. The price is set by the state and isn't negotiable. If there were price competition, I believe that a policy that now sells for $2400 would instead sell for $800. I doubt that more than 1/1000th of title policies actually pay out any amount.
Ostentatious
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Re: Title Insurance for Home Purchase

Post by Ostentatious »

Invest_Wisely wrote: Fri Dec 04, 2020 3:53 pm My wife and I are completing the purchase of a home. We're not needing a conventional bank mortgage, so title insurance isn't required, but it's strongly recommended by the closing lawyer drawing up our paperwork. To be honest, I'm not 100% clear on what all title insurance covers, but I've read enough to determine we should probably have it.

The lawyer is listing $2400 for the title insurance which feels steep. Would it be worthwhile for my wife and I to seek out an independent agent to acquire title insurance instead?
$2400 seems to be on the high side for me as all. Maybe it depends on the purchase price. I usually shop around for my title insurance and I remember I paid a little over $500 at one point. Not sure what your state laws are, but if the attorney is recommending it, I would find out how much it would cost me elsewhere.
123
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Re: Title Insurance for Home Purchase

Post by 123 »

Invest_Wisely wrote: Fri Dec 04, 2020 3:53 pm ...To be honest, I'm not 100% clear on what all title insurance covers, but I've read enough to determine we should probably have it..
Title insurance guarantees the legal title to the property that you paid for against any claims. Things like mechanics liens or a defect in the chain of title signatures (like a forged signature or a divorce dispute) may not surface for many years after you pay for the property. What expenses and charges get paid for by the buyer and seller vary by locality but usually it can all be negoitiated. I would want the seller to pay for the title insurance since it guarantees what they are selling to me was really theirs to sell.
The closest helping hand is at the end of your own arm.
talzara
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Re: Title Insurance for Home Purchase

Post by talzara »

Luke Duke wrote: Fri Dec 04, 2020 4:00 pm In Texas, the price of title insurance is based on the sales price of the house. The price is set by the state and isn't negotiable. If there were price competition, I believe that a policy that now sells for $2400 would instead sell for $800. I doubt that more than 1/1000th of title policies actually pay out any amount.
1 in 1000 is pretty close.

Title insurance has a claims frequency of about 0.1% a year, but 95% of these are just paperwork glitches. The title insurer pays a lawyer $200 to fix the paperwork, and that's considered a claim payout.

The true claims frequency is about 0.005% a year. If you keep the house 10 years before selling it, the likelihood of filing a true claim is 0.05%, or 1 in 2000.
Lalamimi
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Re: Title Insurance for Home Purchase

Post by Lalamimi »

Title insurance basically insures that title to your property is good and no one can come along and make a claim against it. But my dad had this happen in the 1970s and the title insurance was useless. I was a title examiner (reviewed documents and wrote up a report for policies in the mid 70s. (not my dad's thank goodness). Its a crap shoot. The Owner should also provide you a policy. Yes, in Texas it is based on price of property. Is this a new build, or a long time owned home?
123
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Re: Title Insurance for Home Purchase

Post by 123 »

talzara wrote: Fri Dec 04, 2020 4:18 pm ...The true claims frequency is about 0.005% a year. If you keep the house 10 years before selling it, the likelihood of filing a true claim is 0.05%, or 1 in 2000.
Unless the amount you are paying for the property is not significant to you the potential loss in a property title dispute can be 100% (can also have survey disputes). Someone pays the money for title insurance or the buyer takes the chance.
The closest helping hand is at the end of your own arm.
Luckywon
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Re: Title Insurance for Home Purchase

Post by Luckywon »

I have read that home and car insurance policies can pay around 80 % of premiums on claims. Title insurers pay less than 5 %. The rest goes to overhead, profits, and bribes commissions to the various agents involved. Therefore, title insurance is a very bad bet in my opinion and I wouldn't purchase it unless required. I'd spend the money on lottery tickets instead.
talzara
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Re: Title Insurance for Home Purchase

Post by talzara »

123 wrote: Fri Dec 04, 2020 4:23 pm Unless the amount you are paying for the property is not significant to you the potential loss in a property title dispute can be 100% (can also have survey disputes). Someone pays the money for title insurance or the buyer takes the chance.
Title insurance has low claim frequency and high claim severity. That's why it exists. If frequency and severity were both low, then nobody wouldn't buy title insurance.
Luckywon wrote: Fri Dec 04, 2020 4:24 pm I have read that home and car insurance policies can pay around 80 % of premiums on claims. Title insurers pay less than 5 %. The rest goes to overhead, profits, and bribes commissions to the various agents involved. Therefore, title insurance is a very bad bet in my opinion and I wouldn't purchase it unless required. I'd spend the money on lottery tickets instead.
The lottery is a better deal than title insurance, but the payout is random. You could keep your house and win the lottery. You could also lose your house and not win the lottery. A 1 in 2000 risk of losing your house is too high for most people to self-insure.

Auto insurance has an industrywide loss ratio of about 65% and a loss and LAE ratio of about 75%. A $2,400 auto insurance policy buys you about $1,800 worth of insurance.

Title insurance has a loss ratio of about 0.5% and a loss and LAE ratio of about 5%. A $2,400 title insurance policy buys you about $12 of title insurance and $108 of title-related legal insurance.
Luckywon
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Re: Title Insurance for Home Purchase

Post by Luckywon »

talzara wrote: Fri Dec 04, 2020 4:49 pm
123 wrote: Fri Dec 04, 2020 4:23 pm Unless the amount you are paying for the property is not significant to you the potential loss in a property title dispute can be 100% (can also have survey disputes). Someone pays the money for title insurance or the buyer takes the chance.
Title insurance has low claim frequency and high claim severity. That's why it exists. If frequency and severity were both low, then nobody wouldn't buy title insurance.
Luckywon wrote: Fri Dec 04, 2020 4:24 pm I have read that home and car insurance policies can pay around 80 % of premiums on claims. Title insurers pay less than 5 %. The rest goes to overhead, profits, and bribes commissions to the various agents involved. Therefore, title insurance is a very bad bet in my opinion and I wouldn't purchase it unless required. I'd spend the money on lottery tickets instead.
The lottery is a better deal than title insurance, but the payout is random. You could keep your house and win the lottery. You could also lose your house and not win the lottery. A 1 in 2000 risk of losing your house is too high for most people to self-insure.

Auto insurance has an industrywide loss ratio of about 65% and a loss and LAE ratio of about 75%. A $2,400 auto insurance policy buys you about $1,800 worth of insurance.

Title insurance has a loss ratio of about 0.5% and a loss and LAE ratio of about 5%. A $2,400 title insurance policy buys you about $12 of title insurance and $108 of title-related legal insurance.
I guess the best bet is to own a title insurance company. Astonishing that a more market efficient model for title insurance has not evolved.
RyeBourbon
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Re: Title Insurance for Home Purchase

Post by RyeBourbon »

Luckywon wrote: Fri Dec 04, 2020 4:54 pm
I guess the best bet is to own a title insurance company. Astonishing that a more market efficient model for title insurance has not evolved.
It occurred to me that it would be a perfect opportunity for Zillow, and I found this...
https://tryontitle.com/zillow-real-estate/
Retired June 2023. AA = 55/35/10
260chrisb
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Re: Title Insurance for Home Purchase

Post by 260chrisb »

Invest_Wisely wrote: Fri Dec 04, 2020 3:53 pm My wife and I are completing the purchase of a home. We're not needing a conventional bank mortgage, so title insurance isn't required, but it's strongly recommended by the closing lawyer drawing up our paperwork. To be honest, I'm not 100% clear on what all title insurance covers, but I've read enough to determine we should probably have it.

The lawyer is listing $2400 for the title insurance which feels steep. Would it be worthwhile for my wife and I to seek out an independent agent to acquire title insurance instead?
It's a con job in my opinion and just another hand grabbing money in a real estate deal. Did the previous owner get one? It's basically an expensive insurance policy covering the lenders best interest. If you're not getting a mortgage, why would you need this anyway? An owners policy of title insurance covers you.
talzara
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Re: Title Insurance for Home Purchase

Post by talzara »

Luckywon wrote: Fri Dec 04, 2020 4:54 pm I guess the best bet is to own a title insurance company. Astonishing that a more market efficient model for title insurance has not evolved.
The title insurance industry only has a profit margin of about 5%. It's a competitive industry, but they compete for title agents instead of homebuyers. The agent selects the company that pays the highest commission, which is usually the company that is charging the highest premium.

It's an upside-down market where the companies compete to charge the highest price -- not the lowest.
Luke Duke wrote: Fri Dec 04, 2020 4:00 pm If there were price competition, I believe that a policy that now sells for $2400 would instead sell for $800.
Title insurance would cost much less if there were no commissions or marketing expenses. That's the situation in Iowa, where title insurance is a government monopoly. Iowa Title Guaranty charges only $140 for title insurance on houses up to $500,000. You have to pay separately for title research, but it adds up to about $800 -- which is what you guessed to be the fair price.

Even $800 is $800 too much. In the UK, Australia, New Zealand, and most of Canada, title insurance doesn't exist because Her Majesty the Queen guarantees your title. If your name is in the land registry, then you own the land. Anyone who claims your land has to sue the Queen -- not you.
TropikThunder
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Re: Title Insurance for Home Purchase

Post by TropikThunder »

Invest_Wisely wrote: Fri Dec 04, 2020 3:53 pm The lawyer is listing $2400 for the title insurance which feels steep.
The fee depends on purchase price and location. Owner's title insurance for my $385,000 house in WA state was $1,117. But you don't say where you live or how much your house is so it's impossbile to say if $2,400 is high or low.

You can use an online cost estimator here:
https://rates.fntg.com/
Luckywon
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Re: Title Insurance for Home Purchase

Post by Luckywon »

talzara wrote: Fri Dec 04, 2020 5:52 pm
Luckywon wrote: Fri Dec 04, 2020 4:54 pm I guess the best bet is to own a title insurance company. Astonishing that a more market efficient model for title insurance has not evolved.
The title insurance industry only has a profit margin of about 5%. It's a competitive industry, but they compete for title agents instead of homebuyers. The agent selects the company that pays the highest commission, which is usually the company that has the highest premium.
So the best bet is to be a title insurance agent? Have we finally gotten to the bottom of this? :oops:
talzara wrote: Fri Dec 04, 2020 5:52 pm In the UK, Australia, New Zealand, and most of Canada, title insurance doesn't exist because Her Majesty the Queen guarantees your title. If your name is in the land registry, then you own the land. Anyone who claims your land has to sue the Queen -- not you.
No wonder she's grumpy (been watching the Crown)!!
talzara
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Re: Title Insurance for Home Purchase

Post by talzara »

Luckywon wrote: Fri Dec 04, 2020 5:58 pm
talzara wrote: Fri Dec 04, 2020 5:52 pm The title insurance industry only has a profit margin of about 5%. It's a competitive industry, but they compete for title agents instead of homebuyers. The agent selects the company that pays the highest commission, which is usually the company that has the highest premium.
So the best bet is to be a title insurance agent? Have we finally gotten to the bottom of this? :oops:
That's right. A $2,400 title insurance policy could pay as much as $1,200 in commissions.
Yooper
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Re: Title Insurance for Home Purchase

Post by Yooper »

And a survey. https://www.youtube.com/watch?v=WIODdRwRtlo [Link to Lehto Law episode about some people in FL who learned they might not own their backyard- description added by Moderator Misenplace] I never cease to be amazed.
lessismore22
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Re: Title Insurance for Home Purchase

Post by lessismore22 »

Last time we bought a house I asked how much a title discrepancy would cost on average to get cleared up...they said $2,000 in lawyers' fees. They wanted $400 for the insurance. Yeah, no.

This is about as big a scam as GAP insurance.
Topic Author
Invest_Wisely
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Re: Title Insurance for Home Purchase

Post by Invest_Wisely »

260chrisb wrote: Fri Dec 04, 2020 5:40 pm It's a con job in my opinion and just another hand grabbing money in a real estate deal. Did the previous owner get one? It's basically an expensive insurance policy covering the lenders best interest. If you're not getting a mortgage, why would you need this anyway? An owners policy of title insurance covers you.
What do you mean by an owners policy of title insurance? I have to say, this thread is certainly making me reconsider purchasing it.
TropikThunder
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Re: Title Insurance for Home Purchase

Post by TropikThunder »

Invest_Wisely wrote: Fri Dec 04, 2020 7:23 pm
260chrisb wrote: Fri Dec 04, 2020 5:40 pm It's a con job in my opinion and just another hand grabbing money in a real estate deal. Did the previous owner get one? It's basically an expensive insurance policy covering the lenders best interest. If you're not getting a mortgage, why would you need this anyway? An owners policy of title insurance covers you.
What do you mean by an owners policy of title insurance? I have to say, this thread is certainly making me reconsider purchasing it.
There are two policies when you have a morgage, the owner's policy that protects the owner's interest, and the lender policy which protects the lienholder. The owner's policy is usually more expensive since it covers the entire property while the lender's policy only covers the mortgage.
evancox10
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Re: Title Insurance for Home Purchase

Post by evancox10 »

Luckywon wrote: Fri Dec 04, 2020 4:54 pm
talzara wrote: Fri Dec 04, 2020 4:49 pm
123 wrote: Fri Dec 04, 2020 4:23 pm Unless the amount you are paying for the property is not significant to you the potential loss in a property title dispute can be 100% (can also have survey disputes). Someone pays the money for title insurance or the buyer takes the chance.
Title insurance has low claim frequency and high claim severity. That's why it exists. If frequency and severity were both low, then nobody wouldn't buy title insurance.
Luckywon wrote: Fri Dec 04, 2020 4:24 pm I have read that home and car insurance policies can pay around 80 % of premiums on claims. Title insurers pay less than 5 %. The rest goes to overhead, profits, and bribes commissions to the various agents involved. Therefore, title insurance is a very bad bet in my opinion and I wouldn't purchase it unless required. I'd spend the money on lottery tickets instead.
The lottery is a better deal than title insurance, but the payout is random. You could keep your house and win the lottery. You could also lose your house and not win the lottery. A 1 in 2000 risk of losing your house is too high for most people to self-insure.

Auto insurance has an industrywide loss ratio of about 65% and a loss and LAE ratio of about 75%. A $2,400 auto insurance policy buys you about $1,800 worth of insurance.

Title insurance has a loss ratio of about 0.5% and a loss and LAE ratio of about 5%. A $2,400 title insurance policy buys you about $12 of title insurance and $108 of title-related legal insurance.
I guess the best bet is to own a title insurance company. Astonishing that a more market efficient model for title insurance has not evolved.
It’s total regulatory capture. In my state (TX) not only has the government banned traditional insurers from entering the market, they mandate the extremely inflated prices as well. Not a price ceiling, but the price period. Yes it is all kickbacks to the various parties involved for steering business to the title co.

Edit: to the op, skip it, don’t buy it. Do a title search yourself via the county property records.
Luckywon
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Re: Title Insurance for Home Purchase

Post by Luckywon »

I once tried to read my title insurance policy. It was primarily a long list of exclusions and exceptions. it seemed to me that it would have been simpler if they had just written:

"The undersigned hereby agrees to pay us the aforementioned sum of money, and acknowledges that this company has absolutely no obligation of any kind related to the Title or any other matter related to this property."
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Harry Livermore
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Re: Title Insurance for Home Purchase

Post by Harry Livermore »

Luckywon wrote: Fri Dec 04, 2020 10:27 pm I once tried to read my title insurance policy. It was primarily a long list of exclusions and exceptions. it seemed to me that it would have been simpler if they had just written:

"The undersigned hereby agrees to pay us the aforementioned sum of money, and acknowledges that this company has absolutely no obligation of any kind related to the Title or any other matter related to this property."
Hahaha, yes. I agree.
It is the most shockingly opaque form of insurance ever contrived. The lack of transparency, accountability, or market pressure on pricing makes me wish I had gone into that racket business. I love that you have to "buy" it again when you refinance.
That said, I have owner's policies on all my properties. Sigh. Just part of the game...
Cheers
BillWalters
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Re: Title Insurance for Home Purchase

Post by BillWalters »

runner540
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Re: Title Insurance for Home Purchase

Post by runner540 »

The product itself has value and I would not sleep well without it. Yes I am a good insurance customer. The pricing is ridiculous and the way to change that (Texas politics/regulatory capture) is off limits for the forum.
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