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Are Consumers Paying Too Much For Title Insurance'
Title insurance is almost always mandatory for most home purchasers and mortgage refinancers, often in the $1,000 to $2,000 range. But is it priced too high for what you actually get'Do widespread referral relationships among title agents and mortgage companies restrict price competition and discourage buyers from shopping for lower cost title insurance and closing service options'
The Government Accountability Office recently made an in-depth examination of the title industry during the past year and came up with the following:
-Studies suggest that normal competitive forces may not be working properly, raising questions about the prices consumers are paying for title insurance.
-Though in many states premiums are set to reflect the work that title agents perform to check public records and remove any "clouds" on the title chain, agents also tack on separate charges for title search, analysis of the abstract and a variety of administrative fees that boost total charges.
-Unlike most other forms of insurance, where claims paid by the insurer often amount to 70 percent or more of the premium dollars collected, in title insurance the claims amount to just 5 percent of premiums. So where does the rest go' Local title agents pocket up to 90 percent of your premiums, according to the GAO.
-State and federal insurance regulators are finding that many affiliated business arrangements set up to share title insurance revenues are shams. They exist to funnel consumer dollars back to realty brokers and mortgage companies, rather than to perform actual title insurance work. During the past three years alone more than $100 million in fines, penalties or settlement agreements have resulted from state and federal investigations of title insurance shams and illegal referral fees.
-A key reason for problems in the title industry is that state government agencies that set or approve premium levels often do not examine true costs in depth.
The GAO acknowledged that title insurance is an important service, and can provide real benefits to consumers and lenders by protecting them from undiscovered claims against property that they are buying or selling. But most home buyers are vulnerable when they are required to purchase coverage.
Don't roll over when it comes to title and settlement services. Be aware that you can shop for lower-cost alternatives. Find them and you could save hundreds of dollars at closing.