As someone who has spent a career in the title insurance industry – both as a builder of a title business and as the head of the industry’s business group – I am proud of the role we let’s play to help protect what most Americans consider the biggest purchase of their lives.
Title insurance is imperative for lenders to ensure that a borrower has ownership rights to a property, but it does more than just protect against title issues. It plays a vital role in the homeownership economy, ensuring that credit gets to those who need it and providing guarantees to those who lend it. Capital markets depend on the due diligence, transparency and protection our industry provides to do its job.
In fact, our industry is so important that throughout the COVID-19 pandemic, title insurance professionals have been deemed essential by the federal government. Their hard work kept much of the economy running during a tough time when buying a home meant more than ever.
During the same period, our industry helped consumers take advantage of low interest rates to refinance mortgages. In a refinance, homeowners obtain a new loan and lenders require a new title search and title insurance policy on that loan to protect their investment. Professionals do the research and review the paperwork, with title companies regularly offering a discount or “reissue rate” on a refinance.
Discounts may also be available if you use the same lender who issued the original loan. And because the ownership of the home remains unchanged, a title insurance “Homeowner’s Policy” is valid through a refinance.
Why is a title search necessary for a refinance? In short, even if someone has recently refinanced, issues could arise that the lender should be aware of before approving a new loan. For example, a homeowner may have taken a lien from a contractor who claims he has not been paid. Or a homeowner may have a judgment on their home due to unpaid taxes, homeowners association dues, or child support. The borrower may also have encumbered the property with loans that were not disclosed when applying for the refinance.
Other issues may arise between origination and refinancing:
- Easements that have been created by contract or by unfavorable usage or prescription (for example., rights of way for public services, rights acquired by neighbors due to the encroachment of a fence);
- Restrictions on construction or use contained in a plate, agreements or registered deeds;
- Rights or claims arising out of bankruptcy;
- In some states, unpaid parking tickets;
- Deeds registered between the parties that no longer reflect ownership; Where
- Fraudulent documents registered against the property.
Real estate is a $3 trillion industry in the United States. There have been a lot of innovations around buying homes, offering credit, and doing real estate transactions. This innovation is positive for consumers. However, innovators can sometimes misrepresent products or confuse them. They point to low loss ratios as proof that title insurance is unnecessary. Not only is this not true, but it is a fundamental misunderstanding of what title professionals do and how our underwriting protects that work.
Low loss ratios are a testament to the work done by our agents to dispose of items prior at closing. It is this work that keeps the cost of our insurance low and protects the owner and the lender from problems that may arise. if not for the work we do before closing — issues that could harm the owner’s credit and the lender’s investment.
While this is clear to active industry participants, it may not seem intuitive to first-time homeowners buying or refinancing. That’s why we take care to explain the process. Through the American Land Titles Association and state associations, the industry continues to develop new tools to help consumers understand the role title insurance plays in closing, the benefits of title insurance, and how to purchase title insurance. The best resource for consumers is ALTA’s comprehensive home closing website, homeclosing101.org.
The work that title professionals do every day is essential to protecting the American Dream. And the work our industry is doing to make the closing process faster and easier is a vital part of the overall economy. All participants in this economy should engage in good faith conversations – with facts and data – to improve our industry’s offerings.
As the economy and housing market begin to slow, we must avoid the temptation to move away from well-regulated products that are a key part of protecting lenders and homeowners. The latest housing crisis has proven that strong underwriting standards are essential, especially during market downturns. But now is never the right time to take on new and unknown risks that will ultimately drive up costs and hurt consumers and lenders.
Mary O’Donnell is CEO of Westcor Land Title Insurance Co. and past president of the American Land Title Association.
This column does not necessarily reflect the opinion of the editorial staff of HousingWire and its owners.
To contact the author of this story:
Mary O’Donnell at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]