Title Insurance

The Boston Globe's blog had an interesting post regarding title insurance. The post was the result of an article Globe reporter Binyamin Appelbaum wrote about purchasing his home in Boston.

Binyamin chose to skip the owner's title insurance policy, which apparently prompted many critical emails, mostly from lawyers. You see, lawyers make money from issuing title insurance.

The post also received several comments.

My comment to the post was as follows:

Binyamin, congratulations on your new home. Best of luck to you and your girlfriend.

I am a lawyer and a real estate broker. I do not represent banks at closings, so I do not certify title or sell title insurance.

I spend most of my time working for the clients of my exclusive buyer brokerage firm. I would estimate that about half my buyers decide to purchase title insurance policies. I purchased it when I bought my home in 1997.

I don't blame you for being upset about the lawyer adding the cost of an owners policy to the settlement statement (HUD) without discussing it with you. It frustrates me when closing attorneys just add the policy to the HUD. They're basically giving themselves a raise at your expense and without your permission.

The closing lawyer should have contacted you prior to closing (or contacted your lawyer) to discuss whether you wanted the owners policy or not. He probably contacted your lawyer to ask how you and your girlfriend wanted to hold the property, i.e., tenants in common or joint tenants, if he was the one that drafted the deed.

Another item that closing lawyers routinely add to a settlement statement without asking buyers permission is a declaration of homestead, commonly referred to as a homestead deed. Everyone should have one. It takes about five minutes to draft this document and $35 to file it at the registry of deeds, but I have seen attorneys add from $50 (very reasonable) to $150 (ridiculous) to the HUD for it.

I provide my clients with a brochure explaining what title insurance is and what it covers, and I typically inform them of the percentage of the premium that goes to the lawyer. One of the important things (in my opinion) tile insurance covers is attorneys fees. Even if a title defect is something minor and fairly easily resolved, the one-time premium probably is less than the cost of potential attorneys fees.

My opinion is that title insurance is a useful product. One could certainly debate whether it is too expensive.

What annoys so many people (apparently you too) is the mystery surrounding it. Why not just send a letter to buyers a week prior to closing with a brochure explaining title insurance and indicating in the letter that the closing attorney gets a percentage of the premium? Some closing attorneys do, but not the majority.

The bottom line: You probably should have bought the owners policy, but I understand why at that moment you decided not too.

By the way, I enjoyed your article. I appreciated your honesty about being "stumped repeatedly" despite being a real estate reporter. It's so important for home buyers to have professionals they can trust help them from the beginnings of the home search through the closing.

- Posted by Rich Rosa December 10, 07 07:07 PM

You can download the title insurance brochure (Download Title Insurance Brochure) that I provide my clients.