Be advised: this thread is not for serious in-depth discussion of weighty topics (we have a link for that), this thread is not for anything Culture War related. This thread is for Fun. You got jokes? Share 'em. You got silly questions? Ask 'em.
- 104
- 3
Jump in the discussion.
No email address required.
Notes -
Title insurance is a scam. For every $1 that a title insurance company collects, only 5 cents are ever paid out in claims. Other countries (not the US) have central land registries and dispense with title insurance altogether. Title insurance acts as a tax on every real estate transaction.
So... how do I get in?
I worked as a title attorney for a decade. It's not a scam. Most of what you're paying for isn't to theoretically pay off future claims, but to pay for work done up front to prevent future claims. This requires them to send someone down to the courthouse to gather all of the title documents, which are than sent to an attorney who looks for issues and drafts a list of exceptions that the policy won't cover. If the exceptions are minor things like utility easements and the like that don't really affect the value of the property, the company will write the policy. About a third of the time, though, there are major issues that require the insurance company to do further curative work before they'll move forward. The reason such a small percentage goes toward paying out claims is because the vast, vast majority of your premium is spent on getting assurance that there won't be any claims.
Now, theoretically you could forgo the insurance and research the title on your own, but this will inevitable cost you more than just getting the damn insurance because you're now paying the full hourly rate for an attorney who may or may not have any significant experience doing title work, whereas the insurance company has an attorney on its payroll for a lot less, and this guy does nothing but titles. And they'll also be able to delegate a lot of the legwork to other staff, who also do nothing but titles. So you're paying less for a superior product. Theoretically you could also do the research yourself but I highly, highly would not recommend even thinking about even attempting this. Even having spent ten years doing titles that were much more complex than typical residential real estate transactions, there's no way in hell I wouldn't buy title insurance. I've seen too much.
The problem there is that we would have to essentially run a full title for all land going back to patent. Most title insurance companies only do a 60 year search, because claims beyond that are rare enough that occasionally having to pay one isn't a big deal. But it becomes important if you're making ironclad assurances. You could theoretically get around this by passing a marketable title that acts as an effective statute of limitations on claims, but you stil don't avoid the basic problem: It would still be really expensive. How long and how much do you think it would cost to run full title on all 585,000 parcels in Allegheny County? You're probably talking billions, when you consider that a lot of these are going to be industrial and commercial properties that have much more complex titles than a simple residential subdivision lot. Rural counties have fewer parcels, but rural work poses its own problems; those titles are almost never easy. Then there are the associated costs of curing all those titles (a buyer can always walk away), developing and implementing the system, and dealing with the inevitable lawsuits that follow. I did a lot of work in Ohio right when oil and gas was starting to take off. The state had passed a dormant mineral act that sought to simplify things: Rather than having to track down the innumerable hard-to-find heirs of someone who severed a mineral interest in 1919 and then forgot about it, any interest that hadn't seen any action within the past 20 years would merge with the surface. Seems simple enough on its face. This led to a decade of wrangling and counting, with the Ohio Supreme Court getting involved on several occasions, to determine when an interest is actually terminated. We basically had to hold off on interpreting it for a while while the cases worked their way through the courts. I doubt the wholesale termination of old surface interests would be that much different.
I hate being "let me explain how to fix this industry which I know nothing about" but this is themotte so here goes.
Why, instead of doing all that work, doesn't a title insurer simply collect the payment and not do any work? If the current claims payout is 5%, maybe now it goes to 10%. Complicated mineral claims? Pschaw. I'll only do title insurance for houses and apartments.
I wouldn't rule out that a lot of insurers are stupid and lazy and this is their basic process anyway.
Presumably you don't built the registry from scratch. Just every time someone "runs title" it goes into the database and the next time someone runs title it just pulls the record for a flat fee of $50 or something. That said, I do acknowledge that the government fucks everything up so it probably would be some horrible boondoggle.
Because doing the legwork means the insurance is significantly cheaper than other forms of insurance in proportion to the total benefit. If I get the 15/30 minimum liability coverage in PA, it's probably going to cost about $800/year. $800 for a max payout of $30,000 means I'm paying 2.6% for one year of protection. On the other hand, the cost of title insurance on a $300,000 house is going to run about $1,500, so I'm paying 0.5% for protection as long as I own the home. If policyholders were paying $7,500 annually for title insurance, it might make sense to forgo the examination, because you'd then be able to absorb huge losses.
There's also the moral hazard issue where people don't attempt any funny stuff when they know they aren't going to get away with it, because there will always be a title search. Say I own a house that I'm offering for sale for $300,000, but I still have a mortgage that I owe $200,000 on. I list the property with a real estate agent, and Bob agrees to buy the home for the listed sale price. Bob's lender asks you to write a policy for their loan amount, and Bob purchases his share, and you write a policy for the full $300,000. At closing, the bank cuts me a check for the full purchase price, and I deposit it in my bank. After that, I stop paying on my existing mortgage, the bank forecloses and kicks Bob out of the house, and both Bob and the bank file claims for the full $300,000.
This lien isn't the kind of thing that's normally even a problem for title insurers; we'd just note it in the report so the closing attorney knows that the mortgage has to be satisfied to resolve it. But it's a serious risk if you don't even know about it.
Title insurance is mostly for homes and apartments, though commercial properties are insured as well. I did mineral work mostly and I've never heard of anyone insuring a mineral interest.
The issue with doing that is that the company running the title isn't trying to uncover or resolve every possible claim against the property, only the ones that are likely to become problematic from a business perspective. It's essentially a cost-benefit analysis. If the government is guaranteeing title, however, it has to be ironclad. Due process requires notice and opportunity to be heard, which means that a more extensive search needs to be done, and all interest-holders have to be notified and able to present their case. I talk about this more in the post below, but what this means is that a complicated quiet title action needs to be performed so a court can make a determination of who owns what. Several states had this process for a while, but it proved too cumbersome to become popular. The countries that have it now started it when most of the land was unseated, and the system could be developed from scratch.
I'll add that 'full value of home and land' isn't the cap for a title insurance payout; depending on the contract, certain types of breach (most notoriously unpermitted work, but also certain liens that attach to properties) can exceed the value of some homes or business locations.
They can, but the policy has coverage limits that are usually what you pay for the property.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link