Almost every homeowner has purchased title insurance — required coverage that kicks in if something goes wrong in the legal transfer of property.
Most consumers pay no attention to the costs and details of the coverage. It’s just one of many line-items in the overwhelming stack of documents presented at a real estate closing.
But a Georgia Department of Insurance investigation of one of the nation’s largest title insurers suggests consumers should check out their policies. The department has accused Texas-based Stewart Title Guaranty of violating Georgia insurance laws more than 600,000 times from 2003 to 2007. In many cases, those violations led to Georgia consumers paying more than they should have, according to charges against the company.
The company was ordered to a hearing next month before Insurance Commissioner John W. Oxendine.
In a prepared statement, Stewart said it has complied with Georgia law. “We intend to vigorously contest the allegations of the Commissioner in the appropriate forum and look forward to an expeditious hearing on the merits,” the statement said.
Stewart said it has tried to work closely with Oxendine’s office on matters raised during a 2006 market conduct exam but has gotten no response from the state. It called the timing of the most recent allegations “peculiar given that the exam has been dormant for two years.”
Title insurance is set up so that someone buying real estate doesn’t end up with a property that is encumbered with unpaid taxes or other bills. It also assures that the person selling the property legally owns it.
As part of the process, insurers search public records to see if the property has a “clear title.” If the search identifies a problem, the agents help get it fixed before the closing. If a problem surfaces after a closing, a title insurance policy will fix the problem or pay for the losses.
Lenders usually require the buyer to pay the lender’s premium. A homeowner’s policy is usually optional.
Compared to some other states, Georgia takes a hands-off approach to title insurance. It lets insurance companies set their own premiums and doesn’t require the complete licensing process it requires for other insurance agents.
The charges allege that Stewart illegally allowed closing attorneys to charge consumers whatever they wanted, instead of requiring them to follow the company’s official rates. The company did not include the extra charges when it reported its collected premiums, according to the investigation.
It appears from the report that closing attorneys kept the extra money in addition to earning commissions.
The company allowed agents to charge consumers with the same risk profiles different premium amounts and sometimes failed to give appropriate discounts to consumers buying both lender’s and owner’s policies, which also violate Georgia’s insurance laws, according to the report.
Oxendine, commissioner since 1995 and now running for governor, said his office investigated title insurance companies operating in Georgia after illegal activities surfaced in other states. He said he could not comment about Stewart, since he will act as judge when the case is heard next month.
But he said his office has discovered a range of inappropriate activities across the industry. “We have found issues at all the companies we have looked at,” he said.
Curt Spinney, a Marietta homeowner, said he got a call from the Insurance Department advising him that he was among a group of consumers apparently overcharged for title insurance. He said he paid about $1,200 for title coverage when he closed on his house four years ago. He said he was told he paid about $200 too much.
Spinney said he had no idea he was charged more than the company’s rates. “I appreciate them finding this out,” he said.
Title insurance premiums are based on the value of the property. For a typical consumer, premiums range between $500 and $1,000. The insurance department investigation suggests consumers were typically overcharged $100 to $200. While it’s not a huge hit for any one consumer, the profit may have been significant. “If you’re a big firm doing tens of thousands of closings, that’s some closing attorney buying him a new boat or a new beach home,” Oxendine said.
Oxendine said consumers may be easy targets because of the nature of real estate transactions. “When you’re buying a $200,000 house, you’re not thinking of a few hundred dollars,” he said.
Oxendine said he’s waiting to hear the response of the company at the upcoming hearing. “The report from my investigators alleges very blatant violations,” he said. “If the evidence at the hearing holds that out, yes, it’s very shocking.”
Why does title insurance cost so much?
Title insurance differs from other types of coverage because most of the money collected in premiums is not paid out in claims.
A 2007 federal report offered the following comparison:
Property and casualty insurance policies that cover cars and homes paid out 73 percent of the money collected from customers to cover claims in 2005.
For title insurance, only 5 percent of what customers paid was needed to cover claims.
Attorney agents who research property histories are usually paid to conduct the title search and also usually keep 70 to 80 percent of the premium paid for the title policy. Representatives of the industry say searching property records is time-consuming and expensive work. But federal reports say it’s difficult to determine how much it really costs to conduct the research and whether the compensation is reasonable.
Birny Birnbaum, a Texas-based economist and insurance expert, said title insurance is overpriced.
He said prices are pushed up by “reverse competition”: Title insurance companies rarely market to consumers. Instead, they sell to agents who may have an incentive to opt for higher-priced policies, because commissions are usually based on a percentage of the premium.
“The higher the price, the greater the consideration the middle man can get for referring the business,” Birnbaum said.
Investigations in other states discovered illegal kickbacks to Realtors, builders and others for referring title insurance business.
For more information
● U.S. Department of Housing and Urban Development primer on title insurance: www.hud.gov/offices/hsg/ramh/res/sc2sectf.cfm
● Consumer information from the American Land Title Association: homeclosing101.org
● Georgia Department of Insurance: www.gainsurance. org; Consumer services line: 404-656-2070
Tips for buying title insurance
Advocates say consumers pay little attention to title insurance because it’s a small part of a much larger transaction. But they recommend that consumers check out what they are being sold:
● Find out if you are buying coverage for the lender only or coverage for yourself.
● Considering insuring yourself in case a title matter arises.
● Ask the closing attorney how the rate is calculated for the policy. Ask to see the rate manual to make sure you are not being charged more than the official rate.
● Inquire if the closing attorney has a financial interest in the company and how compensation works.
● Ask if you are being given a discount for multiple policies if you are buying homeowners and lenders coverage.
● If you are refinancing, ask if you are getting a refinance or reissue discount. Determine what other kinds of discounts are available and if you qualify.
● Well before the closing, shop around. See if you can get a better deal on the coverage.
How We Got the Story
The Atlanta Journal-Constitution started investigating title insurance sales after the Georgia Department of Insurance announced its investigation of Stewart Title Guaranty. The AJC reviewed numerous state and federal investigative reports and interviewed experts on the subject.
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