The Only Title Insurance You Need is None

Over the years, I’ve read many stories about others’ home-buying experiences. One thing that I always found myself wondering was- what’s the big deal about title insurance? I’ve never had title insurance before; does that make me an idiot?

Not only have I never bought title insurance, I’ve actually never even had the words “title insurance” uttered by either my agent or my lender. How is that possible?

It turns out I’m one of the lucky ones. Where I live, we all have this clause (or something similar), in our contracts:

 DEED. Upon payment of the purchase price Seller shall convey the Real Estate to Buyer or assignee by warranty deed free and clear of all liens, restrictions, and encumbrances.

As you can see, the seller has guaranteed a title free and clear of defects. In addition to this clause, our lawyers perform a simple and easy-to-perform title search. It doesn’t cost very much money and it’s an extra assurance that we won’t have any issues with our title.

And that’s it! There’s nothing more to it!

Yet unsurprisingly, the element of fear has been instilled in the hearts of homebuyers throughout the rest of the country.  

Title Insurance! You must have title insurance!

Yeah, right.

The truth should be- the only title insurance you’ll ever need is, well, none.

Because what I’ve learned is title insurance is pointless.

According to Investopedia, “title insurance protects lenders and buyers from financial loss due to defects in a title to a property”. Additionally, they state, “Having no title insurance exposes transacting parties to significant risk in the event that a title defect is present.”

What is the “significant risk” they speak of?  

NPR released a great article about title insurance a couple months ago.

Let me give you a really quick summary.

Title insurance is mostly required by lenders. Title insurance companies, real estate agents, and lawyers all tell you that you should buy it. Oftentimes, they make you buy it without choice. Then, after you purchase it, 80 percent of your money gets “kicked back” to the lawyers and the agents that helped to sell the policy.

What is a kickback?

Miriam-Webster defines a kickback as “a return of a part of a sum received often because of confidential agreement or coercion”. Hmmm. Shady much?

Those amounts that your lawyers and agents received? Well, regulators don’t require them to disclose how much they make off these policies. Not only that, but the rates of title insurance also aren’t regulated.

Okay… but still… Shouldn’t buyers protect themselves from title defects?

No. Instead, be like Iowa.  

In Iowa, where clean title is guaranteed by the state rather than by leeching title insurance companies, title-related claims are under 1%!

Why aren’t more states following suit? Because, according to Curbed, “In 2012, homebuyers paid more than $10 billion in title insurance premiums.” With more home sales than ever, I’m sure that number has increased, no?

That’s quite a lot of your dollars they took from you.

The whole thing is dumb.

Because title insurance is an unnecessary expense. Any lawyer can and should be able to easily complete a title search on any and every property. It doesn’t cost very much money for them to do it—maybe something in the range of $200-300 dollars.

Additionally, (as mentioned above) you should be able to purchase your property with a guarantee from the seller that the title is free and clear of any defects. I believe this is referred to as a warranty of title.

Unfortunately we’ve got millions of people spending thousands of dollars for title insurance that almost never see a claim.

C’mon, folks. You deserve better!

I don’t want you wasting your hard-earned dollars.

Until you demand a new standard, your dollars will keep being scammed.

What can be done?

Tell everyone you know that title insurance is a scam.

Petition your local governors. Petition your local real estate associations. Demand change. Stop paying the fees. Find a new lender. Boycott the lenders?

Let’s stop letting these title-insurance-slinging human paraquats zap your hard-earned savings. That cash is yours. You shouldn’t have to give it to them.

What do you think?

When did you first learn you had to purchase title insurance and how much did it cost you?

Did you ever file a claim?

Help me learn more!

HouseRat Zero

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