The title insurance industry is tucked away within the real estate industry, behind the flashy HGTV renovations and the entertaining luxury market real estate agent shows. Phrases like “after closing” and getting “into escrow” barely gloss over what role the title insurance industry plays when real property is sold or financed.
I wanted to take on a few misconceptions about the title insurance industry that I personally have heard during my career.
Misconception: “Oh title insurance? The type of insurance that never pays out?”
Reality: The title industry has paid $485.2 million in claims during the first nine months of 2023. This is up from $438.7 million in claims paid during the same period a year ago. 1
Misconception: “Title insurance costs way too much. Don’t waste your money.”
Reality: The title insurance premium and settlement costs (collectively title and settlement fees) barely equate to 1% of the borrower’s total life-of-loan costs.2 So why is it so expensive to purchase property? Easy answer: it’s your loan. The fees paid to the mortgage-backed security (MBS) investor and lender are next with the accumulated cost of the annual interest payments made to the investor(s) that purchased the MBS bond containing the mortgage, and the lender’s net origination charges at closing plus the accumulated value of the excess interest the lender charges for profit. 3 What if you aren’t getting a loan when you purchase real estate? Great news – in most states, the charge for the title insurance premium (which is less than half a percent of the purchase price) is paid for by the seller, per the terms of the sales agreement.
Misconception: “Title insurance doesn’t cover any real problems. All those issues are taken care of before the closing.”
Reality: While it is typical of any insurance industry to try and avoid claim payouts when applicable (think: car and homeowner’s insurance), title insurance does cover a variety of claims. The top claims (not related to errors) are:
- Boundary and survey issues
- Easement issues
- Fraud and forgery
- Access
- Mechanics liens4
Yes, title agencies will resolve any and all potential claims at the time of closing. However, it’s crucial coverage window is during your ownership of the property. You don’t get car insurance because you know there’s something wrong with the car when you purchase it, you get it in case anything happens in the future and you want to protect your investment.
Misconception: Researching the history of title is not a complicated process. You just look over the county records, I’m sure AI will be replacing title agencies soon.
Reality: “Despite strides made by technology to streamline the process of title searches, the title industry remains a people-centered industry. Skilled professionals remain essential, conducting detailed searches to ensure that a homeowner’s property is protected and carry out involved processes to update and maintain sophisticated databases.”5 It’s crucial to remember that real estate transactions are put together by people, and people make mistakes. Misspellings in a person’s name or one digit off in a tax parcel ID can make it drop completely out of view for an automation or AI function. The human element is crucial in understanding title, from tying in state law to federal law, underwriter regulations to ALTA best practices, there is no one way to do title properly.
Title insurance protects the largest financial investment you’re likely to make. And this is just the product we provide – all the services we offer to streamline the real estate transaction process at an extremely competitive price point adds value each and every day for our clients. If you don’t know what title insurance protects you against, do your research, you’ll be glad you did.
- https://www.alta.org/news-and-publications/news/20231219-ALTA-Reports-24-Decrease-in-Q3-Title-Insurance-Premium-Volume ↩︎
- https://www.alta.org/news-and-publications/news/20231214-Title-Settlement-Fees-Less-Than-1-of-Borrowers-Life-of-loan-Costs ↩︎
- https://www.alta.org/news-and-publications/news/20231214-Title-Settlement-Fees-Less-Than-1-of-Borrowers-Life-of-loan-Costs ↩︎
- https://www.alta.org/news-and-publications/news/20220920-Top-Title-Industry-Claims-Trends ↩︎
- https://www.realtrends.com/articles/opinion-title-insurance-is-essential-heres-why/ ↩︎
