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Title Insurance 101 from a St. Louis Title Professional – Final post in the series

Dennis Norman

Dennis Norman

By: Dennis Norman

Over the past two days I published the first part and second part of my E-View TMwith Wendy Cromer, Vice-President of Marketing for Security Title Insurance Agency, LLC about title insurance, the new laws affecting it and things consumers should know.

Wendy Cromer, Vice-President of Marketing, Security Title Insurance Agency LLC

Wendy Cromer, Vice-President of Marketing, Security Title Insurance Agency LLC

Today were going to do the final part of our E-View TM with Wendy:

Dennis-Wendy, title insurance seems to be one of those things that is a mystery to most homeowners.  Can you please explain what title insurance is and give us an idea of how it works?

Wendy-I agree that title insurance is a mystery to most people.  The two most common services that title companies offer are the issuance of title insurance and closing/settlement services.  Title Insurance is a one-time fee that insures either the home buyer or lender (depending on the policy issued) for the sales price (if home buyer) or loan amount (if lender). 

Title insurance is one of the few types of insurance that not only addresses claims but will provide the legal representation to fight those claims.  While the staff at the title insurance company goes to great lengths to ensure that all items are addressed prior to ownership, unexpected complications can arise. 

Some of the more common claims deal with forged documents, mechanics’ lien issues, mistakes in public land records and fraud.  What is most confusing about title insurance is that it insures from the date of recording BACK in time.  Most lines of insurance that the consumer is used to dealing with insure future events.  Because a lender’s policy is directly tied to the deed of trust executed at a given point in time AND the fact that title insurance insures the past, anytime a homeowner decides to pledge their home as collateral for a loan (such as a refinance) a new title policy is required for the lender.
 
An example of why is probably easier to understand:
Joe Smith buys a home in 2000 and takes out a loan to purchase.  At the time he purchases the property he purchases title insurance for himself and his lender.  In 2004 Joe decides to put his property in a trust (as an estate planning tool).  In 2008, Joe’s finances become tight.  While he makes his house payments timely, he does not pay his sewer bill or his subdivision assessments.  In 2009 Joe decides to refinance the home.  If the new lender did not purchase title insurance and obtain a new title commitment on the home they would have missed the fact that Joe’s does not own his home in his individual name anymore but rather the Trust is the vested owner.  Likewise, it is very possible that the Sewer Company and the Homeowners Association had filed liens for non-payment.  These liens could have taken priority over the lender’s deed.

Dennis-That is probably the best explanation of title insurance I have heard.  Since most home buyers and borrowers are not that familiar with title insurance when buying a home, or refinancing their mortgage, they will usually just go with whatever company the agent or lender may suggest.  Is there much of a difference between title companies?  What advice would you give about selecting a title insurance company?

Wendy-In a refinance situation, the lender is the only party being insured therefore the lender would dictate who performs the closing and who insures the transaction. In a purchase, the home buyer is the one being insured but often leave the decision of where to go for closing and title insurance up to the real estate agent whom they feel has more experience dealing with the various companies. Title companies fall into 2 categories- the underwriter (which is the entity insuring the transaction) and the agency (the local company representing them and writing on their paper). Underwriters are typically national companies that are publicly traded and therefore have been ranked by some industry standard- Moody’s, Standard and Poors, etc. When looking at underwriters you are looking at their financial strength and their claims paying ability. A local title agent should be able to give you a copy of their license with the Department of Insurance, they should also have E & O  insurance/fidelity insurance  and will be issuing closing protection letters on behalf of the underwriter they are representing. Many local agents represent more than one underwriter.

If you are purchasing a home it is important to remember that if you are paying for the title insurance then you have a right to close wherever you choose, unless the contract dictates differently. Many companies involved in the real estate process (ie.  real estate companies, lenders, builders, attorneys) own title insurance companies or have rental agreements and marketing agreements with area title companies. I am not offering an opinion as to whether that is good or bad- but as the consumer you need to make sure that wherever you close your transaction that you are comfortable with the level of service you are receiving and that you receive the product that you pay for.

 Dennis- OK, I’ve been saving the best question for last.  I believe that the new title insurance law prohibits title companies from “negotiating” rates…is this true?  If so, is there any reason for a buyer to shop around?

Wendy-As to pricing, the title insurance cost in our state is made up of 2 components- Risk rate and Title Service Charge. The risk rate is the minimum amount allowable per the state and represents the amount that the underwriter is to set aside in a reserve account in case a claim is filed. The Title Service Charge is the component consisting of all the other costs that go into turning out that title policy by the local operation. A few of the items included would be search, exam, commitment typing, policy typing, underwriting, etc.

Missouri is significantly different in that only the risk rate component of the charge and closing protection letter fees are filed with the state. In many states the cost for title insurance is entirely regulated. This means that all other fees are negotiable.

It is important to note that Missouri has some of the lowest title insurance rates in the nation- while having some of the highest claims. Some people have tried to make a case that there is a direct correlation between these two facts. I think that whether you are purchasing a service or commodity- you will always be able to find a cheaper price and if price is the only reason you choose a title company,  then be prepared to “get what you pay for.”

If you compare the pricing in Missouri- particularly the St. Louis area, with other metropolitan areas nationwide you will see that we are a bargain. The title insurance industry has taken on a much larger role in the real estate transaction in the 25 years I have been in the industry yet our prices, in many cases, are lower.

I would like to thank Wendy for all the time and effort she put into this.  I realize the posts got a little long, and there is a lot of “technical” stuff in them, but if you are going to be buying a home or refinancing a loan I would suggest you take the time to read the information Wendy shared with us.  It will answer many of your questions you may have and will make you a much more informed consumer. 

If you are considering buying or selling a home, or refinancing your mortgage and would like to talk with Wendy about title insurance, her contact info is below.

Wendy Cromer,
Vice President of Marketing
Security Title Insurance Agency, LLC
email: wcromer@securitytitlestl.com
website: www.securitytitlestl.com
phone: 314.402.6626
business address: 11884 Gravois Rd., St. Louis, MO 63127

Wendy Cromer, Security Title Insurance Agency LLC, St Louis, MO

 

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1 comment to Title Insurance 101 from a St. Louis Title Professional – Final post in the series

  • Brian McRae

    Great site Dennis. I have bookmarked it.

    Brian McRae
    VP Residential Lending
    First National Bank of St. Louis

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