Posted by Rhonda Porter at 6/13/08 10:22 a.m.

Larry, people don't see the value of title insurnance until the need it! :) When you compare it to auto or home owners insurance, it's a huge value. You only pay one time (unless you refi) and you continue to have protection. Unlike home owners or auto where you pay constantly and may be punished for using it.

Typically a home owner will not need to use their title insurance coverage, however, when there is a claim, they tend to be significant...much like what you're talking about in this post.

Posted by Diane Cipa at 6/13/08 11:01 a.m.

Wow, it's rare to get a blessing, so thank you!

I have to take issue with one statement. The mortgage lender will be protected under a loan policy, not the homeowner. The loan policy insures that the mortgage lender has first position. If the owner policy has an exception for mechanics liens, the homeowner is not protected.

I have to wonder about the methods used by the title company who placed the insurance on the units in the first place. Did they follow prudent traditional title methods or were they a title chop shop?

Posted by Larry K Cragun at 6/13/08 11:37 a.m.

Diane, you are correct, however the residual benefit is in the benefit of the homeowner as the lien must be dealt with. The first question one might have, is would the lien keep the homeowner from refinancing? In this case, the title company is issuing new title insurance providing the original policy is still in effect and of course providing they are the new insurer.

Posted by Larry K Cragun at 6/13/08 11:41 a.m.

Diane, Love that Google - and it says you are in Pennsylvania. I am curious how you found this article so fast. Google alerts perhaps?

Posted by Larry K Cragun at 6/13/08 11:44 a.m.

Also, Diane, not a chop shop - a major, under the umbrella of the big major.

Posted by laxtosnoco at 6/13/08 12:20 p.m.

Uh, I'm not sure I get the juxtaposition of East Germany and title insurance. Say what you will about Communism, but I can't see why you'd ever need a comprehensive title policy under it. No, I suspect the best form of insurance would have been to be a high ranking member of the Politburo (although not too high ranking).

Posted by mike mcconnachie at 6/13/08 1:21 p.m.

Nice work Larry, good information for everyone! Thanks.

Posted by P Walther at 6/13/08 2:01 p.m.

Title claims come in all sizes and flavors, from $200 missed water bills to a total failure of title. For a one time premium the insured gets an amazing amount of coverage.

Just buying a loan policy shouldn't give the owner much comfort. The owner is gambling that if there is a claim it will be less than the amount owed on the mortgage. If its more, the title company is going to pay the lender and walk away. The owner is self-insured for the rest.

Posted by Larry K Cragun at 6/13/08 2:06 p.m.

Interesting P Walther: How does that apply to a combined 50 mortgages?

Posted by Marc Holmes at 6/13/08 6:41 p.m.

Larry,

I agree whole heartedly that title insurance provides a valuable benefit to society, however, the cost of title insurance is beyond absurd. Title insurers payout less than 10% of their total premiums in claims. Compare that to auto insurers who pay out over 50% and health insurers who pay out over 80%. What this means is that they are pulling off an incredible fast one against the unknowing public. I only hope the recent lawsuit filed against some of the big boys for their escrow side's practices concerning reconveyance fees is successful.

To borrow an economic term, title insurance is a market failure in regards to its pricing. It's amazing to me that lower cost providers don't enter the market and steal their business.

I understand that in certain midwestern states like Minnesota and Michigan, small title insurance companies that compete heavily on price are much more common.

Posted by Marc Holmes at 6/13/08 6:47 p.m.

Larry,

Also don't forget that each of those buyers received a statutory warranty deed that carries the warranty against encumbrances. Even without title insurance they can sue the developer for breach of that warranty to recover their damages. Admittedly, most buyers of brand new condos don't realize they're very likely buying real estate from a single asset entity that will fold up shop as soon as all the units are sold. If that happens they may have a difficult time obtaining any actual recovery.

Posted by Leanne Finlay at 6/13/08 8:54 p.m.

There are many reasons why I like resale better than new. Many.

Larry, thanks for the post, it's a dandy.

Posted by JWJ at 6/14/08 8:12 a.m.

Mark, you are correct, the buyers have a statutory warranty (which in most states means that the structure is sound -walls will stand up, floors will lie down- and that title has been "warranted."

However, the reality is there will be a nasty lawsuit involving all of those owners, the builder and contractor, and likely other subcontractors will also follow with liens. Title Insurers have a "duty to defend" any party that they insure. So both the costs of the lawsuit and the clearing of any liens will be handled. Title Policies are a good thing.

Posted by Kary L. Krismer at 6/14/08 8:48 a.m.

Larry wrote: "Diane, you are correct, however the residual benefit is in the benefit of the homeowner as the lien must be dealt with. The first question one might have, is would the lien keep the homeowner from refinancing? In this case, the title company is issuing new title insurance providing the original policy is still in effect and of course providing they are the new insurer."

These liens typically have to be dealt with fairly quickly (e.g. suit filed within X months), but the suit could drag on. I sort of doubt the title company would pay the lien prior to the suit being decided, because until then the lender hasn't suffered a loss.

Stated differently, I'm not so sure the buyers are sitting quite as pretty as the OP would suggest. They could probably refinance, using the same title company, but I don't know that they'd be able to sell.

Posted by Kary L. Krismer at 6/14/08 8:53 a.m.

Marc wrote: "I agree whole heartedly that title insurance provides a valuable benefit to society, however, the cost of title insurance is beyond absurd. Title insurers payout less than 10% of their total premiums in claims. Compare that to auto insurers who pay out over 50% and health insurers who pay out over 80%."

I agree title insurance is highly profitable, but I don't think this is a valid argument. You get value from title insurance even if you have a free and clear title policy, because they do the title search. To do that yourself you'd have to search title back to when the feds conveyed title, probably in the 1800s. You have to assign value to that service. (And yes I know that's not how they do it, but that's what you'd have to do if you were to do the same thing).

Also, the warranty deed argument is also false. If the developer can't pay the lien claim, they won't be able to pay any claims under the warranty clause either.

Posted by Larry K Cragun at 6/14/08 10:49 a.m.

In these days the solvency of the developer, should I say the developers corporation or LLC, is like to go BK.

Posted by Greg Perry at 6/14/08 10:51 a.m.

Larry,
Your posts on your condo issues have been informative and educational. Real life stuff.

Posted by Larry K Cragun at 6/14/08 11:28 a.m.

Thanks Greg

Posted by Mack McCoy at 6/14/08 11:59 a.m.

- Mark, you are correct, the buyers have a statutory warranty (which in most states means that the structure is sound

I think he was referring to the statutory warranty deed, the requirements of which are defined by RCW 64.04.030; he warrants to the grantee, his heirs and assigns, the quiet and peaceable possession of such premises, and will defend the title thereto against all persons who may lawfully claim the same, and such covenants shall be obligatory upon any grantor, his heirs and personal representatives, as fully and with like effect as if written at full length in such deed.

Posted by Diane Cipa at 6/14/08 1:26 p.m.

Hi, Larry: Yes, Google alerts blow me away and keep me in touch with the title insurance world. ;)

Kary understands my position correctly. Consumers are at risk if they rely upon a loan policy. The lender's position will be defended, if necessary. The consumer is wholly unprotected on the issue from a title insurance perspective. In the meantime, the homeowners can't refinance or sell the units.

Consumers need to buy their own title insurance. Title insurance is a valuable product and should not be overlooked or explained away.

Thank you again for the blessing. Good topic. Mechanics liens are a vulnerability in owner coverage and consumers should beware.

Posted by Marc Holmes at 6/14/08 2:22 p.m.

Mack is correct and Ms. Johnson (JWJ) apparently misread my post.

Washington state has codified the common law "warranties" that constitute a warranty deed. Two of them are the warranty against encumbrances and the warranty to defend title. The former means the seller promises that the property is free of any encumbrances (like a construction lien) that are not being expressly taken "subject to." The latter warranty is the seller's promise to defend any claim of an interest in the property that is adverse to the interest conveyed o the buyer (such as a construction lien).

Posted by Rhonda Porter at 6/14/08 3:11 p.m.

I've had to rely on my title insurance twice out of the 5-6 homes I have owned. Smaller issues but I'm glad I had it. The larger issue was that we had mechanics liens (our entire newly developed street did) from our builder not paying sub-contractors. Because of our Homeowners Additional Protection Endorsement (I believe that's the one that covers mechanics liens) it protected us against the liens that were filed in time (90 days?).

Many people on my street were absolutely puzzled and getting ready to call their atty's...because I was actually working in a title unit way back then, I was able to direct them to make a phone call to their Title Officer.

Not having to pay an attorney and just having to pick up the phone more than paid for the cost of the policy that the buyer pays.

I would never want to rely just on a Statutory Warranty Deed in lieu of a title policy...it would be ripe for fraud.

Posted by Perrin at 6/14/08 5:19 p.m.

If you think Title Insurance lacks value... take a look at the Entiat Valley. In the early 1900's the surveys were done by a guy commonly called "Drunk Johnson" (and yes it was for obvious reasons). Soooo many corners were off and sooo many angles were incorrect (remember 1/2 degree at the point of origin isn't much but by the time it gets two miles down the valley you are talking a real error) that by 1980 the three major Title Companies here were tired of acquiring lots in their portfolio (every one owned at least two). They eventually comissioned a new survey and now lines in the area are pretty good, people can buy and sell with reasonable assurance and the Title Co's can liquidate their inventory.

One of the first transaction I did as a fledgeling REALTOR involved a piece of property fronting on a raod. When the lots were laid out it was assumed the road was on the 1/4 section line but in actuality it ran diagonally off of it about 1 degree. The result was the house I represented a buyer acquiring instead of fronting the road actually had no access and the property between the road and the house driveway belonged to the guy across the street. We could have prevailed in a quiet title action but that takes a lot of time and we had none (the moving van was on the way and closing in 7 days). The Title Company insured the property and access and negotiated with the owner of the property across the street to get a quit claim deed. Cost them about $2500 and time and hanging their neck out. But it worked and I am glad and my homeowner is happy.

Posted by Kary L. Krismer at 6/14/08 7:48 p.m.

Diane wrote: "Consumers need to buy their own title insurance. Title insurance is a valuable product and should not be overlooked or explained away."

Yes consumers need their own policy, but it's also possible that their coverage might exclude something.

But I don't like the argument that consumers don't need a policy, or a certain type of policy because there's a lender's policy. For one thing, that policy only lasts the life of the loan, but there are a lot of reason not to rely on a lenders policy.

Posted by Larry K Cragun at 6/14/08 8:25 p.m.

Great input folks, thanks. I agree with you Kari.

Posted by Roger Loan Doctor at 6/15/08 8:31 p.m.

Has anyone read this report? Highly critical of the title insurance industry, but it appears well documented.

http://www.consumerfed.org/pdfs/title_insurance_testimony042606.pdf

I think it's quite informative.

We don't have the best system in WA state, but it is far from the worst.

I'd be interested to hear what it is like to get title insurance in Iowa.

Posted by Mack McCoy at 6/15/08 10:47 p.m.

Well, it'd be great if everything was cheaper, wouldn't it.

Posted by Marc Holmes at 6/16/08 11:28 a.m.

Great link Roger. I knew title company pay outs were low but I was shocked by this statement:

"First American Title received $3.4 billion in premiums in 2003 but paid only $41.7 million in claims – or a 1.2 percent loss ratio."

Posted by Roger Loan Doctor at 6/16/08 3:25 p.m.

Thanks Marc.

Here's another, possibly better report, describing the Iowa system, and it's benefits. It is one sided, to be sure.

Not sure if it would make sense in WA, but I'd be interested in the opinions.

http://www.iowabar.org/MiscDoc.nsf/2b85a4ea12f4bfac8625669d006e27ab/3260df54a8f7f5fa86256cb80070ee4f/$FILE/Title%20insurance%202.pdf

Sorry, it's an ugly link.