How to Compare Title Insurance Providers: Important Information for the Real Estate Investor

In a June 18, 2008 World News and Report article, Kimberly Palmer wrote about the option those purchasing real estate have to not buy title insurance. Though real estate investors may cover the risk themselves, experts in the industry strongly recommend against such a move. With so much financial risk and burden already upon the shoulders of real estate investors, the cost of title insurance may provide some welcome relief. Director of Insurance for the Consumer Federation of America J. Robert Hunter gave testimony before members of congress on April 22, 2006. In his testimony he stated that, "In 2005, consumers paid almost $17 billion in premiums for title insurance countrywide. Title insurance remains one of the most costly items at the closing of a real estate transaction, yet consumers poorly understand it. Title insurance assures the lender and buyer that the person selling a property actually has a clear title to transfer to the buyer. Unlike other forms of insurance that protect against future unexpected events, title insurance is essentially a guarantee that the title agent or title insurance company has diligently reviewed the relevant title information and identified any problems with the title prior to the sale." Clearly, becoming educated about title insurance is an important part of any real estate purchase.

WHAT TO LOOK FOR

Check with your state's department of insurance for ratings, complaints, and other pertinent information regarding the title insurance companies you are considering. The National Association of Insurance Commissioners website has all of the links on its website.

The Better Business Bureau, online consumer complaint sites, and professionals who deal with various title insurance agencies are all great sources of additional information. Though some opinions may be biased for any number of reasons, getting information from a variety of sources will help create the most accurate overview. Sometimes those who work at the recorder's office or the register of deeds office will openly discuss which companies have the record for best or worst filings with their office.

Not all title companies are created equal. If they do not do their job well, serious consequences may ensue. I once unwittingly used the title company suggested by the seller. Not only did my realtor and I have to repeatedly check and correct their cost figures, but also I still ended up being significantly overcharged. I later received a refund, but a year later my troubles with that company resurfaced. I discovered to my horror they put the seller on the title to the home I had purchased. It took repeated calls from me over the course of multiple weeks, and then finally a stern phone call from the head of the recorder's office for them to correct the situation, finally.

The recorder's office head told me a title company employee could have easily corrected the situation in one quick trip to the recorder's office. He had no idea what took them so long, but stated that this was not the first problem customers had with that particular company.

The moral of the story is to check out your title company thoroughly before using them, and to use the services of the one you feel is best. You are under no obligation to use the title company the realtor or seller prefers.

CRITERIA FOR COMPARISON

How long have they been in business? The longer a title insurance company has been in business, the more comprehensive the track record will be for evaluation.

How large is the title insurance company? When considering complaints and track record, the size of the company should be kept in mind. A larger company may have more complaints than a smaller one; however, the percentage of complaints may be smaller for the larger company.

Who will be underwriting your title insurance? Checking out the underwriter of your title insurance is just as important as checking out the title agency. Consider all of the complaints, lawsuits, and other problems reported with the underwriter. Problems in another state may affect their business with you in your state.

What are all of the costs and fees they will be charging? Get an estimate before signing and request they outline not only all of the estimated amounts, but all of the items they will be charging for, as well. Some charges may be waived. In addition, a seller who wants to get the deal closed may cover some of the fees. Be sure to check the math that has been done in the estimate as well. Mistakes happen and numbers not adding up can be caused by simple human error.

What are the terms of the insurance? How long the transaction will take and what specific coverage they are providing may be the deciding factor between two great companies. Get in writing what the exact course of action is should there be any problems, as well as how quickly they will rectify the situation for you.

FINAL WORD OF ADVICE

Talk to your local recorder's office or register of deed's office. Ask them how long on average it takes to verify that your title is filed properly. Once your sale is closed, mark on your calendar when you can check on your title, and make sure you do so. The sooner you catch problems, the easier it is to have them corrected.

RESOURCES:

Opting Out of Title Insurance by Kimberly Palmer
http://www.usnews.com/articles/business/real-estate/2008/06/18/opting-out-of-title-insurance.html

J. Robert Hunter Testimony Before Congress - April 22, 2006
http://www.consumerfed.org/pdfs/title_insurance_testimony042606.pdf

National Association of Insurance Commissioners
http://www.naic.org/state_web_map.htm

Better Business Bureau
http://welcome.bbb.org/