ALTA® Responds to James Woodard Article
August 27, 2001
James M. Woodard
Copley News Service
P.O. Box 120190
San Diego, CA 92112-0190
Dear Mr. Woodard:
As Executive Vice President of the American Land Title Association, I would like to bring to your attention concerns I have regarding an article by you which appeared in the Fresno Bee, August 18, 2001, titled, "Title Insurance Protects the Lender, Not the Buyer."
Your article claims that title insurance only protects the lender. This is not completely accurate. There are two types of title insurance, lender's and owner's. The title insurance that protects the lender is called a "Lender's" or "Loan" policy. While the lender's policy doesn't name the buyer and the buyer is not a "third-party beneficiary" (as that term is used in insurance law) of that policy, it does provide much indirect protection. For example, in a total failure of title, an uninsured owner would not have his or her equity protected, but the owner's lender would be paid off and the owner's obligation under the note would be cancelled as well. Without the lender's title insurance, the buyer would continue to be obligated to the lender under the note. Partial title failures (which impact the lender) would have a similar impact.
Moreover, your article implied that, to obtain owner's title insurance, the buyer would have to specifically ask-and pay-for such coverage. While that is certainly true in some parts of the country, in southern California, the local custom when you are purchasing a residence is that the buyer pays for the lender's title insurance (since the buyer is the one obtaining the loan), and the seller pays for the owner's title insurance. The seller is, in effect, telling the buyer that the title to the property is clear, and is backing it up with title insurance. So, the home buyer receives owner's coverage automatically. And the cost to the buyer is a "simultaneous issue" rate of a flat $200 for their lender's policy. This, or a variation of it, is the practice in many parts of the country. These facts were not included in your story.
Even in Fresno, where the story was run, the buyer and seller traditionally split the cost and both the lender's and owner's policies are issued simultaneously. So, again, the buyer is covered.
In terms of refinancing, it is a bit different. In that case, the person refinancing does not have to obtain new owner's title insurance since the original policy is good for as long as the owner and the owner's heirs have an interest in the property. However, the new lender will require a lender's policy to protect their new investment.
In terms of suggesting that consumers shop around for title insurance to get the best rates, that is a good idea in every state and we promote that. However, in California, the rates are regulated by the department of insurance, so shopping is only going to save the consumer $10-$20 at most. Title insurance rates are filed with the DOI by individual title insurers and such filings must be economically justified. Because California is such a competitive market, these filings reflect expenses and profits that have already been the subject of heated competition and they vary very little.
Your article also suggests that buyers ask if the current title policy already on the property can be reissued. Unfortunately, what your terminology is not sufficiently precise. One doesn't ask for a title insurance policy to be "re-issued" because that policy is date- and transaction-specific. But "reissue" rates are available in most states and, if the seller in a transaction has a prior owner's title insurance policy, the seller or (where the buyer is paying this cost) the buyer can save substantially on the purchase of the new owner's policy.
I also wanted to give you a resource for future articles on title insurance in California. Lawrence Green is the Executive Vice President of the California Land Title Association. He can be reached in Sacramento at 916-444-2647 or via e-mail at firstname.lastname@example.org. Feel free to contact me or Lorri Ragan, Director of Communications at ALTA, if you have questions or concerns regarding title insurance on a national level.
I certainly want to educate the public about the value and importance of title insurance -both for the lender and the owner. I would encourage you to consider another article (or substantially amending the subject article-including its title-if it is to run in other papers) on title insurance reflecting the above information. Title insurance is not an inconsiderable expense at closing and most buyers and sellers have misconceptions and outright ignorance about the product. It's a shame, therefore, when articles appear that don't help significantly in filling this real void.
James R. Maher