Real World Stories of Title Insurance Protection
From HousingWire
https://www.housingwire.com/articles/opinion-title-insurance-matters-heres-why/
Last month, the Biden Administration announced
the revival of a previously abandoned pilot program that would waive
the requirement for lender’s title insurance on certain home refinances –
part of a misdirected effort to address housing affordability.
Additionally, the CFPB has shortsightedly questioned the benefits and cost of title insurance.
It’s uncertain whether federal regulators are purposefully misleading
Americans about the potential savings or just don’t understand how
title insurance works. The truth is the cost of title insurance coverage
has decreased nearly 8% over the last two decades due to innovation in
the industry.
Critics of title insurance highlight a limited understanding of the
vital nature of title insurance protection by mistakenly and repeatedly
referring to the industry’s lower claims rate relative to other lines of
insurance. A 70% claims rate — standard for other insurance lines — on
property rights would be catastrophic to our economy. Success in the
title insurance industry is measured by preventing claims in the first
place. A lower claims rate means that title agents are succeeding in
their job by resolving any title issues and reducing risk upfront –
protecting the largest asset most households will ever own and source of
their greatest wealth over time.
Title insurance is significantly different from other lines of
insurance. For a one-time fee paid at closing, title insurance provides
homeowners protection for as they or their heirs own the property. Other
types of insurance charge monthly or yearly premiums. The facts are
clear: title insurance is essential to protecting homeowners and their
most important investment both during the initial purchase of a home and
refinancing – and it exists for a reason.
Without a title insurance policy, homeowners can find themselves
fighting for their property over issues they never knew existed.
Here are some real-world examples of how title insurance protects consumers:
Surviving Spouse Left Without Deed
Under the new pilot program, the requirement for a lender’s title
insurance policy on certain refinances would be waived – but this can
leave homeowners vulnerable. For example, a property owner passes away
and leaves behind his surviving wife. If the widow isn’t listed on the
deed, issues regarding ownership could arise when the wife goes to
refinance. During the refinance process, title insurance professionals
would do their due diligence to disqualify any potential heirs who may
attempt to claim the property down the road. This would allow the
surviving wife to officially claim ownership of the property. The
proposed pilot program would not identify this type of issue with a
search engine.
IRS Tells Couple: “You Don’t Own Your Home”
After purchasing their home from an individual who had acquired
it from an IRS auction, a couple found out the government agency had
rescinded the original sale. The IRS refused to turn over the deed to
the new homeowners because of unpaid tax bills by a previous owner. The
couple contacted their title company and were told they had coverage for
this dilemma. Thanks to their title insurance policy and the great work
conducted by their title professionals, the couple was able to keep
their home, and they didn’t have to pay a dime out of pocket. Fannie Mae is not capitalized to address these issues, nor is set up to be able to pay these types of claims.
Sold—But Not by Homeowners
After a California vacation home was left unused for several
months, the county notified the homeowners that the property had sold – but the owners hadn’t put the house up for sale.
This was a case of seller impersonation fraud, where an unsavory actor
posed as a homeowner and fraudulently “sold” a property. Thankfully, due
to their title insurance policy, the homeowners were protected against
post-policy fraud; title professionals were able to expunge the
fraudulent deed from the record. The “buyer” also had a title insurance
policy for the transaction, and their title company paid them the
purchase price of the home – money that they otherwise would have lost
without their policy. Fraud and forgery claims account for more than 20% of claims expenses and dollars paid to insureds.
Approximately
one-third of all claims are for issues that would not be found in a
public records search – demonstrating that title insurance could not be
effectively replaced by an automated search engine that will be used
under the title waiver program.
Title Insurance Provides Essential Protection
The above examples barely scratch the surface when it comes to
the protection provided by title insurance. Time and time again,
seasoned title professionals have saved American homeowners from their
homes being seized, stolen, or defrauded. The Biden Administration’s
pilot program would put Fannie Mae and Freddie Mac
in charge of resolving any title-related claims that arise for
qualified borrowers refinancing – a seismic shift in the housing finance
system.
Title insurance is equally important when homeowners refinance. When a
homeowner refinances, they obtain a new loan. Lenders require a new
title search for a title insurance policy on that loan to protect their
investment in the property. If this is not done correctly, the homeowner
could still face collection on a previous mortgage thought to have been
paid off. Similarly, a lender could face the risk that they do not have
the required lien priority.
Under the Administration’s title waiver plan, title insurance
professionals will be eliminated from refinance transactions, removing a
key layer of anti-fraud protections for consumers and lenders.
Consumers and lenders who are victims of refinance fraud would have to
investigate and negotiate a resolution with some unidentified department
within the GSEs, and consumers could ultimately be forced into property
sale or foreclosure.
By turning Fannie Mae and Freddie Mac
into title insurers, the GSEs would also be moving beyond its charter
into a primary market activity. The 2008 financial crisis happened the
last time these entities took on significant risk for which they were
ill-equipped to handle.
The title industry agrees that homeownership should be more
attainable and affordable for more Americans. However, the notion that
title insurance is in any way a principal driver of affordability
challenges is misguided. Title insurance is crucial to protecting
American homeowners, lenders, and their most important investments.
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