Search the Web to cut cost of title insurance

A 2010 law gives home buyers more time to compare prices before closing on a sale.

Posted: April 15, 2011

When Tom Strange, a retired computer engineer in Henderson, Nev., refinanced his mortgage last year, he rejected the $1,870 title insurance offered by his mortgage broker. Searching online, he cut the cost by half.

"It was worth it," said Strange, 63, noting that he had saved almost $1,000. "I don't know how many people are aware of it. I never would have guessed."

Home buyers generally must buy title insurance in the amount of their mortgage to protect lenders against claims on the property, such as prior liens. The one-time cost is usually paid at closing. Most buyers use the insurer their lender or lawyer recommends, though a 1974 federal law gives purchasers the right to choose.

But, like Strange, more people may decide to shop for title insurance. Since January 2010, a law has required lenders to provide accurate closing costs within three business days of receiving a mortgage application, allowing buyers to start looking early in the purchasing process.

"The new law absolutely has prompted an increase in consumer shopping across the board," said Timothy Dwyer of Entitle Direct Group Inc., a title insurer in Stamford, Conn. "A consumer who has an estimate can compare and contrast the charges."

The savings can be substantial. For a $1.5 million home in New York with a 20 percent down payment, Entitle Direct, which sells directly to consumers, charges $4,973 for owner and lender policies, compared with $7,650 for policies sold by many traditional insurers using agents, according to its rate manual.

Because each state regulates the industry differently, not all buyers will see the same savings.

Texas and New Mexico set rates for all insurers, while states including California, Maryland, and Nevada approve individual rates. Some, such as Oklahoma and Georgia, don't regulate rates, and Iowa forbids the sale of private insurance, selling the coverage itself.

Pennsylvania, New Jersey, Delaware, New York, and Ohio have rating bureaus, which are groups of insurers that in most instances agree to charge the same price.

Pennsylvania has an inclusive rate for title insurance, bundling the premium, the cost of executing the title search, and the settlement fee. The amount, about 1 percent of the sales price, covers the property for as long as the owner and his or her heirs own it; all title searching and examination, even multiple searches; and the costs of settlement.

When you refinance, you are obtaining a new loan, even if you stay with your original lender. Your lender will require lender's title insurance to protect its investment in the property. You will not need to buy a new owner's title policy; the one you bought at closing is good for as long as you and your heirs have an interest in the property.

Title insurers underwrite policies that protect the property from unforeseen claims. They, or the agents who sell the policies, conduct a land-records search to make sure the property history is clean. The insurance pays for expenses related to defending against claims on the property and covers valid claims.

Online search tools help buyers compare prices. The California Insurance Department and the California Land Title Association created TitleWizard, a free online calculator. A search for title insurance on a $500,000 home in Long Beach with a $450,000 loan shows rates that range from $667 to $397, a possible 40 percent savings.

Denver-based Tiservices L.L.C.'s mytitleins.com, which started in 2007, gives Colorado buyers a free online calculator and reviews the quality of insurance coverage. Founder Garry Wolff said the service was expanding to at least 13 other states.

"We want to provide more information to the consumer so they can make an informed decision," he said. "We found that there are differences in costs and differences in protection. It's not a transparent industry."

Most title insurers do not compete on price and rely on service to build relationships with lenders and real estate agents, said Nat Otis, an analyst with Keefe, Bruyette & Woods, a New York investment bank.

"There's an element to the market to be enticed a little by competitive pricing, but most people don't know who their title insurer is," he said. "It's more important that they [the agents] are doing business with a known entity."

As of December, 88 percent of the market belonged to Fidelity National Financial Inc. of Jacksonville, Fla.; First American Financial Corp. of Santa Ana, Calif; Stewart Information Services Corp. of Houston; and Old Republic International Corp. of Chicago, according to the American Land Title Association (ALTA), an industry group in Washington.

At least one state is considering legislation to increase competition and make title insurance more affordable. New York - which has the highest average title insurance costs in the United States, according to Bankrate.com, a financial-services company in North Palm Beach, Fla. - is weighing state-backed title insurance, meaning the state would sell policies.

Consumers should comparison-shop for both price and service, said Kurt Pfotenhauer, chief executive officer of ALTA. His organization advises buyers to ask about any associated fees that may be added to insurance premiums.

"Price alone should not be the determining factor when selecting a title insurance company," Pfotenhauer said. "It's important for consumers to ask questions about title insurance, the protection it provides and associated costs."

Homeowners who find discounted rates should confirm their lenders will accept the cheaper policy, said Strange, the Nevada retiree. When he told his broker he had found a cheaper policy, he said, the broker told him, "Nice work."

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