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After that long-winded response to the question of whether it is worth it to get an owner's policy in the first place, I would also like to give a breakdown of what it costs and if therein lies things that aren't worth it, even if the protection the policy affords is worth it.
I preface this in that I can only speak about New Jersey title - each state is different in what they charge.
In New Jersey, all title charges are controlled by a manual of rates and charges. In theory, all title companies and their agents must charge the same premium for a policy, whether it be an owner's policy for a purchase or a loan policy for a refinance. Owner's policies will always be more expensive because they are considered 'new money' and are charged at what is called the 'standard' rate. Loan policies (for refinances, the loan policy when you purchase should always be $25.00 + any additional endorsements the bank requires, typically an ALTA 8, ALTA 9, Closing Protection Letter, and Survey Endorsement, all of these $25.00 each) should be charged according to the 'refinance' rate. What this means is that if you are refinancing a $200K mortgage with a new loan amount of $200K (if any of you have refinanced, you know it is rare for your new balance to not go up, but for sake of argument) you should be given a full refinance rate which is cheaper because this isn't considered new money.
I am going to give as an example of the charges the premium rate and additional charges you would incur on a $300,000.00 purchase with a $240,000.00 mortgage in New Jersey.
$1,290.00 - this is the 'standard' rate premium on a purchase amount of $300,000.00. This figure should be the same no matter how many different agencies you call for a quote. If you are calling for quotes, be sure to ask them to break out specifically what the owner's policy premium costs. This number should always be the same. I will have a lot more to say about this number later, but for now I will continue with the additional costs.
$125.00 - loan policy for bank and endorsements attached thereto. You should never be paying a separate premium when you are purchasing the bank's loan policy. You should be charged $25.00 for a 'simultaneous issue', and then charged for an ALTA 8 (25.00), ALTA 9 (25.00), Closing Protection Letter (25.00)(essentially guarantees the bank of the conduct of the settlement agent or attorney who is receiving and disbursing funds), and a Survey Endorsement (25.00). These endorsements are not nonsense - they represent additional coverages the bank requires to their loan policy and you unfortunately get charged for them. NOTE: If you are buying a condo, a house in a planned unit development, or are getting a variable rate mortgage, you will be charged for other endorsements since these are special circumstances that the bank requires additional coverages for.
That covers the insurance portions of your bill. What comes next are the clerical and search fees that an agency incurs to actually prepare the title insurance for you and the bank. These fees are also regulated by the State of New Jersey, but this is where you are going to find the most variance between agencies. These fees can also be affectionately referred to as 'junk fees' by some in the industry.
Search/Exam Fee ($100.00). This is not a junk fee. This is what is paid by the agency to cover the cost of the county search. When a title order is placed, most agencies utilize a searcher in the county who pulls all the proper documents (deeds, mortgages, liens, easements, etc.) as regards the property in question. This fee covers that cost.
Upper Court Search Fee and Patriot Name Fee ($15.00 per name, on average). This is not a junk fee. Judgments (DMV debt, bankruptcies, child support, unpaid court fees, medical collections, etc.) can attach to a property as a lien. This search runs the names of people who have been in title to the property in the last 20 years to make sure that none of them had debt which may have attached to the property and was never properly cleared. A Patriot Name search is new from 9/11/01 - it makes sure no one on the FBI's watch list stands to benefit from the sale of a property, amongst other things.
Tax/Assessment Search ($45.00 on average). This is not a junk fee. Real Estate taxes have to be addressed as part of closing and this search gives the amount paid for the prior year + the amount due for the coming year. Also revealed on this search would be any open water or sewer bills that need to be brought current at sale.
Tidelands Search ($35.00 on average). This is not a junk fee, but it protects the insurance company more than anyone else. If the property borders or is near water effected by the ebb and flow of tidewaters (if a creek, pond, steam, river, etc. can trace its source back, ultimately, to the ocean) the State of New Jersey could technically have a claim on a portion of the property. The property, especially if it has a dock or something, might have to have a proper permit filed. This search reveals those types of issues.
Notice of Settlement ($50.00 - if you pay more ask why). This is not a junk fee. A title search is run at a certain date and deal closes at a later date. Furthermore, documents sent to be recorded in the county hit at an ever later date. This leaves gap periods where problems can arise that were not revealed in the initial title search due to the early date of it being run. For instance, lets say the title search is run on May 1st and comes up clean. However, the seller has a judgment hit on May 20th and closing is not until May 30th. If the agency filed their notice of settlement before the 20th, that judgment cannot attach to the property and is no risk to the new buyers. Similarly, lets say you get past closing on the 30th and it takes until June 10th for the documents to be recorded. On June 5th your seller has a judgment attach to the property. Again, if the Notice of settlement was properly recorded, you as the buyer are protected again.
Next you will come to the office and clerical fees like overnights, photocopying, electronic package receipt, etc. Agencies are supposed to follow the manual of rates and charges and only charge what they actually lay out. For instance, if you as the agency are billed a total of $25.00 in fedex overnights, you can charge $30.00 to make that back. In reality, you may get bloated fees in these areas as a way for the agency to make some profit. Always ask to see the justification for an overnight, photocopying, or other clerical type fee if it looks extremely high.
For my bill, I am going to assume $30.00 in overnight fees and $15.00 in copier, paper, and toner fees. My total bill for title insurance is then $1,735.00. This includes the $1,290.00 owner's policy premium, $125.00 in loan policy endorsements, and $320.00 in search fees and clerical/overnight fees. You should always ask for an invoice from the title agency to see a breakdown of what you are paying. By the time you get to your attorney's office for the closing, their settlement statement may just have one lumped sum for the total of title insurance - rolled into that lump sum could be some fraudulent or bloated charges.
A quick note on recording fees in New Jersey. Most of you will probably be using an attorney for your purchase closing, but attorneys can build some outrageous fees into their bills. Every county in New Jersey follows the same recording schedule and here it is:
For a mortgage, $30.00 for the first page and $10.00 for each additional page.
Your standard Wells Fargo mortgage, for instance, is usually 16 pages long. It should be $180.00 to record it then.
For a deed, $40.00 for the first page and $10.00 for each additional page. Deeds run anywhere between 3 to 8 pages, so this cost will vary. It should usually average around $100.00. If you find yourself being charged $350.00 to record a mortgage, or something else outrageous on this portion of your HUD, call attention to it and ask for justification.
Back to that $1,290.00 premium for the owner's policy on a purchase of $300,000.00. Within this number are some surprising facts. The Department of Banking and Insurance requires a title company or agency to charge this number as it is the regulated title insurance premium for the amount being insured. They claim to enforce it this way for the protection of the consumer. But is it really?
Out of the $1,290.00, 15% of this number is remitted by an agency to their insurance underwriter who actually issues the policy you will receive at the end of the entire process (please note, this 15% split is for NJ - Florida, for example, is a split of 30%, but their premiums are also higher). So $193.50 is remitted by XYZ Title Agency to their underwriter they serve as an agent for. This is, essentially, what the title insurance costs. So what is the other $1,096.50?
Each agency is going to have a different account of what happens with this money, but out of $1,096.50 you can safely bet that between 35% to 45% is paying a salesperson's commission. That means the title agency your attorney really wanted you to use? - your attorney might go out for drinks with the salesperson from that agency or got tickets to a sporting event or even gets a direct kickback from the title agency for orders. Same goes for your loan officer on a refinance. You always have the right to choose your own title insurance agency because you are the one paying for it, whether it be a purchase or a refinance. If your attorney, Realtor, loan officer, etc. is adamant that they want you to use a certain title agency, ask if there is some undisclosed relationship you should know about between them and the agency. The Department of Banking and Insurance maintains that they have fines for these types of kickbacks, or rebating, as they call it, but they rarely enforce it. The reality of the real estate business is that people want something for something. If I am an attorney and can control where I place my clients' orders for title insurance, aren't I going to go with the places that give me something back? Again, same for the Realtors and the loan officers. The one who has to pay is you, anyway. I also bet you won't be told at closing that a hefty portion of that title insurance premium you are paying is a commission to someone. However, the State mandates that the full amount be charged, again, to protect the consumer. Really?
In my opinion, if a title agency finds a way to advertise directly to the public and thereby removes the need for a salesperson, that agency should be able to cut the premium by the amount that would have been paid to that salesperson. However, the current rules on the books forbid this, again, for the good of the consumer.
Sorry this post is so long. I have been in title insurance for seven years and find it to be a secretive, fraudulent and expensive necessity. The companies make obscene money and wind up paying out less on a typical residential title issue and more on the malpractice and defalcation of their own risky agents that they signed up.
Last edited by TruthinTitle; 05-19-2011 at 01:15 PM..
I would ask the title agency for an invoice breaking down the fees that they are charging. I cannot speak with any authority about IL, but you have the right to shop around since you are paying for it. Also, whichever bank furnished you with that GFE may have estimated way high. Finally, IL may have real estate taxes that I am unfamiliar with which may have been lumped into that quote. Florida, for example, has intangible and stamps taxes which have to be collected in order to get a mortgage recorded. These taxes can be outrageous but are unfortunately necessary. Illinois may have something similar and if they are not itemized separately on your GFE, those could be lumped into your title quote.
Well I think the OP's questions were answered, looks like they are going with an owner's policy after all.
Anyway I'd like to point something out:
Quote:
Originally Posted by TruthinTitle
... Out of the $1,290.00, 15% of this number is remitted by an agency to their insurance underwriter who actually issues the policy you will receive at the end of the entire process (please note, this 15% split is for NJ - Florida, for example, is a split of 30%, but their premiums are also higher). So $193.50 is remitted by XYZ Title Agency to their underwriter they serve as an agent for. This is, essentially, what the title insurance costs. So what is the other $1,096.50?
Each agency is going to have a different account of what happens with this money, but out of $1,096.50 you can safely bet that between 35% to 45% is paying a salesperson's commission. That means the title agency your attorney really wanted you to use? - your attorney might go out for drinks with the salesperson from that agency or got tickets to a sporting event or even gets a direct kickback from the title agency for orders. Same goes for your loan officer on a refinance. You always have the right to choose your own title insurance agency because you are the one paying for it, whether it be a purchase or a refinance. If your attorney, Realtor, loan officer, etc. is adamant that they want you to use a certain title agency, ask if there is some undisclosed relationship you should know about between them and the agency. The Department of Banking and Insurance maintains that they have fines for these types of kickbacks, or rebating, as they call it, but they rarely enforce it. The reality of the real estate business is that people want something for something. If I am an attorney and can control where I place my clients' orders for title insurance, aren't I going to go with the places that give me something back? Again, same for the Realtors and the loan officers. The one who has to pay is you, anyway. I also bet you won't be told at closing that a hefty portion of that title insurance premium you are paying is a commission to someone. However, the State mandates that the full amount be charged, again, to protect the consumer. Really?
I'm pretty sure in FL and NJ the insurer (underwriter) charges the full amount of the premium, and, if they are so inclined (more like expected to), will return a percentage back to the agent (how this is done depends on logistics, but it may appear as though the agent is submitting a separate payment to the underwriter). In your example this would be 15% "retained" by the insurer and 85% "returned" to the agent for originating the business. That percentage can be much lower, depending on the business brought in. What the agent does with their portion is up to them, perhaps to sales and kickbacks as you mentioned. But that's what marketing is all about.
The premium, set by NJ, is not an arbitrary figure the state came up with and the percentage from that (which can be 100%) that an underwriter will "retain" represents the risk factored in associated with the business (ie cookie cutter residential policies versus complex commercial or undeveloped subdivisions). There really isn't a "fee" being paid to the insurer for insurance, but rather the insurer returns or rewards the agent providing them with risk-free business.
In answer to the initial question about whether to get owners title insurance when you buy or not, the choice might not be yours anyway. If you are taking out a mortgage to purchase, you will have to get a loan policy for the bank up to the amount of their mortgage anyway. If you are borrowing 80% to 90% of the purchase price anyway, you might as well just get an owners policy anyway. To be clear, when you get a simultaneous loan policy when you purchase, you should not have to pay a separate premium. I can only speak with authority for title insurance in New Jersey, but if you buy a property for say $350K and borrower $290K, the bank will get a loan policy in the amount of $290K for a title insurance 'simultaneous issue' fee of $25.00. You pay the full premium on the $350K for your owners policy and an extra $25.00 bucks for the bank's policy.
The risk you run by not having an owners policy when you purchase is if something was done wrong earlier in the chain of title (by the people who owned before you). This can be as simple as a mortgage never getting paid off correctly. Once you take title, you could suddenly find yourself being foreclosed upon due to that mortgage never being properly released. Your owner's policy would protect you from this. The difficulties could be less obvious than this, however. Lets say that a previous owner died and left the property to three children who then in turn sold the property to a new owner (assume all of this was either the previous owner or a few owners back). Only two of the children sign the deed conveying the property to the new owner - that third kid could decide one day he has a claim in that his interest in the property was never properly addressed. A title agency is supposed to catch issues like this prior to closing and alert all parties, fix the issue if possible, and issue you a policy protecting you from any of these contingencies.
but when buy a house and request a 'clear title' if there's a problem like you described above (about the 3rd kid) shouldn't it show up ?
but when buy a house and request a 'clear title' if there's a problem like you described above (about the 3rd kid) shouldn't it show up ?
Yes, that's his point. In order to view the title history of the property, someone will either requisition or conduct a title search (abstract). Who examines the abstract then will depend on who is asking/paying for the search. Having a closing agent/attorney conduct the abstract themselves and render a clean title report is cost prohibitive, and most are too busy to do so anyway.
I think you are asking then, if a search and exam has been conducted, then why purchase (over those fees) insurance? That is not a simple answer, but most examiners will respond - more deep pockets if someone providing the report made a mistake. You see an abstractor may or may not carry Errors and Omissions insurance, while agencies are required to (by the insurer). So if you get an abstract which you or your attorney examines, you want to be confident it has no errors or omissions, because quite frankly, it will be yours or their butt on the line if something was missed and you choose (or they advise you) to act on an alleged clean title report.
Insurance is another deep pocket to get relief from, hence the "insurance" aspect. Many closing agents/attorneys, who have to certify to the lender and owner a clean-title condition, would prefer (meaning, require) someone with insurance or deep pocket to cover them if the report they are relying on is lacking.
On a practical note, you'll be hard pressed to find an agent/attorney who will render a title opinion (or an agent that is willing to even do just an abstract) without insurance when a purchase or re-finance is involved. (and good luck contacting an abstractor directly, they are an elusive crowd and their loyalties run deep .)
but when buy a house and request a 'clear title' if there's a problem like you described above (about the 3rd kid) shouldn't it show up ?
You can just conduct a search of the property without paying the premium for the owner's policy, but if an issue does come up just knowing about it doesn't mean it won't be a problem for you. The title insurance itself would be a guarantee that the problem is rectified before you close, and it if isn't the burden of the issue falls upon the title insurer and not the buyer. You can try to rectify the problem yourself without paying the premium, but chances are you will wind up paying as much or more to fix it than you would just getting an owner's policy.
Well I think the OP's questions were answered, looks like they are going with an owner's policy after all.
Anyway I'd like to point something out:
I'm pretty sure in FL and NJ the insurer (underwriter) charges the full amount of the premium, and, if they are so inclined (more like expected to), will return a percentage back to the agent (how this is done depends on logistics, but it may appear as though the agent is submitting a separate payment to the underwriter). In your example this would be 15% "retained" by the insurer and 85% "returned" to the agent for originating the business. That percentage can be much lower, depending on the business brought in. What the agent does with their portion is up to them, perhaps to sales and kickbacks as you mentioned. But that's what marketing is all about.
The premium, set by NJ, is not an arbitrary figure the state came up with and the percentage from that (which can be 100%) that an underwriter will "retain" represents the risk factored in associated with the business (ie cookie cutter residential policies versus complex commercial or undeveloped subdivisions). There really isn't a "fee" being paid to the insurer for insurance, but rather the insurer returns or rewards the agent providing them with risk-free business.
Well it looks like I hijacked this thread, sorry.
I have been doing this for a couple of years and I guess I never looked at it that way necessarily. We have always remitted 15% to the underwriter but your point makes sense that it is more accurate to say that we are being allowed to retain 85%. I guess what is particularly galling to me is that out of that 85% retention you get kickbacks, commissions, etc. that have very little to do with the consumer's benefit. If I want to run my agency and offer discounts because I am not paying a salespersons commission, as long as I am remitting the appropriate amount to my underwriter and am keeping up on my errors and omissions insurance (which would ultimately bear the burden of most claims, anyway), I don't see why I still need to collect the full rate as determined by the state or risk being fined. In my opinion, if I am able to offer a policy discounted by 35% with equal efficacy to a policy issued at the full rate but with a commission being paid to a salesperson, why should I be fined for that?
I have been doing this for a couple of years and I guess I never looked at it that way necessarily. We have always remitted 15% to the underwriter but your point makes sense that it is more accurate to say that we are being allowed to retain 85%. I guess what is particularly galling to me is that out of that 85% retention you get kickbacks, commissions, etc. that have very little to do with the consumer's benefit. If I want to run my agency and offer discounts because I am not paying a salespersons commission, as long as I am remitting the appropriate amount to my underwriter and am keeping up on my errors and omissions insurance (which would ultimately bear the burden of most claims, anyway), I don't see why I still need to collect the full rate as determined by the state or risk being fined. In my opinion, if I am able to offer a policy discounted by 35% with equal efficacy to a policy issued at the full rate but with a commission being paid to a salesperson, why should I be fined for that?
That's a great idea.
But I don't think it would be very popular because you know how some agent who must rely heavily on sales to get any business will complain/file an action for 'unfair business practices' because they are being forced out of the loop because they feel they are financially unable to offer the same discounts (which they would offer if they didn't have sales commissions to pay).
(Then the Fortune 200 Insurance Company will see all the unflattering attention when the media reports: "XYZ Agency, agent for Fortune 200 Insurance Company", and maybe a lawyer or two is called, then the state commissioner will get a note, then a meeting set up, then a commission, then talks, then all fees will be set in stone and nobody can market anything different. oh wait.... )
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