Why is Title Insurance So Expensive?

March 28th, 2013

Title Insurance is a type of insurance a purchaser of a property can buy to make sure that the title they are obtaining is free and clear of encumbrances. In Texas, the price of Title Insurance is fixed according to the purchase price. The cost is small enough that people don’t think much about it, but in class I discuss how over-priced it is, and that because the state sets minimum prices, it artificially inflates the rates.

The Times has an article about the high cost of title insurance!

Yet for years, a debate has raged as to whether premiums are too high, competition too constrained, and the insurers too closely intertwined with the mortgage and real estate professionals who send business their way. Some states have looked into the arrangements between title insurers and referral sources, including New York. In 2006, two title insurers that account for half the New York market — the Fidelity National Title Group and First American — agreed to 15 percent rate reductions to settle state allegations of illegal referral payments and rebates.

Indeed, in states that require attorneys for closings, the costs are even higher!

Founded in 2009, the company has grown slowly. Entitle’s sales account for only 0.1 percent of the total national premium, said Birny Birnbaum, the executive director of theCenter for Economic Justice, a consumer advocacy group. He attributed the slow growth to “the limited price competition in title insurance markets and the strength of the institutional arrangements between title insurers and those able to steer title business — lenders, developers, Realtors, builders.”

In Connecticut, where only lawyers can act as title insurance agents, “very few attorneys will close with Entitle, or sell very hard against it, because they’re not making the premium,” said Scott Penner, a lawyer in Milford. “Or they will increase their attorney fee, and that offsets the savings.”

H/T PropertyProf Blog