The Mortgage Porter

In the Sunday issue of Seattle Times, Ken Harney addresses the cozy set ups (affiliated business arrangements) that drive up the costs of title insurance.  Before I dig into this topic, I thought I’d give you a little bit of title insurance 411.

Title insurance is required by lenders when you purchase or refinance a home.   With a purchase, the seller pays for the buyers policy (owners policy) and the buyer pays for the lender’s policy.    With a refinance, a new title insurance policy is again issued to insurance a lender for the new mortgage.   Unlike other forms our insurance, such as life or auto, a consumer only pays for title insurance when they have a real estate transaction utilizing a mortgage.  Most title insurance policies are the same, regardless of which company they are issued from.   They are all ALTA policies (American Land Title Insurance Association), typically 1992 Standard or 1998 ALTA which provides additional coverage yet sets deductibles on certain coverages.  Expect to pay 10% more for this policy  (1998 ALTA) which is most commonly used and is the default on purchase and sale agreement.  There are also various amounts of coverage available (standard, extended, etc.).   Title insurance rates in Washington State must be approved and filed with the State Insurance Commissioner.

With a purchase, typically, the listing and selling agent negotiate on the purchase and sale agreement who the title insurance and escrow company will be.   Currently most title commitments are ordered when the property is listed.   Rarely does the consumer have the opportunity to select the title insurance.   Even when there is not an “arranged relationship”, real estate agents want to choose “their preferred” title company.    When real estate companies have an “affiliated business arrangement” (aba or joint venture), odds are, the consumer will have even less say in where their title insurance will be.

Locally, Coldwell Banker Bain, John L Scott and Windermere have aba’s with LandAmerica Title Insurance Company which operates under Commonwealth of the Pacific and Rainier Title.   These companies are required to disclose their interest in the title company by an addendum on the purchase and sale agreement.    Most office managers will lean heavily on the real estate agents to use their affiliate title company.   In addition, these managers will not allow competing title companies to present materials within their office to their agents even if it is promoting lower rates and fees to the consumer.   It is common knowledge within the industry that there is significant incentive for the managers to control this relationship.    Other real estate companies have also entered into various marketing agreements with other title companies.    Many real estate companies will also try to steer mortgage and escrow for the same reasons (business arrangements).

Ken Harney’s bottom line to consumers it to not “roll over when it comes to title and settlement services.   Be aware you can shop for lower-cost alternatives.”   One way to have the most significant savings (in Washington state) is to find a title company that offers a 10% discount off the owners policy (this saves the seller money) when  using their escrow in conjunction with their title insurance company.   The lenders policy (what the buyer pays for) typically varies 5% from company to company.    Although there the variance in cost is not huge, the level of service from title companies can vary significantly.    It’s been my experience that when the business is arranged (when there is no competition), the service from that title company suffers.

Many consumers want to rely on their real estate agent or mortgage professional to help guide them on selecting a title insurance company.   It is important to know exactly what the relationship is between the title company and your agent or lender.

The State Insurance Commissioner is expected to come out within a few weeks with findings of their most recent audit of local title companies along with possible fines…stay tuned!