When should the purchaser of commercial and residential real estate or the refinancer of a mortgage in New York State get a second opinion on the title bill provided by the title insurance company being utilized?
Or ask other questions about the title insurance policy to be provided at closing?
Answer: Each and every time!
And for those who may be new to the topic of title insurance, there are some very valid reasons for why that is so. Here’s the list:
- Underwriter are not all created equal,
- Claims experience of title insurance companies will vary from firm to firm and should be questioned,
- ‘Junk’ or ancillary non-title insurance premium fees can and do vary widely from firm to firm,
- Does an Affiliated Business Arrangement (ABA) exist between the title insurance provider and one of the players in the transaction such as the real estate broker, real estate attorney or mortgage company,
- Is the title company a subsidiary of one of the companies in #4?
Title Insurance and Consumer Protection
Let’s go through these issues briefly one by one.
- Underwriter: Title insurance, like any insurance policy, is a product that’s provided by an insurance underwriter. And, depending on the type of insurance, there are many of these underwriters to choose from. Not all underwriters are of the same financial quality so the buyer of a title insurance policy needs to ensure that the underwriter being used is top-rated in terms of financial strength and claims paying ability.
- Claims Experience: When purchasing a title insurance policy the buyer will typically be doing so through an abstracting firm such as Hallmark Abstract Service. These firms do the work insuring that all outstanding property issues have been taken care of prior to the closing, and that the buyer or mortgage refinancer has good, clean and clear title to the property. They will then provide the title policy issued by the title insurance underwriter they work with. Ask the abstracting firm being utilized for their claims record and an explanation for why those claims occurred.
- ‘Junk’ or Ancillary Title Fees: These are the fees that will appear on a title bill that are not the title insurance premium or taxes. These fees can and do vary from firm to firm and the difference can sometimes be as much as $1,000. Isn’t that $1,000 better in the pocket of the buyer or mortgage refinancer than in the pocket of the title company?
- Affiliated Business Arrangements (ABA) or Title Insurance providers as a subsidiary of a real estate industry firm: The number one casualty of these business relationships can be the consumer who relies on the independence of the title insurance provider. It’s through this independence that any issue, even one that might prevent a transaction from being completed, is recognized and dealt with. When an ABA or corporate-entity relationship between various parties to a transaction exists (i.e. mortgage lender and title company ABA or title company as subsidiary of a real estate broker), objectivity and due diligence may be clouded by the desire to close the deal. The consumer will be impacted as a limited number of title industry players with ‘deep pockets’ create these ABA’s and mergers, while smaller title companies unable to compete will be hurt and may ultimately be forced close. Less competition means less choice for the consumer and more potential that issues detrimental to their best interests will arise!
As with all consumer transactions, particularly real estate that may represent the largest financial expenditure of a lifetime, it’s up to the buyer of real estate or refinancer of a mortgage to take personal responsibility and not rely solely on the advice of a third party!
In other words, Caveat Emptor!
In New York State, why do you hire a title insurance agency?
- Who is your underwriter?
- What is the claims experience of your title insurance provider?
- Do you know whether the non-title insurance premium fees you are paying are fair and reasonable?