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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 12 2024, 16:57

@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. 

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Rob K.
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Rob K.
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Replied Jan 12 2024, 17:02

For those sellers who rationalize title insurance is not needed when it is being provided to the buyer, where the lender is being insured, or the hold period for the property is short, etc., there is a misunderstanding of the risks involved. The benefit of title insurance is not just insurance for the title itself, but coverage for legal expense in the event some problem results in litigation in which you get named or are potentially liable under some legal theory.

Wholesalers or flippers will typically purchase a title product called a binder when they purchase a property. What a binder does is the title company, for 110% of the cost of a regular policy, will agree to insure title as of the date of purchase with the purchaser having the right to have a future policy issued, usually two years or so. In the typical wholesale or flip transaction, the binder is used to issue a policy to the buyer the wholesaler or flipper sells to. So with a binder used this way, the new buyer has title insurance, but the seller, unless they purchase an additional policy, does not.

Real life scenario: purported owner of vacant land is desperate to sell off market to a flipper who gets the lead on their web site. It is a fantastic deal and flipper closes the purchase and immediately sells for a big profit to a developer. Flipper uses his title binder to give developer title insurance. Turns out the the deed was given to flipper with a forged notary and after closing, the money was wired to a mideast country. Real prior owner sues everyone to cancel deed and title company covers developer buyer in full for purchase price since developer was insured.

When Insurance companies cover a claim, they get to step into the shoes of the party they covered under a legal theory know as subrogation. Insurance companies look to anyone they can go after when they have to pay a claim for reimbursement. Since flipper had no title insurance, only a binder he used to give his buyer insurance, guess who the insurance company goes after and sues for reimbursement of the claim they had to pay?

It would be a very different outcome it the flipper had actual title insurance and not just a binder.

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Jay Hinrichs#2 All Forums Contributor
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Jay Hinrichs#2 All Forums Contributor
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Replied Jan 12 2024, 17:03
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. 


well we are getting in the Tulles when talking about buying tax sale and Sherrif sale's.  One can get title insurance right after the sale if they chose to.  Many folks once they bought at Auction will as soon as humanly possible have their PML or HML refinance and pull their cash out so they have to buy insurance then..  

In practice when I was buying these for my own account and it was a quick flip then NO I did not buy the insurance I paid it was bought when the new buyer purchased and we purchased the owners policy at that time as that is pretty much customary split of closing costs through out the US.

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Christie Gahan
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Christie Gahan
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Replied Jan 12 2024, 17:13
Quote from @Jay Hinrichs:
Quote from @Tom Gimer:

Let’s hear from someone who declined TI that had to deal with a significant title claim out of pocket. The attorneys fees alone could put many out of business.

There is a reason they make you decline coverage in writing in many/most states.


as you probably know Tom I wont buy anything of substantial value with out title insurance. to your point I bought a 6 acre track in Oregon that had 3 homes on it. got a great deal at 140k.. I demo'd the houses for another 40k plus a 20k fine from the state for not doing Asbestos correctly :( then put another 50k into breaking it into 3 lots.. We go to sell one lot and low and behold we are landlocked.. my policy was for 140k but I know have 250k into it.. Title company defended and it took the attorney they hired and myself 3 years of lawsuit with neighbor and dealing with the state of Oregon to get the right of USE across an old logging railroad easement the state bought for a linear park. I suspect Chicago paid close to a 100k in legal fee's to defend my title and get us squared away.  still less than the 140k they would have had to pay me but I would have still been out the other money.. Any way sold the lots to another builder for 600k and they built 3 million dollar plus homes.. so it worked out just took 5 years.  

 Jay: what part of Oregon was this in?

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Replied Jan 12 2024, 17:33
Quote from @Christie Gahan:
Quote from @Jay Hinrichs:
Quote from @Tom Gimer:

Let’s hear from someone who declined TI that had to deal with a significant title claim out of pocket. The attorneys fees alone could put many out of business.

There is a reason they make you decline coverage in writing in many/most states.


as you probably know Tom I wont buy anything of substantial value with out title insurance. to your point I bought a 6 acre track in Oregon that had 3 homes on it. got a great deal at 140k.. I demo'd the houses for another 40k plus a 20k fine from the state for not doing Asbestos correctly :( then put another 50k into breaking it into 3 lots.. We go to sell one lot and low and behold we are landlocked.. my policy was for 140k but I know have 250k into it.. Title company defended and it took the attorney they hired and myself 3 years of lawsuit with neighbor and dealing with the state of Oregon to get the right of USE across an old logging railroad easement the state bought for a linear park. I suspect Chicago paid close to a 100k in legal fee's to defend my title and get us squared away.  still less than the 140k they would have had to pay me but I would have still been out the other money.. Any way sold the lots to another builder for 600k and they built 3 million dollar plus homes.. so it worked out just took 5 years.  

 Jay: what part of Oregon was this in?


East side of PDX  Barton  Right across the street from the Barton store.. you cant miss it 3 brand new very pretty homes.

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Shafi Noss
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Shafi Noss
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Replied Jan 12 2024, 18:13

@Jay Hinrichs Yes exactly, I think this is a rational way to do it in many cases. 

@Rob K. I'll respond to this since I hear the undertones towards what I have just been posting about. Obviously an anecdote about a single case where someone would have benefitted from purchasing insurance is not evidence supporting that insurance should 'always be purchased'. The fact that the risk is nonzero does not mean the risk is high enough to pay any price for insurance. Title risk is real, it's just unlikely. Calculate the risk and the risk premium and make a rational decision, it's investing 101. 

That's another area where the title insurance payment structure does not make sense, on a refi. On a refinance you have to get the title insurance 're-issued'. Basically you have to pay again just to change the lender. If you change the lender on your hazard insurance you do not have to buy a whole new policy. This does not make sense to me. If you have any light to shed on that Rob I'm open to hearing. 

Most other developed economies like Japan and most of Europe have gov't backed title, a few other countries have a hybrid structure, and it is really only the US and Canada that are all about private title. We are a bit of an outlier as a country. 

I think the private title industry made sense for a US that is more prone to litigation and was forced to keep private records. As we transition to electronic records and the chance of title issues from paper records fades into the decades I hope the heat from reform efforts breaks through to the regulations to create a system that is more optimal. 

 

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Christie Gahan
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Christie Gahan
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Replied Jan 12 2024, 19:54

In a sucessful story, it sounds so easy.  I know it's not.  What kind of improvements did you have to do to "create" lots.  

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Tom Gimer
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Replied Jan 12 2024, 20:38
Quote from @Nana Sefa:
Quote from @Tom Gimer:

I'm in the title business and I have a story quite appropriate for this thread. ~6 years ago I purchased a property (seller finance) in WV using an attorney (not a title company) and was never even offered title insurance. (Neither was the seller/lender.) You can probably guess how this story unfolds.

Sure enough 4 years later out of the wordwork comes a lender from 2 transactions back (20+ years) claiming a HELOC was never paid/released and in fact continued to be drawn from by the prior owner/borrower. Was a ~$20k line now ~$50k owed.

Long story short I was at least able to defend myself, invoke the general warranty in my deed, add a claim against the attorney for malpractice... and the malpractice carrier paid the item days prior to the scheduled foreclosure.

To those who like to gamble and as I say to all buyers who decline owners coverage... Good luck!

@Tom Gimer. I find it interesting that someone in the title business did not request for title insurance when it was not offered to you. But I agree that not getting owner's title is a gamble or calculated risk. I see it as a calculated risk if I pay for a lender's title. I bet in the example you gave, if you had a mortgage on the property, the lender's title would have covered the cost of fixing the problem and helped avoid foreclosure.

Attorney opinion letter of title + seller finance + general warranty = I was pretty well covered… except for having to handle the litigation personally.

My point was more about the danger of assuming nothing would arise now because it hadn’t in the past 20 years. 

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Nana Sefa
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Replied Jan 12 2024, 21:16
Quote from @Shafi Noss:

@Jay Hinrichs Yes exactly, I think this is a rational way to do it in many cases. 

@Rob K. I'll respond to this since I hear the undertones towards what I have just been posting about. Obviously an anecdote about a single case where someone would have benefitted from purchasing insurance is not evidence supporting that insurance should 'always be purchased'. The fact that the risk is nonzero does not mean the risk is high enough to pay any price for insurance. Title risk is real, it's just unlikely. Calculate the risk and the risk premium and make a rational decision, it's investing 101. 

That's another area where the title insurance payment structure does not make sense, on a refi. On a refinance you have to get the title insurance 're-issued'. Basically you have to pay again just to change the lender. If you change the lender on your hazard insurance you do not have to buy a whole new policy. This does not make sense to me. If you have any light to shed on that Rob I'm open to hearing. 

Most other developed economies like Japan and most of Europe have gov't backed title, a few other countries have a hybrid structure, and it is really only the US and Canada that are all about private title. We are a bit of an outlier as a country. 

I think the private title industry made sense for a US that is more prone to litigation and was forced to keep private records. As we transition to electronic records and the chance of title issues from paper records fades into the decades I hope the heat from reform efforts breaks through to the regulations to create a system that is more optimal. 

 


The same argument discussed above would suggest that if I buy a property for $100K and it appreciates to $500K, I need to buy more title insurance to protect my equity. Does anyone do this? Guess what, if you have a claim they will only pay out to the purchase price.

I have learnt a lot from these discussions, but I am still not convinced that I get a lot more from owner's title insurance policy beyond the protection I could get from the lender title policy that I pay for so long as I have a mortgage on the property. The day I pay off my mortgage could be a different issue. I guess I could get the owners title policy after the mortgage is paid off. And that way I can also insure some of my appreciation after owning for 30 years.

Any lenders on this page should chime in. Do you have examples of times when a title issue came up on a property you held mortgage on that you left the buyer to deal with alone? If so, why did you not file a title claim then?

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Rob K.
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Rob K.
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Replied Jan 13 2024, 06:17
Quote from @Nana Sefa:
Quote from @Shafi Noss:

@Jay Hinrichs Yes exactly, I think this is a rational way to do it in many cases. 

@Rob K. I'll respond to this since I hear the undertones towards what I have just been posting about. Obviously an anecdote about a single case where someone would have benefitted from purchasing insurance is not evidence supporting that insurance should 'always be purchased'. The fact that the risk is nonzero does not mean the risk is high enough to pay any price for insurance. Title risk is real, it's just unlikely. Calculate the risk and the risk premium and make a rational decision, it's investing 101. 

That's another area where the title insurance payment structure does not make sense, on a refi. On a refinance you have to get the title insurance 're-issued'. Basically you have to pay again just to change the lender. If you change the lender on your hazard insurance you do not have to buy a whole new policy. This does not make sense to me. If you have any light to shed on that Rob I'm open to hearing. 

Most other developed economies like Japan and most of Europe have gov't backed title, a few other countries have a hybrid structure, and it is really only the US and Canada that are all about private title. We are a bit of an outlier as a country. 

I think the private title industry made sense for a US that is more prone to litigation and was forced to keep private records. As we transition to electronic records and the chance of title issues from paper records fades into the decades I hope the heat from reform efforts breaks through to the regulations to create a system that is more optimal. 

 


The same argument discussed above would suggest that if I buy a property for $100K and it appreciates to $500K, I need to buy more title insurance to protect my equity. Does anyone do this? Guess what, if you have a claim they will only pay out to the purchase price.

I have learnt a lot from these discussions, but I am still not convinced that I get a lot more from owner's title insurance policy beyond the protection I could get from the lender title policy that I pay for so long as I have a mortgage on the property. The day I pay off my mortgage could be a different issue. I guess I could get the owners title policy after the mortgage is paid off. And that way I can also insure some of my appreciation after owning for 30 years.

Any lenders on this page should chime in. Do you have examples of times when a title issue came up on a property you held mortgage on that you left the buyer to deal with alone? If so, why did you not file a title claim then?

 I guess it all comes down to how one wants to manage their risk. Becoming the subject of a title related claim might be a low probability event, depending on due diligence on transactions, and an individual's savvy, but if a claim arises, it is potentially very large.

The same might be said for auto insurance. 

When you refinance, the lender's policy is for the benefit of solely the lender even though you pay for it. A title issue may or may not relate to an issue the lender cares about. Do your loan documents have an indemnification/hold harmless clause or personal guarantee in favor of the lender? It is worth checking, because if there is a lender title claim that the title insurer covers, the claims department (depending on the nature of the claim) will absolutely scrutinize the loan documents and likely step in to enforce lender protection provisions against you if you don't have title insurance. 

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Replied Jan 13 2024, 07:51
Quote from @Tom Gimer:
Quote from @Shafi Noss:

@Carlos Ptriawan 
I'm sure some do and some don't, neither of us have access to that data. 

If I had $5M cash and bought a $100k property that I was going to hold for 6 weeks after buying at the auction and did a good title search, the specifics matter but I could easily see myself rationally not buying title insurance. 

 Would you really claim everyone should always buy anything no matter the risk and no matter the cost? Absolute statements like that don't make sense. 

As long as you've made an informed decision and are OK losing the $100k rather than spending X hundred $ to protect against that loss, I assume everyone here is fine with that. Good luck!

BTW a "good title search" is worth the paper it is printed on (or perhaps the cost of the search as max liability) without a title policy.

The basic sentiment of this thread is for the rest of us who aren't sitting on $5mm cash and can't afford to or don't wish to self-insure.


 so is the basic title search is actually more or less equal to just googling the deed and record data ?

but then the title insurance would not cover anything that's non-public too, btw.... ( I learnt it from Peter long long time ago).

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Replied Jan 13 2024, 07:51
Quote from @Rob K.:
Quote from @Nana Sefa:
Quote from @Shafi Noss:

@Jay Hinrichs Yes exactly, I think this is a rational way to do it in many cases. 

@Rob K. I'll respond to this since I hear the undertones towards what I have just been posting about. Obviously an anecdote about a single case where someone would have benefitted from purchasing insurance is not evidence supporting that insurance should 'always be purchased'. The fact that the risk is nonzero does not mean the risk is high enough to pay any price for insurance. Title risk is real, it's just unlikely. Calculate the risk and the risk premium and make a rational decision, it's investing 101. 

That's another area where the title insurance payment structure does not make sense, on a refi. On a refinance you have to get the title insurance 're-issued'. Basically you have to pay again just to change the lender. If you change the lender on your hazard insurance you do not have to buy a whole new policy. This does not make sense to me. If you have any light to shed on that Rob I'm open to hearing. 

Most other developed economies like Japan and most of Europe have gov't backed title, a few other countries have a hybrid structure, and it is really only the US and Canada that are all about private title. We are a bit of an outlier as a country. 

I think the private title industry made sense for a US that is more prone to litigation and was forced to keep private records. As we transition to electronic records and the chance of title issues from paper records fades into the decades I hope the heat from reform efforts breaks through to the regulations to create a system that is more optimal. 

 


The same argument discussed above would suggest that if I buy a property for $100K and it appreciates to $500K, I need to buy more title insurance to protect my equity. Does anyone do this? Guess what, if you have a claim they will only pay out to the purchase price.

I have learnt a lot from these discussions, but I am still not convinced that I get a lot more from owner's title insurance policy beyond the protection I could get from the lender title policy that I pay for so long as I have a mortgage on the property. The day I pay off my mortgage could be a different issue. I guess I could get the owners title policy after the mortgage is paid off. And that way I can also insure some of my appreciation after owning for 30 years.

Any lenders on this page should chime in. Do you have examples of times when a title issue came up on a property you held mortgage on that you left the buyer to deal with alone? If so, why did you not file a title claim then?

 I guess it all comes down to how one wants to manage their risk. Becoming the subject of a title related claim might be a low probability event, depending on due diligence on transactions, and an individual's savvy, but if a claim arises, it is potentially very large.

The same might be said for auto insurance. 

When you refinance, the lender's policy is for the benefit of solely the lender even though you pay for it. A title issue may or may not relate to an issue the lender cares about. Do your loan documents have an indemnification/hold harmless clause or personal guarantee in favor of the lender? It is worth checking, because if there is a lender title claim that the title insurer covers, the claims department (depending on the nature of the claim) will absolutely scrutinize the loan documents and likely step in to enforce lender protection provisions against you if you don't have title insurance. 


how about HELOC ? do you need to buy/replace title insurance as well ??

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Jay Hinrichs#2 All Forums Contributor
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Replied Jan 13 2024, 08:03
Quote from @Nana Sefa:
Quote from @Shafi Noss:

@Jay Hinrichs Yes exactly, I think this is a rational way to do it in many cases. 

@Rob K. I'll respond to this since I hear the undertones towards what I have just been posting about. Obviously an anecdote about a single case where someone would have benefitted from purchasing insurance is not evidence supporting that insurance should 'always be purchased'. The fact that the risk is nonzero does not mean the risk is high enough to pay any price for insurance. Title risk is real, it's just unlikely. Calculate the risk and the risk premium and make a rational decision, it's investing 101. 

That's another area where the title insurance payment structure does not make sense, on a refi. On a refinance you have to get the title insurance 're-issued'. Basically you have to pay again just to change the lender. If you change the lender on your hazard insurance you do not have to buy a whole new policy. This does not make sense to me. If you have any light to shed on that Rob I'm open to hearing. 

Most other developed economies like Japan and most of Europe have gov't backed title, a few other countries have a hybrid structure, and it is really only the US and Canada that are all about private title. We are a bit of an outlier as a country. 

I think the private title industry made sense for a US that is more prone to litigation and was forced to keep private records. As we transition to electronic records and the chance of title issues from paper records fades into the decades I hope the heat from reform efforts breaks through to the regulations to create a system that is more optimal. 

 


The same argument discussed above would suggest that if I buy a property for $100K and it appreciates to $500K, I need to buy more title insurance to protect my equity. Does anyone do this? Guess what, if you have a claim they will only pay out to the purchase price.

I have learnt a lot from these discussions, but I am still not convinced that I get a lot more from owner's title insurance policy beyond the protection I could get from the lender title policy that I pay for so long as I have a mortgage on the property. The day I pay off my mortgage could be a different issue. I guess I could get the owners title policy after the mortgage is paid off. And that way I can also insure some of my appreciation after owning for 30 years.

Any lenders on this page should chime in. Do you have examples of times when a title issue came up on a property you held mortgage on that you left the buyer to deal with alone? If so, why did you not file a title claim then?

for me lenders policies are more about Fruad forgery etc.. Will give you two cases I had in the SF Bay area when I ran my HML company in Oakland..  

1. make first position loan on property in SF.  Get title policy and find out I am in second postion. Some bad guy new when my title company recorded and literally 30 minutes before my Deed of Trust was recorded they went in and recorded their own fraudulent Deed of trust for 6 figures. I made title claim on my lenders policy and the title company removed that and went after the fraudster.  This is also sometimes referred to gap insurance.

2. Borrower forged reconveyance deeds and Deeds of Trust.. So fraudulently removed our deed of trust and put another one on it and took the money.. Plead guilty and got 9 years title paid off my investors whose mortgage got removed. But no interest :)

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Peter Walther
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Replied Jan 13 2024, 08:07
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. 


Title insurance is based on risk avoidance, not risk assumption.  Higher upfront costs should lead to lower claims losses.  The combined ratio is the only way to make a fair comparison between the different types of insurance.

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Peter Walther
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Replied Jan 13 2024, 08:13
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.

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Replied Jan 13 2024, 08:14
Quote from @Guy Gimenez:
Quote from @Peter Walther:
Quote from @Guy Gimenez:
Quote from @Peter Walther:
Quote from @Guy Gimenez:
Quote from @Peter Walther:
Quote from @Guy Gimenez:

I "almost" always get title insurance but I only purchase in Texas where title insurance is costly. Anything purchased for less than $5K I may not get T/I. I just had my first ever title claim. Underwriter's counsel took two months to confirm they were responsible for the claim even though is was clear they missed a $14,500 RTO (rent to own HVAC) lien that was filed in the public records at 4:30pm the day prior to my closing. Insurer's counsel negotiated the payoff down to $4K and then sent me an absurd set of documents to sign and refused to provide me a Bill of Sale and release of the UCC Financing Statement lien. Insurer's counsel was not acting in good faith as required by statute. After going back and forth over a couple of weeks, I finally had to hire an attorney who spoke directly to the RTO company, sent them the $4K on my behalf and I received both the release of lien and bill of sale via mail a few days later. My attorney then contacted the insurer's counsel for reimbursement and he refused to return emails or calls. I guess he knew my attorney solved the problem he refused to solve so why not wash his hands of the matter. I advised my title company I was filing a complaint with the Texas Dept. of Insurance and I then did a video (I have a good following on social media) explaining to my followers that I would be doing a subsequent video about the insurer's refusal to be accountable. Apparently the right person saw my post and within 24 hours my attorney received an email from the insurer's counsel say he would send a check immediately. So, the moral of the story is title insurance is valuable, but like any insurer, you'll likely need to hire your own attorney to get them to pay out on a covered claim. Don't expect title insurers to do the right thing unless you force them to do so. //// On a side note, I also sued Farmer's Insurance over a car accident when they refused to pay out over my uninsured/underinsured coverage. Took 7 years but Farmer's finally paid out the full policy amount. Yes, it seems there's a pattern here with insurers.


I'm sorry you had a difficult time with the one title claim you had to file but please don't paint with such a broad brush with such a limited experience.  I don't know any of the facts of your claim which might give some justification to the delay but even if there is none, that doesn't mean there is a pattern with insurers.  I've had insured's sing my praises to the high heavens because I was able to resolve their issue quickly.


 It's not a personal attack...please don't take it as such. Having two insurers refuse to pay as stipulated in my policy may seem limited to you...it's very real to me. I have a good friend (attorney) who spent a good portion of his career suing insurers who refused to abide by their policies. Oddly enough, he never lacked for work. 


I didn't take it as a personal attack, I took it as an unfounded attack on all claims handlers who do their job every day in good faith and try had to provide the insured the benefits they are due.  I frequently had to explain to insureds, and their attorney's, why their claim wasn't covered under the policy, and rarely did they respond "oh, I'm sorry I was just trying to get something I wasn't entitled to."

I'm not claiming there aren't mistakes made in claims handling or incompetent or lazy claims handlers, just that there are lazy and incompetent attorneys representing insureds, but most aren't.

An attack? If you don't believe insurance claims are slow walked at times, you've been in the insurance industry too long. There was NEVER any doubt, not even by the insurers in my case, that they were responsible, otherwise they certainly would not have paid out on the claims. They simply made a business decision to force me to take action to get what I paid for. If stating a fact is an attack, you indeed did take it personally. 


 Ad hominems make for a weak response.

So do emotional responses. Truth is often a bitter pill. 

 I am well known for crying in my beer.

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Replied Jan 13 2024, 08:24

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.

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Replied Jan 13 2024, 08:50
Quote from @Shafi Noss:
Quote from @Carlos Ptriawan:
Quote from @Shafi Noss:

@Carlos Ptriawan 
I'm sure some do and some don't, neither of us have access to that data. 

If I had $5M cash and bought a $100k property that I was going to hold for 6 weeks after buying at the auction and did a good title search, the specifics matter but I could easily see myself rationally not buying title insurance. 

 Would you really claim everyone should always buy anything no matter the risk and no matter the cost? Absolute statements like that don't make sense. 


 when you sell again after 6 weeks, dont you think you need title insurance ?

correct me if I'm wrong.

In that scenario, no I don't need title insurance. The buyers of the property or their lender may require title insurance, and I may need to pay it or pay for some of it to move the property. But I don't need it. Should I buy a second policy for myself in addition to the one for the buyer? All else equal I probably wouldn't. 

Do you know that in some states title insurance companies pay referral fees to lawyers who refer them business and are not required to disclose it? Only attorneys can receive these referral fees for some reason. 

Or consider Iowa, which has a flat rate title insurance of $175 for every transaction and then the state guarantees clear title. Maybe someone else knows better than me but is Iowa real estate in shambles? None of my friends have ever told me they want to vacation in Iowa so I don't know maybe it is. Actually sliced bread was invented in Iowa so there is probably some really good joke that could be made with that. 


I think anyone who's comfortable self-insuring should go for it.  Of course, if you are conveying by WD your liability for a title defect may go on for some time.

I'm not aware of any states where an attorney can legally get a referral fee for no work.  Can you provide a source I can look at?  Some attorneys are also policy issuing agents and therefore receive a portion of the premium for the work they perform.  In NC only attorneys are permitted by law to search and examine title so they provide a title opinion to the underwriters who rely on it to issue a commitment and then a policy.  Unsurprisingly the attorneys want to be paid for their work.

I have no problem with a Torrens type land registration system where title is guaranteed by the state such as in Iowa, but you have to embrace socialism first since it's the state that guarantees title.  If you investigate the costs involved you might find the total cost are similar the title insurance.  You might also find that efforts to keep title insurers out of the state were led by the Iowa Bar (lawyers) who I suspect were not doing it for altruistic reasons.  I also suspect they did it because they believed they could make more money that way and not have underwriters to compete with.

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Replied Jan 13 2024, 08:55
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. 


Talk to the husband and wife in Tampa who bought a condo without realizing it was a foreclosure of a 2nd mortgage.

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Replied Jan 13 2024, 09:06

@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. 

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Replied Jan 13 2024, 09:10
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.

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Replied Jan 13 2024, 09:17
Quote from @Nana Sefa:
Quote from @Shafi Noss:

@Jay Hinrichs Yes exactly, I think this is a rational way to do it in many cases. 

@Rob K. I'll respond to this since I hear the undertones towards what I have just been posting about. Obviously an anecdote about a single case where someone would have benefitted from purchasing insurance is not evidence supporting that insurance should 'always be purchased'. The fact that the risk is nonzero does not mean the risk is high enough to pay any price for insurance. Title risk is real, it's just unlikely. Calculate the risk and the risk premium and make a rational decision, it's investing 101. 

That's another area where the title insurance payment structure does not make sense, on a refi. On a refinance you have to get the title insurance 're-issued'. Basically you have to pay again just to change the lender. If you change the lender on your hazard insurance you do not have to buy a whole new policy. This does not make sense to me. If you have any light to shed on that Rob I'm open to hearing. 

Most other developed economies like Japan and most of Europe have gov't backed title, a few other countries have a hybrid structure, and it is really only the US and Canada that are all about private title. We are a bit of an outlier as a country. 

I think the private title industry made sense for a US that is more prone to litigation and was forced to keep private records. As we transition to electronic records and the chance of title issues from paper records fades into the decades I hope the heat from reform efforts breaks through to the regulations to create a system that is more optimal. 

 


The same argument discussed above would suggest that if I buy a property for $100K and it appreciates to $500K, I need to buy more title insurance to protect my equity. Does anyone do this? Guess what, if you have a claim they will only pay out to the purchase price.

I have learnt a lot from these discussions, but I am still not convinced that I get a lot more from owner's title insurance policy beyond the protection I could get from the lender title policy that I pay for so long as I have a mortgage on the property. The day I pay off my mortgage could be a different issue. I guess I could get the owners title policy after the mortgage is paid off. And that way I can also insure some of my appreciation after owning for 30 years.

Any lenders on this page should chime in. Do you have examples of times when a title issue came up on a property you held mortgage on that you left the buyer to deal with alone? If so, why did you not file a title claim then?

I've previously posted on why it's a fool's errand to think having a lender's policy provides an owner any protection.

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Jay Hinrichs#2 All Forums Contributor
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Replied Jan 13 2024, 09:19
Quote from @Peter Walther:
Quote from @Shafi Noss:
Quote from @Carlos Ptriawan:
Quote from @Shafi Noss:

@Carlos Ptriawan 
I'm sure some do and some don't, neither of us have access to that data. 

If I had $5M cash and bought a $100k property that I was going to hold for 6 weeks after buying at the auction and did a good title search, the specifics matter but I could easily see myself rationally not buying title insurance. 

 Would you really claim everyone should always buy anything no matter the risk and no matter the cost? Absolute statements like that don't make sense. 


 when you sell again after 6 weeks, dont you think you need title insurance ?

correct me if I'm wrong.

In that scenario, no I don't need title insurance. The buyers of the property or their lender may require title insurance, and I may need to pay it or pay for some of it to move the property. But I don't need it. Should I buy a second policy for myself in addition to the one for the buyer? All else equal I probably wouldn't. 

Do you know that in some states title insurance companies pay referral fees to lawyers who refer them business and are not required to disclose it? Only attorneys can receive these referral fees for some reason. 

Or consider Iowa, which has a flat rate title insurance of $175 for every transaction and then the state guarantees clear title. Maybe someone else knows better than me but is Iowa real estate in shambles? None of my friends have ever told me they want to vacation in Iowa so I don't know maybe it is. Actually sliced bread was invented in Iowa so there is probably some really good joke that could be made with that. 


I think anyone who's comfortable self-insuring should go for it.  Of course, if you are conveying by WD your liability for a title defect may go on for some time.

I'm not aware of any states where an attorney can legally get a referral fee for no work.  Can you provide a source I can look at?  Some attorneys are also policy issuing agents and therefore receive a portion of the premium for the work they perform.  In NC only attorneys are permitted by law to search and examine title so they provide a title opinion to the underwriters who rely on it to issue a commitment and then a policy.  Unsurprisingly the attorneys want to be paid for their work.

I have no problem with a Torrens type land registration system where title is guaranteed by the state such as in Iowa, but you have to embrace socialism first since it's the state that guarantees title.  If you investigate the costs involved you might find the total cost are similar the title insurance.  You might also find that efforts to keep title insurers out of the state were led by the Iowa Bar (lawyers) who I suspect were not doing it for altruistic reasons.  I also suspect they did it because they believed they could make more money that way and not have underwriters to compete with.


learn something every day.. was not aware how IOWA worked although I have closed a few deals for my flipper clients there.. I never really got into it in that detail.

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Replied Jan 13 2024, 09:24
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. 

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Replied Jan 13 2024, 09:32
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.