Owner's title insurance for cash purchase - lawyer says mandatory

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MikeG62
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by MikeG62 »

I asked a similar question in another thread.

viewtopic.php?p=6123031#p6123031
"Is title insurance needed for new construction town home in NJ purchased for cash (no mortgage)"

In my case the history of the property on which the town homes are being built has been researched back some several hundred years. Felt the risk was very, very low. Talked to a real estate attorney (who works in that area and knows the development) and he said he would not represent me for the purchase of that town home if I choose not to get title insurance (note I was an all cash buyer). Cost for the insurance is $4,500.
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Jack FFR1846
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by Jack FFR1846 »

Have you had a survey done? Not a paper review survey....a real survey, where they find any physical markings or posts or concrete poles? When I sold a small piece of my property to a neighbor, he had to do a survey and what did he find? A neighbor's garage was about half on his property. Neighbor refused to buy that piece. My neighbor didn't want to upset the apple cart, so I guess in a few years, that other neighbor will claim adverse possession and take ownership of that corner of the lot.

I also had a coworker who had a house built. They managed to build it half on a neighbor's property. When this was discovered, neighbor wanted an outrageous amount of money. Enough that it would have been cheaper to bulldoze the house.
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bberris
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by bberris »

rascott wrote: Thu Jul 22, 2021 10:17 pm Are you skipping homeowners insurance too?
The difference is that homeowners insures against future events, and so is not predictable. Title insurance protects against past events.
bberris
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by bberris »

MikeG62 wrote: Sat Jul 24, 2021 9:33 am I asked a similar question in another thread.

viewtopic.php?p=6123031#p6123031
"Is title insurance needed for new construction town home in NJ purchased for cash (no mortgage)"

In my case the history of the property on which the town homes are being built has been researched back some several hundred years. Felt the risk was very, very low. Talked to a real estate attorney (who works in that area and knows the development) and he said he would not represent me for the purchase of that town home if I choose not to get title insurance (note I was an all cash buyer). Cost for the insurance is $4,500.
Title insurance protects you, and the attorney. Guess which one he feels is more important.
MikeG62
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by MikeG62 »

bberris wrote: Sat Jul 24, 2021 9:50 am
MikeG62 wrote: Sat Jul 24, 2021 9:33 am I asked a similar question in another thread.

viewtopic.php?p=6123031#p6123031
"Is title insurance needed for new construction town home in NJ purchased for cash (no mortgage)"

In my case the history of the property on which the town homes are being built has been researched back some several hundred years. Felt the risk was very, very low. Talked to a real estate attorney (who works in that area and knows the development) and he said he would not represent me for the purchase of that town home if I choose not to get title insurance (note I was an all cash buyer). Cost for the insurance is $4,500.
Title insurance protects you, and the attorney. Guess which one he feels is more important.
True that. I do believe (99%+) it's a waste of $4,500, but too many people cautioning that it's not worth the risk to pass on it.
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Luckywon
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by Luckywon »

bberris wrote: Sat Jul 24, 2021 9:48 am
rascott wrote: Thu Jul 22, 2021 10:17 pm Are you skipping homeowners insurance too?
The difference is that homeowners insures against future events, and so is not predictable. Title insurance protects against past events.
And there is a large difference in loss ratio with homeowners insurance being a far better deal. And homeowners insurance is required to buy umbrella insurance, which also has a far better loss ratio and insures against wider and potentially larger (depending on policy limits) losses.
talzara
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by talzara »

delamer wrote: Thu Jul 22, 2021 9:04 pm Title insurance covers legal fees related to claims, not just the value of the property.
Title insurance is mostly legal insurance. The average claim severity on a $1 million house is only $50,000.
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by talzara »

aws wrote: Thu Jul 22, 2021 9:41 pm But maybe I am thinking about the insurance wrong in considering the only value to be payouts on insured losses. Surely if title insurance provided no value and was pure profit to the insurance company, then competition would drive down the price to reasonable levels. So most of the premium probably goes to the cost of defending against meritless claims on the title, instead of actual valid loss payouts, but both are costs I would otherwise need to pay.
Title insurance is an upside-down industry. Title insurers compete to charge the highest premiums rather than the lowest. The homeowner is not the customer. The title agent is the customer. The higher the premium they charge the homeowner, the larger the commission they can pay, and the more customers they have.

Title insurers spend about 80% of premiums on "agent retention," 10% on overhead, 4.5% on legal fees, and 0.5% on actual losses. That leaves about 5% for profit.

Your $3,000 policy is buying you $15 worth of title insurance and $135 worth of legal insurance. Most of the other $2,850 is wasted. You do get a title search as part of it, but you can get a title search done for a lot less than $2,850!
talzara
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by talzara »

BillWalters wrote: Thu Jul 22, 2021 10:24 pm Iowa provides public title insurance and it costs like $100. Most real estate lawyers own title companies and get massive kickbacks. Pure corruption.
Iowa is the only state where private title insurance is illegal.

Iowa Title Guaranty charges only $175 for $750,000 of simultaneous lender and owner coverage, and it consistently makes a profit that is spent on state housing programs in lieu of raising taxes. Here is the rate sheet: https://iowatitleguaranty.org/Public/ITGRateSheet.pdf

Iowa titles are also cleaner than in the neighboring Great Plains states. Private title insurers often ignore small title defects and just write over the risk, knowing that it is highly unlikely to lead to a lawsuit. Iowa Title Guaranty has a policy of clearing up title defects.
talzara
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by talzara »

Northern Flicker wrote: Fri Jul 23, 2021 8:04 pm In 2011, the combined loss ratio for the 4 large title companies was neither 20% nor 3.9% but 11.8%.

https://www.naic.org/cipr_newsletter_ar ... urance.htm
That is actually a loss and LAE ratio that includes legal fees. In 2011, the title insurers were still cleaning up the bad paperwork from the housing bubble. Actual losses, where someone loses title to their house, are much lower.
Luckywon wrote: Fri Jul 23, 2021 8:20 pm This from NAIC states loss ratio for title insurance trended steadily down from 2014=7.8% to 2018=4.4%

https://www.naic.org/documents/topic_in ... report.pdf
The table says loss and LAE ratio.

The actual loss ratio is about 0.5%. I've seen it as high as 1% in some rate filings.
talzara
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by talzara »

unclescrooge wrote: Fri Jul 23, 2021 9:45 pm
BillWalters wrote: Thu Jul 22, 2021 8:52 pm Biggest scam ever. Title insurers literally pay out like 1 cent per dollar in premiums. An absolute racket.
So invest in title companies. :mrgreen:
Title insurers only have a profit margin of 5%.

They spend 80% of the premium on "agent retention," 10% on overhead, 4.5% on legal fees, and 0.5% on actual losses.
HENRYGRUGER
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by HENRYGRUGER »

AWS,

I never cease to be amazed at the vitriolic comments regarding insurance in this Board.

Title Insurance is a "must have." Yes, it is Insurance produced by attorneys, sold by attorneys, and seems to basically for the benefit of attorneys, but never the less, IF YOU EVER NEED IT, it will make the premium paid pennies on the dollars.

You don't have to like it, but you do have to buy it.
BillWalters
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by BillWalters »

For at least the third time, the issue isn’t the product, it is the price.
Luckywon
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by Luckywon »

HENRYGRUGER wrote: Sat Jul 24, 2021 10:05 pm AWS,

I never cease to be amazed at the vitriolic comments regarding insurance in this Board.

Title Insurance is a "must have." Yes, it is Insurance produced by attorneys, sold by attorneys, and seems to basically for the benefit of attorneys, but never the less, IF YOU EVER NEED IT, it will make the premium paid pennies on the dollars.

You don't have to like it, but you do have to buy it.
It's baffling to me that you believe no risk with respect to title is acceptable, regardless of the price of protection, and expect others to think the same way. I highly doubt this is consistent with the way you manage low probability high expense risk in other arenas. Have you had any contact with the outside world recently in the pandemic? I'm pretty sure the expected negative outcome of that is far worse than declining title insurance. And the price of protection in many cases is zero, i.e. staying home. The point is, there are many many examples where people engage in activities with a very small risk of a highly negative outcome mostly without giving it a second thought.
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by HENRYGRUGER »

Luckywon:

"I highly doubt this is consistent with the way you manage low probability high expense risk in other arenas."

The principal of insurance is you insure risks that you cannot afford to shoulder on your own. True, the probability is small, but the severity is enormous.

If you pour hundreds of thousands into a property, and later it is determined that there is a prior claim, the $2000-$3000 premium is next to meaningless.

Following your logic, why insure your home or autos? Or your life?
Luckywon
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by Luckywon »

HENRYGRUGER wrote: Sat Jul 24, 2021 11:31 pm
The principal of insurance is you insure risks that you cannot afford to shoulder on your own. True, the probability is small, but the severity is enormous.
We are in agreement on this.
HENRYGRUGER wrote: Sat Jul 24, 2021 11:31 pm
If you pour hundreds of thousands into a property, and later it is determined that there is a prior claim, the $2000-$3000 premium is next to meaningless.
At some point, if the risk of a costly title defect is very small, or the loss ratio of the insurance premium is too low IMO it is rational to decline title insurance. There may be wide variation in opinion on where that point is. But IMO it is irrational to say there is no risk or loss ratio threshold beyond which title insurance should be deemed not worthwhile, which seems to be your position.
HENRYGRUGER wrote: Sat Jul 24, 2021 11:31 pm
Following your logic, why insure your home or autos? Or your life?
I addressed this previously but again, my assessment is that home, auto, life, umbrella, malpractice, earthquake insurance are all acceptable propositions to me, to some degree because their loss ratios are far better than title insurance, and together they provide me with far more extensive protection than title insurance.
supalong52
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by supalong52 »

BillWalters wrote: Sat Jul 24, 2021 10:23 pm For at least the third time, the issue isn’t the product, it is the price.
You can keep repeating it's about price, but the bottom line is you still need it. It's about 4,000 which is a drop in the bucket when it comes to purchasing a house. Others have suggested discount title insurers. You keep balking at the price, but that doesn't seem like very actionable advice.
Northern Flicker
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by Northern Flicker »

talzara wrote: Sat Jul 24, 2021 3:44 pm
Northern Flicker wrote: Fri Jul 23, 2021 8:04 pm In 2011, the combined loss ratio for the 4 large title companies was neither 20% nor 3.9% but 11.8%.

https://www.naic.org/cipr_newsletter_ar ... urance.htm
That is actually a loss and LAE ratio that includes legal fees. In 2011, the title insurers were still cleaning up the bad paperwork from the housing bubble. Actual losses, where someone loses title to their house, are much lower.
Luckywon wrote: Fri Jul 23, 2021 8:20 pm This from NAIC states loss ratio for title insurance trended steadily down from 2014=7.8% to 2018=4.4%

https://www.naic.org/documents/topic_in ... report.pdf
The table says loss and LAE ratio.

The actual loss ratio is about 0.5%. I've seen it as high as 1% in some rate filings.
The distinction between actual loss of property equity and attorney fees is artificial. If it costs $20K in attorney fees to clean up and avoid taking on a $20K lien, either way, the property owner or title insurer is out $20K.
Northern Flicker
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by Northern Flicker »

talzara wrote: Sat Jul 24, 2021 3:34 pm
BillWalters wrote: Thu Jul 22, 2021 10:24 pm Iowa provides public title insurance and it costs like $100. Most real estate lawyers own title companies and get massive kickbacks. Pure corruption.
Iowa is the only state where private title insurance is illegal.

Iowa Title Guaranty charges only $175 for $750,000 of simultaneous lender and owner coverage, and it consistently makes a profit that is spent on state housing programs in lieu of raising taxes. Here is the rate sheet: https://iowatitleguaranty.org/Public/ITGRateSheet.pdf

Iowa titles are also cleaner than in the neighboring Great Plains states. Private title insurers often ignore small title defects and just write over the risk, knowing that it is highly unlikely to lead to a lawsuit. Iowa Title Guaranty has a policy of clearing up title defects.
Where I live, the title companies and escrow companies are one in the same. If the state-regulated title insurance premiums were lower, I suspect escrow fees would increase to offset at least some of the reduction in revenue generated by brokering title insurance. The increased transparency, however, would help enable competitive market forces leading to a more balanced pricing.
Last edited by Northern Flicker on Mon Jul 26, 2021 12:24 pm, edited 1 time in total.
talzara
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by talzara »

Northern Flicker wrote: Sun Jul 25, 2021 1:54 pm The distinction between actual loss of property equity and attorney fees is artificial. If it costs $20K in attorney fees to clean up and avoid taking on a $20K lien, either way, the property owner or title insurer is out $20K.
Auto insurers and umbrella insurers go to court all the time, and they don't think it's an artificial distinction. They report losses and LAE (or DCC) separately.

You can self-insure $20k in legal fees. Most houses in Florida have hurricane deductibles of more than $20k.

Even $20k legal fees are rare. Most title defects can be cleared up with 15 minutes of a lawyer's time and a filing fee. There was an example earlier in the thread where the title insurer mailed some paperwork to the previous owner. That loss probably cost less than $500.

You can see this in the rate filings for smaller title insurers in small states. There are years with $0 of loss and LAE, which means that there were no claims. There are also years with less than $1,000 of loss and LAE, which means that there was a single claim that was closed by filing some paperwork.

Title insurance is mostly legal insurance. Whether it's $500 or $20k, you can self-insure the legal fees. What most people can't afford to self-insure is a total loss of title. That is in the 0.5% loss ratio, which also includes partial losses.
ncbill
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by ncbill »

Luckywon wrote: Fri Jul 23, 2021 5:50 pm
Sandi_k wrote: Fri Jul 23, 2021 5:42 pm
And if she had refused to sign the release the second time? She would technically have a right to that amount, based on her legally filed lien.

Maybe she signed because she knew if she tried to collect on it she would most likely lose in court and might be countersued. In fact, she might be sued just for refusing to sign.
I don't think it would have taken the ex 5 years to figure out her 50% lien had not been satisfied on the original sale. :)

Trying to claim that 50% a second time would have been a crime, not merely a civil matter.

The title insurance paid the costs to track her down & get her to sign the release.
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by ScubaHogg »

$3k for title insurance seems steep. Have you shopped it around to different title companies?
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by Sandi_k »

ncbill wrote: Tue Jul 27, 2021 3:29 pm
Luckywon wrote: Fri Jul 23, 2021 5:50 pm
Sandi_k wrote: Fri Jul 23, 2021 5:42 pm
And if she had refused to sign the release the second time? She would technically have a right to that amount, based on her legally filed lien.

Maybe she signed because she knew if she tried to collect on it she would most likely lose in court and might be countersued. In fact, she might be sued just for refusing to sign.
I don't think it would have taken the ex 5 years to figure out her 50% lien had not been satisfied on the original sale. :)

Trying to claim that 50% a second time would have been a crime, not merely a civil matter.

The title insurance paid the costs to track her down & get her to sign the release.
And what if she had died? She was in her 60's when they sold the house to us - it was a real possibility.

In any of these circumstances, it would mean that the refi would not have been possible without expensive legal assistance to clear the title. Could it be done? Probably - I'm sure they would have tracked down the wire info from closing, but it would have required some compelling action on our part.

We would also have lost the 2.625% mortgage rate, which would have had real costs to us as well.

We do not purchase a title policy when we we refi. But when we buy? Yes.
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aws
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by aws »

Quick update:

Title insurance in my state is a fixed price per dollar of the transaction and can't be shopped around. I checked the discount sites mentioned in this post and none operate in my state.

The original lawyer was also conveniently an agent for two title insurance companies, which likely plays a significant role in their mandatory policy.

I found another lawyer to handle the closing who had no conflicts of interest. We talked about the risks, and I am comfortable enough with them to pass on the insurance. It seems like I am buying insurance more on the legal fees to defend against some bogus claim on the property more than I am buying it in case of an actual risk of loss, and I can self-insure for that risk. The most likely actual event that would trigger title insurance is someone does a survey and the boundary lines aren't exactly where we think, but I'm not concerned with losing a few feet of the backyard or something. The actual structure has been there for a long time and was in possession of a single family for 50 years.
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by bsteiner »

aws wrote: Thu Jul 29, 2021 8:54 am Quick update:

Title insurance in my state is a fixed price per dollar of the transaction and can't be shopped around.

The original lawyer was also conveniently an agent for two title insurance companies, which likely plays a significant role in their mandatory policy.

I found another lawyer to handle the closing who had no conflicts of interest. We talked about the risks, and I am comfortable enough with them to pass on the insurance. It seems like I am buying insurance more on the legal fees to defend against some bogus claim on the property more than I am buying it in case of an actual risk of loss, and I can self-insure for that risk. The most likely actual event that would trigger title insurance is someone does a survey and the boundary lines aren't exactly where we think, but I'm not concerned with losing a few feet of the backyard or something. The actual structure has been there for a long time and was in possession of a single family for 50 years.
It's mandatory in the sense that if you don't get title insurance that lawyer won't represent you.

I know someone who bought a home and the title searcher didn't pick up that there was an unpaid property tax bill. The title company had to pay it.

The larger risk is that, during the period that the family owned it, there was an estranged family member whose interest was ignored.
Luckywon
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Re: Owner's title insurance for cash purchase - lawyer says mandatory

Post by Luckywon »

aws wrote: Thu Jul 29, 2021 8:54 am Quick update:

Title insurance in my state is a fixed price per dollar of the transaction and can't be shopped around. I checked the discount sites mentioned in this post and none operate in my state.

The original lawyer was also conveniently an agent for two title insurance companies, which likely plays a significant role in their mandatory policy.

I found another lawyer to handle the closing who had no conflicts of interest. We talked about the risks, and I am comfortable enough with them to pass on the insurance. It seems like I am buying insurance more on the legal fees to defend against some bogus claim on the property more than I am buying it in case of an actual risk of loss, and I can self-insure for that risk. The most likely actual event that would trigger title insurance is someone does a survey and the boundary lines aren't exactly where we think, but I'm not concerned with losing a few feet of the backyard or something. The actual structure has been there for a long time and was in possession of a single family for 50 years.
Nice update. I would have done the same.
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