Unless you paid cash for your home, you bought title insurance along with the deck and the flat-top range. And you probably gave more thought to the drapes than you did the insurance premium.
But you are not insured at all, at least not by the policy you purchased. If there is some cloud on your title — liens, bogus transfers, forged documents — your mortgage lender is protected by that policy. Your equity is more likely protected against paper cuts by a policy bought by the home seller.
No matter. Ultimately, you pay for it all.
But did you pay too much? Almost everybody buys title insurance, but hardly anyone shops for it. The premiums for title insurance represent about one-half percent of the cost of buying a home, perhaps $1,000 on the purchase of a $200,000 home.
As the costs and paperwork generated by excise taxes, closing fees, appraisals and other minutiae generated by a real estate transaction pile up, title insurance becomes just another ca-ching. Shop for title insurance? You just put your heart and soul into negotiating whether or not the washer and dryer stay with the house.
So, as Washington Insurance Commissioner Mike Kreidler announced last month, title insurance companies have concentrated their marketing efforts not on consumers, but on intermediaries like real estate agents or finance companies. Many recommend a title company, and the consumer who looks beyond that suggestion is rare.
For recipients of industry “marketing,” life has been good.
Kreidler said an 18-month-long investigation of title insurance companies in the Puget Sound area turned up all kinds of largesse: $6,000 for cocktails, for example, and $11,000 for Sonics games. You do have to wonder how that much exposure to the Sonics could possibly generate any good will, but there it is.
Washington law limits gratuities to $25 per person. That won’t buy you a soft drink at Key Arena.
Although title insurance industry practices in Eastern Washington were not scrutinized as part of the investigation, a spokeswoman for Kreidler’s office said it is safe to assume what went on in King, Pierce and Snohomish counties went on elsewhere in the state as well.
In fact, the findings in Washington reflect those found in many other states, where kickbacks and other shenanigans were found. The Government Accountability Office in April produced another study that suggested the title insurance business was overdue for reform.
Kreidler found industry misbehavior so pervasive he, like a state trooper overwhelmed by speeding drivers, will impose no penalties for what he found. The administrative costs would just be too high.
But now that he’s blown the whistle, Kreidler plans several initiatives to avoid backsliding. First. by clarifying state law, and the applicable penalties. That $25 per person, for example. Nobody seems to be certain whether that “person” is the insurer, the agent, or the client.
The industry says it welcomes guidelines that will prevent one company too free with its money from triggering renewed freebie binging.
Second, information explaining title insurance to consumers will be posted on the commission’s Web site, www.insurance.wa.gov. That’s already been done.
And third, Kreidler is organizing a task force to reassess title insurance practices in Washington. He wants proposals he can submit to the 2008 Legislature. Potential options include a state-managed program like one Iowa has used since 1947, having lenders buy the title insurance themselves, or a more transparent market in which consumers can easily know their options, and their cost. Iowans, by the way, pay significantly less for title insurance than residents of many other states.
Much about insurance of any kind baffles the average consumer, yet one cannot go through life without it. But with most common types of insurance — home, auto, or life — the buyer or the family is the policy’s beneficiary. Does it make sense for a homebuyer to purchase a policy that protects a multibillion-dollar bank? A lender who, by buying insurance in bulk, could negotiate much better deals than individuals?
It would be remarkable if the scrutiny now focused on the industry does not produce some reform. This is not a market that works well for anybody but the industry itself.
And a few misguided basketball fans.