Recently, an Inman reader contacted our editorial team with an interesting dilemma: Her monthly title insurance premiums were steadily going up, and she didn’t understand why.
Here’s the thing: That monthly premium increase is actually impossible.
That’s because homeowners do not pay monthly title insurance premiums the way they do with their homeowners insurance, car insurance or health insurance. Title insurance is a one-time fee that a borrower pays at the time of closing, once a title agent has completed an exhaustive search of property records to ensure the property is free of liens or encumbrances, and has possibly cleared up any title issues; then an underwriter seals the deal by agreeing to insure that the property is good to go.
Once a homeowner has closed on his mortgage loan transaction, he has essentially wiped his hands of title insurance, unless at some point during his ownership of that property, there is some title issue. Common title issues include errors in deeds, document forgery or fraud, discovery of undisclosed heirs and contractor liens.
Even if a homeowner has the misfortune of encountering one of these problems, he still won’t pay for title insurance again — the underwriter will step in to fix the problem.
The only time a homeowner will pay again for title insurance is if he refinances his mortgage loan. Then, his lender will require that he purchase a new lender’s title insurance policy to protect its new security interest in the property.
But that’s it; title insurance is one and done. Once you pay for title insurance, you’re protected for as long as you own the property, and you won’t have to write a check to your title company each month for that peace of mind.
Unlike other lines of insurance, which insure an asset for as long as you own it, title insurance insures the past. Coverage begins on the day of closing and goes back in time. If your title company does a great job, you won’t encounter any future title issues, and you’re covered if you do. Not a bad investment, eh?
Nevertheless, this reader is not alone in her misunderstanding, as other homeowners and buyers, other industry professionals such as real estate agents and even some insurance regulators who are more familiar with traditional property and casualty lines of insurance have made the same mistake.
In fact, last summer, the American Land Title Association (ALTA) conducted a series of focus groups with recent homebuyers, as well as lenders and real estate agents, about their knowledge and understanding of title insurance, and the results were startling.
Although it’s easy to forgive homebuyers, especially first-time buyers, who may have felt overwhelmed by the complexities of the mortgage application process, some lenders and Realtors — professionals who may deal with title insurance nearly every day in their real estate closing work — made statements showing they had an incorrect understanding of the way title insurance works.
“Some thought title insurance has a deductible — sometimes as high as $25,000,” Wayne Stanley, who handles public affairs for ALTA, told Inman.
Scary stuff. And as a journalist who has covered the title insurance industry for more than a decade, I can tell you it’s even scarier to see the look on the faces of title company executives when a state or even a federal regulator asks a similar question, particularly if the question is posed at a serious inquiry called by the regulator with interest in “cracking down” on what he believes to be abuse by some industry players.
For many years, ALTA has worked to educate consumers and industry alike about title insurance and its value in the homeownership process, and it plans to use the information it gained from these focus groups to adjust its marketing campaigns accordingly.
Until then, you can rest assured that you or your clients will not have to worry about fitting title insurance into their financial budgets. And if you are experiencing a change in insurance premium, figure out what insurance plan it is and why. It could be any of the above mentioned insurance lines, but it’s definitely not title insurance.