ALTA Responds to Inaccurate Article by Boston Publication About Title Insurance

A recent segment and corresponding article from Boston NPR affiliate WBUR claims that the title insurance industry lacks regulatory oversight and is not transparent with consumers. Below is ALTA’s response to the article’s false and misleading allegations:

It's an opaque business with the lightest level of regulation in the nation.... The federal Consumer Financial Protection Bureau removed the explicit disclosure of title fees when it overhauled mortgage forms in the wake of the financial crisis.

• The title insurance industry is regulated not only across all 50 states, but also at the federal level, with title and settlement companies required to disclose all fees on both the Loan Estimate, which consumers receive three days after applying for a loan, and the Closing Disclosure, which is provided to homebuyers three days before closing. There are also strict guidelines for the way title and settlement fees are disclosed to consumers and when changed circumstances allow for alterations to the disclosures. The American Land Title Association (ALTA) was proud to work closely with the CFPB to help develop these regulations, which went into effect in 2015.

Title insurers have all this cash to spare because they pay out so few claims. Of the billions of dollars they took in for 2021, they spent less than 3% of that on claims from homeowners, according to the national insurance commissioners association. By comparison, property and casualty insurers spent 73% of their revenue on claims for losses like house fires and vehicle accidents.

• Title insurance is a fundamentally different product from other insurance products. Unlike other insurance products where most of the upfront cost is marketing, for title insurance the upfront expense is related to conducting a search of public records to underwriting ownership and lien risks. This is why much of the premium goes to pay the title agent or attorneys staff to review title and the purchase of title data from local governments.
• It is the title insurance company’s willingness to stand behind this work – even if the defect originated in faulty public records – that provides lenders the confidence that they have a first lien mortgage. While it is true that the word “commission” is frequently and misleadingly used to describe the important work of title agents, it makes their good work no less important.

 Ott wound up feeling misled about his lawyer’s total fees and her advice on buying the optional policy.

• It is critical to understand the difference between a homeowner’s policy of title insurance and a lender’s policy. A lender’s policy only protects against claims that may affect the lender’s loan and does not protect the homeowner’s property rights, which is why title professionals recommend that consumers purchase a homeowner’s policy to protect one of life’s greatest investments.
• With title insurance, a claim is serious, and a loss means homeownership is threatened. Owner’s title insurance provides protection for as long as the homeowner or their heirs own the property. Having a title insurance policy means that the cost of defense and legal fees are paid by the title insurer for the homeowner.

 In general, consumers are not shopping for this product.

• Research by the CFPB shows that the TRID regulations, which ALTA helped develop, have helped consumers better understand their closing costs and compare competing offers.
• ALTA has consistently promoted consumer education to homebuyers, encouraging them to ask their title agent how rates are determined where you live and what services are provided in the fee, as well as to shop around for comparative offerings.

These many years later, across the country, title contracts between insurers and lawyers or agents are either never or rarely reviewed by most state insurance regulators, according to a 2019 survey by the insurance commissioners association.

• State departments of insurance oversee the industry’s practices and rates to ensure they are not excessive, inadequate or unfairly discriminatory. Insurers must justify their rates (using actuarially supported data) to state regulators. State regulators capture annual revenue and expense data from title insurance agents and underwriters for the purpose of measuring the profitability, competitiveness and reasonableness of title rates and charges.

 A typical residential title search can be done “within a few hours,” Ryan said.

• Thanks to the investments made by the industry the average title search can be done in a few hours. However even today a title search is still mostly done by a human being. Beyond the search someone will have to review the title documents found in the search, help resolve outstanding issues like getting prior mortgages paid off or making sure there are no outstanding amounts owed to the contractor that put on the houses new deck, prepare the new deed and ultimately facilitate the closing.
• Forged documents, one of the most common title problems, in addition to falsified documents, invalid deeds and incorrect property descriptions, are just some of the issues that must be examined in the course of a comprehensive title search. Other title risks include recording mistakes, deed indexing errors, unpaid mechanics' liens, judgment liens, income tax or property tax liens, undisclosed easements, claims by missing heirs and claims by ex-spouses. The careful research required to understand and eliminate these risks is performed by a local title agent, online and offline, which is why agents retain a portion of the title insurance premium consumers pay at closing.”

 Critics say title insurance nationally is hugely overpriced.

• While other forms of insurance have seen rate increases in recent years, the cost of title insurance coverage has actually decreased 6% nationally since 2004 and almost 2% the past two years, according to industry financial statements.
• Without title insurance, homeowners are not protected from a devastating financial loss – sometimes in the tens of thousands of dollars – that may result from a title defect, tax lien, undisclosed easement, fraud, or forgery. Title insurance is, and will always be, essential, providing homeowners and lenders with peace of mind that they are protected.”

In Iowa, Peter Ott’s title protection would have cost about $625. That’s a fraction of the $4,800 he paid here.

• The current government-operated system in Iowa is often cited as an alternative to traditional title insurance. However, while the cost for title insurance in Iowa can be lower, although not the lowest, than rates in many other states, comparing title insurance in Iowa and title insurance in other states is comparing apples to oranges. In Iowa, title insurance costs don’t reflect all of the necessary costs consumers have to pay. The total cost that consumers pay for title searches, examinations, and clearing of any title problems in Iowa do not differ substantially from other states. Iowa’s total costs were about the same as those in Maryland, Nebraska, South Dakota, Washington and West Virginia, where private title underwriters are free to do business.