Title insurance and me
My first-person narrative about buying a home in Boston (read it here) drew a flood of responses from readers, much more than I get when I write about other people.
Many of the writers, maybe most, are mad at me. They're mad because I didn't buy homeowner's title insurance and, they say, because other people may not buy a policy as a result. One writer said he was "furious." Another characterized the choice as "a grave mistake."
The thing is, the writers are mostly lawyers. And lawyers make money selling title insurance.
Most buyers don't know this because it's not something that lawyers share with most buyers. But a hefty portion of the "premium" you pay for title insurance goes directly to the attorney.
One writer, who actually made an effective case for title insurance, started by laying out the case against it:
...the attorney is paid 70% of the fee as commission. So they always recommend it partly because they have a large interest. The lawyer would have made an additional $584.50 on your transaction. He also gets paid the same on the lenders policy.But he went on to say, as did several other writers, that the policy still offers protection against something that really does happen: The possibility of an outstanding claim on the property. And several writers emphasized that not even a good title search can ensure a clear title. For example, contractors have several months to file a claim. If the old owners failed to pay a contractor, there might not be a claim on the title until well after you buy the property.
The first writer continued,
Even knowing that 70% of your money goes into the pocket of the attorney, I would run back there and see if he will still sell it to you for the original quote. Typically the price goes up quite a bit if you buy title insurance after the initial purchase. Otherwise, I recommend that you go perform your own title review. The documents are all public and in many cases can be retrieved on line. Every lien needs a corresponding release.
Here's my take: Title insurance serves a clear purpose. There's no doubt that titles sometimes need clearing, which can be expensive. There's also the nightmare scenario in which you don't actually own the property you think you bought. Failing to purchase title insurance means you're shouldering that risk, which is something my girlfriend and I were willing to do. But people should clearly understand the nature of that risk before they make the same choice.
At the same time, it strikes me that the cost of title insurance is excessive, padded by the cost of marketing title insurance to lawyers, and paying lawyers for selling policies to buyers. Maybe it's like health care -- you've got to have it no matter how much it costs.
But I'm certainly struck by how many of its defenders are paid to sell the stuff.
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