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Nana Sefa
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Owner’s title insurance - to get or not?

Nana Sefa
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Posted Jan 3 2024, 13:02

Which of you get owner’s title insurance? And who doesn’t get owner’s title? Why do you get or not get? Thank you. 

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Shafi Noss
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Shafi Noss
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Replied Jan 13 2024, 09:46
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs 

Well first Jay I know you are extremely experienced and I suspect Carlos is as well so let me start by saying you both have my respect. 

Here is the nuance I am trying to distinguish: yes of course when you refi or sell a lender or buyer will want title insurance (unless Iowa). 

But what about the 6 weeks that I own the property before the sale or refi? Should I buy a full-price policy to protect myself during those 6 weeks? It has the same cost as a policy that would be in place for 6 years. I do not think the answer is 'always yes'. 

That's another weird thing about title insurance. Most insurance is paid monthly, title insurance is the same cost no matter how long you hold, the price is not fully tethered to the amount of risk protection the owner receives. 


Yes, title insurance is a one-time premium, generally that's considered a selling point, not a weird thing. Perhaps you're not aware that title coverage continues so long as you hold an interest in the property or have potential liability for warranties given in the deed of conveyance.

Let's say you sell the property and take back a PMM.  You don't need to buy a new lender's policy because the existing one continues in full force and effect.

Or let's say you sell, conveying by WD.  Five years later you're sued by your grantee's grantee alleging there an easement for a gas line predating your ownership thereby breaching your warranties.  Subject to the terms and conditions of your policy, there should be coverage and the insurer will probably provide a defense.

It's because of that continuing liability that I think you can't fairly say that you only had insurance for six weeks.

All that written, if you want to self-insure, have at it.

You're right of course that some protection extends past the 6 weeks of ownership, and I was clumsy or mistaken describing it otherwise. 

Nevertheless that anecdote shows risk is nonzero, but nothing further. The risks are lower than if I continued to own the property myself. The rational thing to do is to compare the risk and risk premium and make a decision to self-insure or not based on my risk tolerance, it's an obligation of rationality. I do not think you are disagreeing with that. 

Here is what confuses me about the one-time premium. If I have a 30yr mortgage the lender does not require title insurance updated every 5 years. But if I rate/term refi with the same lender after 5 years, title insurance is required to be paid again. Why? I get the old loan is paid off and the insurance goes with it but why can't it just be transferred to the new nearly-identical loan. It doesn't make sense to me. 

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Nana Sefa
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Nana Sefa
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Replied Jan 13 2024, 09:47
Quote from @Tom Gimer:

Here are a couple more examples of when the existence of a loan policy won't help the owner... encroachments, boundary issues, forced removal of improvements due to building permit and code issues, title issues that would not affect the lender's lien... or at least would most likely not cause the lender to take action which might help the uninsured owner.

And the reason another loan policy is required in connection with a refinance (in addition to the obvious reason -- there is a new insured) is that the period of time in which a defect might arise has just been extended to the date of the new policy. After all, the purpose of the new policy is to insure the lender that its new lien is in first (typically) position. No new policy = no new money loaned.

@Tom thanks for highlighting the instances of title issues that would not affect the lender’s lien. I want more examples of those. 
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Nana Sefa
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Nana Sefa
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Replied Jan 13 2024, 09:51
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs 

Well first Jay I know you are extremely experienced and I suspect Carlos is as well so let me start by saying you both have my respect. 

Here is the nuance I am trying to distinguish: yes of course when you refi or sell a lender or buyer will want title insurance (unless Iowa). 

But what about the 6 weeks that I own the property before the sale or refi? Should I buy a full-price policy to protect myself during those 6 weeks? It has the same cost as a policy that would be in place for 6 years. I do not think the answer is 'always yes'. 

That's another weird thing about title insurance. Most insurance is paid monthly, title insurance is the same cost no matter how long you hold, the price is not fully tethered to the amount of risk protection the owner receives. 


Yes, title insurance is a one-time premium, generally that's considered a selling point, not a weird thing. Perhaps you're not aware that title coverage continues so long as you hold an interest in the property or have potential liability for warranties given in the deed of conveyance.

Let's say you sell the property and take back a PMM.  You don't need to buy a new lender's policy because the existing one continues in full force and effect.

Or let's say you sell, conveying by WD.  Five years later you're sued by your grantee's grantee alleging there an easement for a gas line predating your ownership thereby breaching your warranties.  Subject to the terms and conditions of your policy, there should be coverage and the insurer will probably provide a defense.

It's because of that continuing liability that I think you can't fairly say that you only had insurance for six weeks.

All that written, if you want to self-insure, have at it.

You're right of course that some protection extends past the 6 weeks of ownership, and I was clumsy or mistaken describing it otherwise. 

Nevertheless that anecdote shows risk is nonzero, but nothing further. The risks are lower than if I continued to own the property myself. The rational thing to do is to compare the risk and risk premium and make a decision to self-insure or not based on my risk tolerance, it's an obligation of rationality. I do not think you are disagreeing with that. 

Here is what confuses me about the one-time premium. If I have a 30yr mortgage the lender does not require title insurance updated every 5 years. But if I rate/term refi with the same lender after 5 years, title insurance is required to be paid again. Why? I get the old loan is paid off and the insurance goes with it but why can't it just be transferred to the new nearly-identical loan. It doesn't make sense to me. 


 You make a good point about refi with same lender. If I refi, I don’t need a new owners title because I am the same owner. But if I use the same lender to refi why can’t we keep the old lender title policy since it is the same entity that holds the previous lender title policy. 

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Shafi Noss
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Shafi Noss
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Replied Jan 13 2024, 09:52
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Peter Walther Title companies take a 70%+ commission of the title insurance premium leaving the insurer 30% or less, of course their combined ratio will be normal. Premiums could double and if it was all paid as commission, the combined ratio would be the same. But the cost per unit risk to customers would still double.

The question is what's up with that other 70-85% of the premium. A title search costs a few hundred dollars and supplies the bulk of the risk protection. Someone with basic education can perform one, especially as digital records become more available. 

As far as I know, attorney's are paid a large portion of the premium for performing advanced title searches, I don't know how this works super well so if you have counter evidence let me know. I suspect there is a disproportionate cost-to-risk ratio in this activity specifically, not that it's always wrong to do, but there is some lopsidedness in this specific area and everyone is forced to pay it when they could instead pay more for the insurance itself but with a lower overall cost. 

I mean look, well-functioning free markets create fair prices. This only breaks down when consumers lack transparency and mobility which I think happens in a lot of industries including title. But the the end-insurer doesn't have to be making a killing for the consumer to have a poor cost-to-risk ratio. 


A clear misunderstanding of how the process works.  In order for the agent to receive a portion of the premium, (s)he must do work commensurate with the reward (see Section 8 of RESPA).  In addition to the work, the agent may have liability for any losses the underwriter may suffer as a result of errors in the agent's work, be it in the search, examination, closing or post-closing.  Thats why agents are required to carry Errors and Omissions insurance, which isn't free.

This is a free market, so if you think it's easy to lower prices and still make money, feel free to start a title insurance agency or underwriter.

 I could equally claim you have misunderstood what I said. Based on that reasoning you should be advising me to become a title attorney to take advantage of the free market distortion not a title insurance agency. 

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Ben Brown
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Ben Brown
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Replied Jan 13 2024, 10:57

@Nana Sefa always get title insurance. You may not use it, but the one time you don't will cost you. This is when you will regret it.

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Peter Walther
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Peter Walther
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Replied Jan 13 2024, 11:25
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs 

Well first Jay I know you are extremely experienced and I suspect Carlos is as well so let me start by saying you both have my respect. 

Here is the nuance I am trying to distinguish: yes of course when you refi or sell a lender or buyer will want title insurance (unless Iowa). 

But what about the 6 weeks that I own the property before the sale or refi? Should I buy a full-price policy to protect myself during those 6 weeks? It has the same cost as a policy that would be in place for 6 years. I do not think the answer is 'always yes'. 

That's another weird thing about title insurance. Most insurance is paid monthly, title insurance is the same cost no matter how long you hold, the price is not fully tethered to the amount of risk protection the owner receives. 


Yes, title insurance is a one-time premium, generally that's considered a selling point, not a weird thing. Perhaps you're not aware that title coverage continues so long as you hold an interest in the property or have potential liability for warranties given in the deed of conveyance.

Let's say you sell the property and take back a PMM.  You don't need to buy a new lender's policy because the existing one continues in full force and effect.

Or let's say you sell, conveying by WD.  Five years later you're sued by your grantee's grantee alleging there an easement for a gas line predating your ownership thereby breaching your warranties.  Subject to the terms and conditions of your policy, there should be coverage and the insurer will probably provide a defense.

It's because of that continuing liability that I think you can't fairly say that you only had insurance for six weeks.

All that written, if you want to self-insure, have at it.

You're right of course that some protection extends past the 6 weeks of ownership, and I was clumsy or mistaken describing it otherwise. 

Nevertheless that anecdote shows risk is nonzero, but nothing further. The risks are lower than if I continued to own the property myself. The rational thing to do is to compare the risk and risk premium and make a decision to self-insure or not based on my risk tolerance, it's an obligation of rationality. I do not think you are disagreeing with that. 

Here is what confuses me about the one-time premium. If I have a 30yr mortgage the lender does not require title insurance updated every 5 years. But if I rate/term refi with the same lender after 5 years, title insurance is required to be paid again. Why? I get the old loan is paid off and the insurance goes with it but why can't it just be transferred to the new nearly-identical loan. It doesn't make sense to me. 


It has to do with lien priority.  Once recorded a mortgage has priority over any subsequent lien so there's no need for updates.  If you refinance, the new lien will have priority as of its recording date and therefore and new search is needed and hence a new policy.  If you elect to do a modification of the existing loan instead of a refi there will still need to be a new search and an endorsement to the existing policy date through the recording date of the mod.  It won't be free.

I suspect if you do the refi with the same lender you will still be charged new points, origination fee, underwriting fee etc.  Why would you expect title insurance to be different?  Every year it seems my car and HO premium goes up; I complain about it, but I understand and expect it to be so.

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Peter Walther
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Peter Walther
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Replied Jan 13 2024, 11:26
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Peter Walther Title companies take a 70%+ commission of the title insurance premium leaving the insurer 30% or less, of course their combined ratio will be normal. Premiums could double and if it was all paid as commission, the combined ratio would be the same. But the cost per unit risk to customers would still double.

The question is what's up with that other 70-85% of the premium. A title search costs a few hundred dollars and supplies the bulk of the risk protection. Someone with basic education can perform one, especially as digital records become more available. 

As far as I know, attorney's are paid a large portion of the premium for performing advanced title searches, I don't know how this works super well so if you have counter evidence let me know. I suspect there is a disproportionate cost-to-risk ratio in this activity specifically, not that it's always wrong to do, but there is some lopsidedness in this specific area and everyone is forced to pay it when they could instead pay more for the insurance itself but with a lower overall cost. 

I mean look, well-functioning free markets create fair prices. This only breaks down when consumers lack transparency and mobility which I think happens in a lot of industries including title. But the the end-insurer doesn't have to be making a killing for the consumer to have a poor cost-to-risk ratio. 


A clear misunderstanding of how the process works.  In order for the agent to receive a portion of the premium, (s)he must do work commensurate with the reward (see Section 8 of RESPA).  In addition to the work, the agent may have liability for any losses the underwriter may suffer as a result of errors in the agent's work, be it in the search, examination, closing or post-closing.  Thats why agents are required to carry Errors and Omissions insurance, which isn't free.

This is a free market, so if you think it's easy to lower prices and still make money, feel free to start a title insurance agency or underwriter.

 I could equally claim you have misunderstood what I said. Based on that reasoning you should be advising me to become a title attorney to take advantage of the free market distortion not a title insurance agency. 


 That makes no sense to me.

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Jay Hinrichs
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Jay Hinrichs
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Replied Jan 13 2024, 11:37
Quote from @Peter Walther:
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs 

Well first Jay I know you are extremely experienced and I suspect Carlos is as well so let me start by saying you both have my respect. 

Here is the nuance I am trying to distinguish: yes of course when you refi or sell a lender or buyer will want title insurance (unless Iowa). 

But what about the 6 weeks that I own the property before the sale or refi? Should I buy a full-price policy to protect myself during those 6 weeks? It has the same cost as a policy that would be in place for 6 years. I do not think the answer is 'always yes'. 

That's another weird thing about title insurance. Most insurance is paid monthly, title insurance is the same cost no matter how long you hold, the price is not fully tethered to the amount of risk protection the owner receives. 


Yes, title insurance is a one-time premium, generally that's considered a selling point, not a weird thing. Perhaps you're not aware that title coverage continues so long as you hold an interest in the property or have potential liability for warranties given in the deed of conveyance.

Let's say you sell the property and take back a PMM.  You don't need to buy a new lender's policy because the existing one continues in full force and effect.

Or let's say you sell, conveying by WD.  Five years later you're sued by your grantee's grantee alleging there an easement for a gas line predating your ownership thereby breaching your warranties.  Subject to the terms and conditions of your policy, there should be coverage and the insurer will probably provide a defense.

It's because of that continuing liability that I think you can't fairly say that you only had insurance for six weeks.

All that written, if you want to self-insure, have at it.

You're right of course that some protection extends past the 6 weeks of ownership, and I was clumsy or mistaken describing it otherwise. 

Nevertheless that anecdote shows risk is nonzero, but nothing further. The risks are lower than if I continued to own the property myself. The rational thing to do is to compare the risk and risk premium and make a decision to self-insure or not based on my risk tolerance, it's an obligation of rationality. I do not think you are disagreeing with that. 

Here is what confuses me about the one-time premium. If I have a 30yr mortgage the lender does not require title insurance updated every 5 years. But if I rate/term refi with the same lender after 5 years, title insurance is required to be paid again. Why? I get the old loan is paid off and the insurance goes with it but why can't it just be transferred to the new nearly-identical loan. It doesn't make sense to me. 


It has to do with lien priority.  Once recorded a mortgage has priority over any subsequent lien so there's no need for updates.  If you refinance, the new lien will have priority as of its recording date and therefore and new search is needed and hence a new policy.  If you elect to do a modification of the existing loan instead of a refi there will still need to be a new search and an endorsement to the existing policy date through the recording date of the mod.  It won't be free.

I suspect if you do the refi with the same lender you will still be charged new points, origination fee, underwriting fee etc.  Why would you expect title insurance to be different?  Every year it seems my car and HO premium goes up; I complain about it, but I understand and expect it to be so.


I know this is a bit techincal  but same thing applies when your doing a DIL  or a defaulted borrower just wants to deed the property back or to one of Morbys gator sub to folks via quit claim.

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Shafi Noss
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Shafi Noss
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Replied Jan 13 2024, 12:20

@Peter Walther

You said "This is a free market, so if you think it's easy to lower prices and still make money, feel free to start a title insurance agency or underwriter.". 

That only makes sense if I am claiming title insurance agencies or underwriters are overpaid. That isn't what I said. 

Here is what I suspect and I could be wrong about this so let me know. A normal title search catches 80% of title issues and costs a few hundred dollars. Attorney's are also employed to check other sources outside of the normal search catch maybe 20% of the claims, and they are paid a few thousand dollars. This extra search successfully decreases risk but costs a lot more. 

Many insurance policies have basic coverage and premium coverage options. The basic coverage is cost effective and the premium coverage is not cost effective but maximally protective. I suspect the way title is structured is everyone is forced to buy the premium expensive version of protection, you can't opt for basic protection if you wanted to. 

Also title insurance isn't a free market in many states, there are price regulations. I don't know why. But I keep looking back at Iowa which costs $175, guarantees clear title, and does just fine. 

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Jay Hinrichs
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Jay Hinrichs
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Replied Jan 13 2024, 13:08
Quote from @Shafi Noss:

@Peter Walther

You said "This is a free market, so if you think it's easy to lower prices and still make money, feel free to start a title insurance agency or underwriter.". 

That only makes sense if I am claiming title insurance agencies or underwriters are overpaid. That isn't what I said. 

Here is what I suspect and I could be wrong about this so let me know. A normal title search catches 80% of title issues and costs a few hundred dollars. Attorney's are also employed to check other sources outside of the normal search catch maybe 20% of the claims, and they are paid a few thousand dollars. This extra search successfully decreases risk but costs a lot more. 

Many insurance policies have basic coverage and premium coverage options. The basic coverage is cost effective and the premium coverage is not cost effective but maximally protective. I suspect the way title is structured is everyone is forced to buy the premium expensive version of protection, you can't opt for basic protection if you wanted to. 

Also title insurance isn't a free market in many states, there are price regulations. I don't know why. But I keep looking back at Iowa which costs $175, guarantees clear title, and does just fine. 


closing attorneys would love to make 2k a file  :)  

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Shafi Noss
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Shafi Noss
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Replied Jan 13 2024, 14:23

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Still Fannie Mae itself approves "Attorney Opinion Letters" as an alternative to title insurance to pair with their loans. 

"In recent years, widespread digitization of real estate records and technological advances have improved the process of confirming marketable title, but that has not translated to lower costs for borrowers. 

Fannie Mae research shows that low-income and first-time homebuyers pay disproportionally more in closing costs. Since beginning to accept AOLs under the Selling Guide in April 2022, savings to borrowers have been significant. On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy. For purchase transactions, average borrower savings have been >$500, even when the borrower has elected to obtain an owner’s title policy."

...

"Fannie Mae has also purchased more than 10,000 loans with AOLs since 2009 and has not experienced losses from title claims on these loans."

https://singlefamily.fanniemae.com/media/37606/display

So is it always correct for everyone to get title insurance? FNMA doesn't seem to think so. 

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Tom Gimer
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Replied Jan 13 2024, 14:37
Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Still Fannie Mae itself approves "Attorney Opinion Letters" as an alternative to title insurance to pair with their loans. 

"In recent years, widespread digitization of real estate records and technological advances have improved the process of confirming marketable title, but that has not translated to lower costs for borrowers. 

Fannie Mae research shows that low-income and first-time homebuyers pay disproportionally more in closing costs. Since beginning to accept AOLs under the Selling Guide in April 2022, savings to borrowers have been significant. On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy. For purchase transactions, average borrower savings have been >$500, even when the borrower has elected to obtain an owner’s title policy."

...

"Fannie Mae has also purchased more than 10,000 loans with AOLs since 2009 and has not experienced losses from title claims on these loans."

https://singlefamily.fanniemae.com/media/37606/display

So is it always correct for everyone to get title insurance? FNMA doesn't seem to think so. 


We've had that discussion before on BP.

Guess how much any title attorney with a brain will be charging for an opinion letter. Yes, the same amount as a title policy because the work involved in issuing the letter and the potential liability are the same.

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Shafi Noss
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Shafi Noss
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Replied Jan 13 2024, 14:44
Quote from @Tom Gimer:
Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Still Fannie Mae itself approves "Attorney Opinion Letters" as an alternative to title insurance to pair with their loans. 

"In recent years, widespread digitization of real estate records and technological advances have improved the process of confirming marketable title, but that has not translated to lower costs for borrowers. 

Fannie Mae research shows that low-income and first-time homebuyers pay disproportionally more in closing costs. Since beginning to accept AOLs under the Selling Guide in April 2022, savings to borrowers have been significant. On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy. For purchase transactions, average borrower savings have been >$500, even when the borrower has elected to obtain an owner’s title policy."

...

"Fannie Mae has also purchased more than 10,000 loans with AOLs since 2009 and has not experienced losses from title claims on these loans."

https://singlefamily.fanniemae.com/media/37606/display

So is it always correct for everyone to get title insurance? FNMA doesn't seem to think so. 


We've had that discussion before on BP.

Guess how much any title attorney with a brain will be charging for an opinion letter. Yes, the same amount as a title policy because the work involved in issuing the letter and the potential liability are the same.


FNMA doesn't seem to agree. To wit,

"On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy."

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Tom Gimer
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Replied Jan 13 2024, 15:07
Quote from @Shafi Noss:
Quote from @Tom Gimer:
Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Still Fannie Mae itself approves "Attorney Opinion Letters" as an alternative to title insurance to pair with their loans. 

"In recent years, widespread digitization of real estate records and technological advances have improved the process of confirming marketable title, but that has not translated to lower costs for borrowers. 

Fannie Mae research shows that low-income and first-time homebuyers pay disproportionally more in closing costs. Since beginning to accept AOLs under the Selling Guide in April 2022, savings to borrowers have been significant. On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy. For purchase transactions, average borrower savings have been >$500, even when the borrower has elected to obtain an owner’s title policy."

...

"Fannie Mae has also purchased more than 10,000 loans with AOLs since 2009 and has not experienced losses from title claims on these loans."

https://singlefamily.fanniemae.com/media/37606/display

So is it always correct for everyone to get title insurance? FNMA doesn't seem to think so. 


We've had that discussion before on BP.

Guess how much any title attorney with a brain will be charging for an opinion letter. Yes, the same amount as a title policy because the work involved in issuing the letter and the potential liability are the same.


FNMA doesn't seem to agree. To wit,

"On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy."

FNMA may not be far off as concerns "coverage" suitable for the lender... but you and FNMA need to think about all the actual elements in play here. There is math required.

If the title insurer is removed from the equation, that's one less mouth to feed (no % remittance to the insurer would be due) plus a lot of admin and post-closing work would be saved. 

Then there is the cost to issue an opinion letter to the buyer/borrower in a purchase. An opinion letter can only be relied upon by a client of the attorney.

Like I said anybody with a brain will do the math and charge accordingly for the work required and potential liability assumed.

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Shafi Noss
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Shafi Noss
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Replied Jan 13 2024, 15:19

@Tom Gimer 

Are you saying there there's a lower cost because there's less work? If so, that should be done as much as possible so owners are not paying an extra 1k every transaction for needless work.

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Shafi Noss
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Replied Jan 13 2024, 16:11
Quote from @Peter Walther:
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs 

Well first Jay I know you are extremely experienced and I suspect Carlos is as well so let me start by saying you both have my respect. 

Here is the nuance I am trying to distinguish: yes of course when you refi or sell a lender or buyer will want title insurance (unless Iowa). 

But what about the 6 weeks that I own the property before the sale or refi? Should I buy a full-price policy to protect myself during those 6 weeks? It has the same cost as a policy that would be in place for 6 years. I do not think the answer is 'always yes'. 

That's another weird thing about title insurance. Most insurance is paid monthly, title insurance is the same cost no matter how long you hold, the price is not fully tethered to the amount of risk protection the owner receives. 


Yes, title insurance is a one-time premium, generally that's considered a selling point, not a weird thing. Perhaps you're not aware that title coverage continues so long as you hold an interest in the property or have potential liability for warranties given in the deed of conveyance.

Let's say you sell the property and take back a PMM.  You don't need to buy a new lender's policy because the existing one continues in full force and effect.

Or let's say you sell, conveying by WD.  Five years later you're sued by your grantee's grantee alleging there an easement for a gas line predating your ownership thereby breaching your warranties.  Subject to the terms and conditions of your policy, there should be coverage and the insurer will probably provide a defense.

It's because of that continuing liability that I think you can't fairly say that you only had insurance for six weeks.

All that written, if you want to self-insure, have at it.

You're right of course that some protection extends past the 6 weeks of ownership, and I was clumsy or mistaken describing it otherwise. 

Nevertheless that anecdote shows risk is nonzero, but nothing further. The risks are lower than if I continued to own the property myself. The rational thing to do is to compare the risk and risk premium and make a decision to self-insure or not based on my risk tolerance, it's an obligation of rationality. I do not think you are disagreeing with that. 

Here is what confuses me about the one-time premium. If I have a 30yr mortgage the lender does not require title insurance updated every 5 years. But if I rate/term refi with the same lender after 5 years, title insurance is required to be paid again. Why? I get the old loan is paid off and the insurance goes with it but why can't it just be transferred to the new nearly-identical loan. It doesn't make sense to me. 


It has to do with lien priority.  Once recorded a mortgage has priority over any subsequent lien so there's no need for updates.  If you refinance, the new lien will have priority as of its recording date and therefore and new search is needed and hence a new policy.  If you elect to do a modification of the existing loan instead of a refi there will still need to be a new search and an endorsement to the existing policy date through the recording date of the mod.  It won't be free.

I suspect if you do the refi with the same lender you will still be charged new points, origination fee, underwriting fee etc.  Why would you expect title insurance to be different?  Every year it seems my car and HO premium goes up; I complain about it, but I understand and expect it to be so.


 Sorry I missed this. Yes if the reissue rate is low enough that explanation makes sense, thanks for clarifying. 

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Replied Jan 14 2024, 07:15
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:
Quote from @Carlos Ptriawan:
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:

Many people are just saying 'you should get it' without providing any reasoning. 

Let's look at some data: 

Q4 2022, ALTA premiums were 4.4B. So maybe for all 2022 $16B. In all 2022, payouts were $600M. That's a 3.75% payout ratio.  

https://www.prnewswire.com/news-releases/alta-reports-full-y...

For hazard insurance here's Statefarm in 2021: "Earned premium was $27.6 billion. Incurred claims and loss adjustment expenses were $20.0 billion". That's a 72% payout ratio. 

Is the risk from hazard damage lower than the risk from title damage? I wouldn't guess so.


 You're comparing apples with oranges.  Try looking at the combined ratios.

Title Insurance: Combined Ratio data was reported at 103.300 % in Jun 2023. This records a decrease from the previous number of 105.200 % for Mar 2023. Title Insurance: Combined Ratio data is updated quarterly, averaging 101.550 % from Mar 2012 to Jun 2023, with 46 observations. The data reached an all-time high of 108.500 % in Mar 2012 and a record low of 94.900 % in Dec 2021. Title Insurance: Combined Ratio data remains active status in CEIC and is reported by National Association of Insurance Commissioners.

In 2020, the combined ratio of the American property and casualty insurance industry was 97.5%.

I'm open to changing my mind. Can you post the sources?

How Do I Calculate the Combined Ratio? (investopedia.com)

United States | Title Insurance: Industry Financial Snapshots | CEIC (ceicdata.com)

U.S. : combined ratio P/C insurance industry | Statista


 This means that insurance companies spend a lot on underwriting, not necessarily that the risk protection for investors is the same. 


 What is your specific issue/claim ?

I had one 2 years ago and I consulted to Peter about my claim and he tell me what would happen and exactly it happened 100% like what he said, word by word. Although disappointed, but not too unexpected.

I'm impressed by all Title Expert in this thread though, so much knowledge.

My claim is saying 'you should always buy title insurance' is wrong. Be aware of how much you are paying for what amount of risk protection and then decide for yourself. A lot of peopled don't realize how low the payout ratio is. 

Properties are purchased at the auction all the time without title insurance and a lot of people get rich doing it. 


 I've been driving for over 50 years and have never made a claim yet the state says I can't drive without it.  I've been paying homeowner's insurance for about 45 years and never made a claim though I'm thinking about self-insuring since the premiums keep going up.  I keep paying for life insurance, but I haven't died yet.  I think any reasonable analysis of the cost of title insurance versus the benefits has to lead to the conclusion it is the best insurance dollar for dollar of all types.  But yes, self-insuring is cheaper, until you have a claim.

You've pointed out a bunch of insurance you haven't needed yet, none of this is evidence you should always buy title insurance. 

If you have such reasonable analysis, I'll wait to see it to be persuaded. 

Self insuring is cheaper in the long run even if you have a claim. Insurance is a negative expected value product, that's normal and expected. See my post about the commission above. 


 sorry my friend, but you folks are very expert and this is very educating thread.

sorry another dumb question, what's self insuring ? what's the process ? why it's cheaper ? please elaborate....

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Replied Jan 14 2024, 07:18
Quote from @Shafi Noss:

@Peter Walther Title companies take a 70%+ commission of the title insurance premium leaving the insurer 30% or less, of course their combined ratio will be normal. Premiums could double and if it was all paid as commission, the combined ratio would be the same. But the cost per unit risk to customers would still double.

The question is what's up with that other 70-85% of the premium. A title search costs a few hundred dollars and supplies the bulk of the risk protection. Someone with basic education can perform one, especially as digital records become more available. 

As far as I know, attorney's are paid a large portion of the premium for performing advanced title searches, I don't know how this works super well so if you have counter evidence let me know. I suspect there is a disproportionate cost-to-risk ratio in this activity specifically, not that it's always wrong to do, but there is some lopsidedness in this specific area and everyone is forced to pay it when they could instead pay more for the insurance itself but with a lower overall cost. 

I mean look, well-functioning free markets create fair prices. This only breaks down when consumers lack transparency and mobility which I think happens in a lot of industries including title. But the the end-insurer doesn't have to be making a killing for the consumer to have a poor cost-to-risk ratio. 


 In today's most real estate transaction, we don't have free market, what we have is mere duopoly/monopoly system with price fixing. Smart customer like you would always ask what's the purpose that I need to pay for this and that. I am learning a lot, but again, fair price in free market is fake in this country.

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Shafi Noss
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Replied Jan 14 2024, 08:19

@Carlos Ptriawan self-insuring is when you don't buy insurance

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Tom Gimer
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Replied Jan 14 2024, 08:28
Quote from @Shafi Noss:

@Tom Gimer 

Are you saying there there's a lower cost because there's less work? If so, that should be done as much as possible so owners are not paying an extra 1k every transaction for needless work.

No I'm saying for the attorney writing the opinion letter there is the same work and potential liability. While there is less admin work required and no title insurer to split premiums with (savings here), I'm guessing this would increase attorneys' E&O premiums (not here). Title companies who don't have an attorney in-house would be left out -- you can't share attorneys fees with a non-lawyer.

Plus FNMA is referring in their numbers only to the lenders coverage. What about coverage for the buyer? They'll be paying for their own title opinion... but to the attorney rather than a title insurer.

Just sounds like a shell game to me.

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Jay Hinrichs
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Replied Jan 14 2024, 09:07
Quote from @Tom Gimer:
Quote from @Shafi Noss:

@Tom Gimer 

Are you saying there there's a lower cost because there's less work? If so, that should be done as much as possible so owners are not paying an extra 1k every transaction for needless work.

No I'm saying for the attorney writing the opinion letter there is the same work and potential liability. While there is less admin work required and no title insurer to split premiums with (savings here), I'm guessing this would increase attorneys' E&O premiums (not here). Title companies who don't have an attorney in-house would be left out -- you can't share attorneys fees with a non-lawyer.

Plus FNMA is referring in their numbers only to the lenders coverage. What about coverage for the buyer? They'll be paying for their own title opinion... but to the attorney rather than a title insurer.

Just sounds like a shell game to me.


I dont quite get it.. title insurance is the least expensive insurance with the most potential benefit in basically all insurances.. If you think insurance is bad just go through what I have to do when building homes..   Builders risk for the bank and myself. Our contractor comp and liability ( very expensive Add on policy for product defects for 10 years. then there is the sellers title insurance when I sell .  then there is the  2 10 warranty that my 10 year policy makes me buy.  So one house for us  we have 3 insurances that raise the price of the home around about 4k or a little more per home and we all want cheaper housing :) . And of course to date on my current project No claims..

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Peter Walther
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Peter Walther
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Replied Jan 14 2024, 14:02
Quote from @Jay Hinrichs:
Quote from @Peter Walther:
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs 

Well first Jay I know you are extremely experienced and I suspect Carlos is as well so let me start by saying you both have my respect. 

Here is the nuance I am trying to distinguish: yes of course when you refi or sell a lender or buyer will want title insurance (unless Iowa). 

But what about the 6 weeks that I own the property before the sale or refi? Should I buy a full-price policy to protect myself during those 6 weeks? It has the same cost as a policy that would be in place for 6 years. I do not think the answer is 'always yes'. 

That's another weird thing about title insurance. Most insurance is paid monthly, title insurance is the same cost no matter how long you hold, the price is not fully tethered to the amount of risk protection the owner receives. 


Yes, title insurance is a one-time premium, generally that's considered a selling point, not a weird thing. Perhaps you're not aware that title coverage continues so long as you hold an interest in the property or have potential liability for warranties given in the deed of conveyance.

Let's say you sell the property and take back a PMM.  You don't need to buy a new lender's policy because the existing one continues in full force and effect.

Or let's say you sell, conveying by WD.  Five years later you're sued by your grantee's grantee alleging there an easement for a gas line predating your ownership thereby breaching your warranties.  Subject to the terms and conditions of your policy, there should be coverage and the insurer will probably provide a defense.

It's because of that continuing liability that I think you can't fairly say that you only had insurance for six weeks.

All that written, if you want to self-insure, have at it.

You're right of course that some protection extends past the 6 weeks of ownership, and I was clumsy or mistaken describing it otherwise. 

Nevertheless that anecdote shows risk is nonzero, but nothing further. The risks are lower than if I continued to own the property myself. The rational thing to do is to compare the risk and risk premium and make a decision to self-insure or not based on my risk tolerance, it's an obligation of rationality. I do not think you are disagreeing with that. 

Here is what confuses me about the one-time premium. If I have a 30yr mortgage the lender does not require title insurance updated every 5 years. But if I rate/term refi with the same lender after 5 years, title insurance is required to be paid again. Why? I get the old loan is paid off and the insurance goes with it but why can't it just be transferred to the new nearly-identical loan. It doesn't make sense to me. 


It has to do with lien priority.  Once recorded a mortgage has priority over any subsequent lien so there's no need for updates.  If you refinance, the new lien will have priority as of its recording date and therefore and new search is needed and hence a new policy.  If you elect to do a modification of the existing loan instead of a refi there will still need to be a new search and an endorsement to the existing policy date through the recording date of the mod.  It won't be free.

I suspect if you do the refi with the same lender you will still be charged new points, origination fee, underwriting fee etc.  Why would you expect title insurance to be different?  Every year it seems my car and HO premium goes up; I complain about it, but I understand and expect it to be so.


I know this is a bit techincal  but same thing applies when your doing a DIL  or a defaulted borrower just wants to deed the property back or to one of Morbys gator sub to folks via quit claim.

 Absolutely, you don't want to find out you've put a subordinate lien holder in a first lien position.

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Replied Jan 14 2024, 14:05
Quote from @Shafi Noss:

@Peter Walther

You said "This is a free market, so if you think it's easy to lower prices and still make money, feel free to start a title insurance agency or underwriter.". 

That only makes sense if I am claiming title insurance agencies or underwriters are overpaid. That isn't what I said. 

Here is what I suspect and I could be wrong about this so let me know. A normal title search catches 80% of title issues and costs a few hundred dollars. Attorney's are also employed to check other sources outside of the normal search catch maybe 20% of the claims, and they are paid a few thousand dollars. This extra search successfully decreases risk but costs a lot more. 

Many insurance policies have basic coverage and premium coverage options. The basic coverage is cost effective and the premium coverage is not cost effective but maximally protective. I suspect the way title is structured is everyone is forced to buy the premium expensive version of protection, you can't opt for basic protection if you wanted to. 

Also title insurance isn't a free market in many states, there are price regulations. I don't know why. But I keep looking back at Iowa which costs $175, guarantees clear title, and does just fine. 


 You've convinced me, title insurance is simply not worth the money and I'll never buy another policy.

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Replied Jan 14 2024, 14:10
Quote from @Jay Hinrichs:
Quote from @Shafi Noss:

@Peter Walther

You said "This is a free market, so if you think it's easy to lower prices and still make money, feel free to start a title insurance agency or underwriter.". 

That only makes sense if I am claiming title insurance agencies or underwriters are overpaid. That isn't what I said. 

Here is what I suspect and I could be wrong about this so let me know. A normal title search catches 80% of title issues and costs a few hundred dollars. Attorney's are also employed to check other sources outside of the normal search catch maybe 20% of the claims, and they are paid a few thousand dollars. This extra search successfully decreases risk but costs a lot more. 

Many insurance policies have basic coverage and premium coverage options. The basic coverage is cost effective and the premium coverage is not cost effective but maximally protective. I suspect the way title is structured is everyone is forced to buy the premium expensive version of protection, you can't opt for basic protection if you wanted to. 

Also title insurance isn't a free market in many states, there are price regulations. I don't know why. But I keep looking back at Iowa which costs $175, guarantees clear title, and does just fine. 


closing attorneys would love to make 2k a file  :)  

It appears Mr. Noss does not understand there are some title defects that cannot be found in the best of title searches and hence the need for someone to assume that risk. I don't understand why he assumes most people are somehow forced to purchase the extended form policy.  But I've given up trying to explain the benefits.

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Replied Jan 14 2024, 14:11
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs 

Well first Jay I know you are extremely experienced and I suspect Carlos is as well so let me start by saying you both have my respect. 

Here is the nuance I am trying to distinguish: yes of course when you refi or sell a lender or buyer will want title insurance (unless Iowa). 

But what about the 6 weeks that I own the property before the sale or refi? Should I buy a full-price policy to protect myself during those 6 weeks? It has the same cost as a policy that would be in place for 6 years. I do not think the answer is 'always yes'. 

That's another weird thing about title insurance. Most insurance is paid monthly, title insurance is the same cost no matter how long you hold, the price is not fully tethered to the amount of risk protection the owner receives. 


Yes, title insurance is a one-time premium, generally that's considered a selling point, not a weird thing. Perhaps you're not aware that title coverage continues so long as you hold an interest in the property or have potential liability for warranties given in the deed of conveyance.

Let's say you sell the property and take back a PMM.  You don't need to buy a new lender's policy because the existing one continues in full force and effect.

Or let's say you sell, conveying by WD.  Five years later you're sued by your grantee's grantee alleging there an easement for a gas line predating your ownership thereby breaching your warranties.  Subject to the terms and conditions of your policy, there should be coverage and the insurer will probably provide a defense.

It's because of that continuing liability that I think you can't fairly say that you only had insurance for six weeks.

All that written, if you want to self-insure, have at it.

You're right of course that some protection extends past the 6 weeks of ownership, and I was clumsy or mistaken describing it otherwise. 

Nevertheless that anecdote shows risk is nonzero, but nothing further. The risks are lower than if I continued to own the property myself. The rational thing to do is to compare the risk and risk premium and make a decision to self-insure or not based on my risk tolerance, it's an obligation of rationality. I do not think you are disagreeing with that. 

Here is what confuses me about the one-time premium. If I have a 30yr mortgage the lender does not require title insurance updated every 5 years. But if I rate/term refi with the same lender after 5 years, title insurance is required to be paid again. Why? I get the old loan is paid off and the insurance goes with it but why can't it just be transferred to the new nearly-identical loan. It doesn't make sense to me. 


It has to do with lien priority.  Once recorded a mortgage has priority over any subsequent lien so there's no need for updates.  If you refinance, the new lien will have priority as of its recording date and therefore and new search is needed and hence a new policy.  If you elect to do a modification of the existing loan instead of a refi there will still need to be a new search and an endorsement to the existing policy date through the recording date of the mod.  It won't be free.

I suspect if you do the refi with the same lender you will still be charged new points, origination fee, underwriting fee etc.  Why would you expect title insurance to be different?  Every year it seems my car and HO premium goes up; I complain about it, but I understand and expect it to be so.


 Sorry I missed this. Yes if the reissue rate is low enough that explanation makes sense, thanks for clarifying. 


 You're welcome.