It’s no secret that consumers are confused about title insurance and its value, but the American Land Title Association (ALTA) is equally concerned about the misconceptions that real estate partners have about its industry and its place in the closing process.
A recent ALTA survey indicated that less than half of homeowner participants said they received information about the option to obtain an owner’s title insurance policy. Those who received information about the option to obtain an owner’s policy were significantly more likely to have favorable opinions of title insurance.
That’s where real estate agents come in. Although many homebuyers often see title insurance as yet another fee they have to pay when they purchase a home, as an important adviser to homebuyers, real estate agents can help buyers understand the value that title insurance provides, said Wayne Stanley, who handles public affairs for ALTA.
“A majority of consumers said they want more education on title insurance and closing costs earlier on in the homebuying process,” Stanley said. “And they said they want to receive that information from Realtors and lenders, who they see as their portal to the homebuying process.”
However, as part of the consumer messaging survey, ALTA also conducted focus groups with real estate agents and lenders, and their responses to these consumer sentiments were also startling, Stanley said.
“Even though it’s a fairly well-known idea in the title insurance industry that most folks are more than happy having a [title company] customer talk about their product for them, Realtors and lenders for the most part said they don’t want to be part of that vehicle,” he said. “Their response was, ‘We don’t see a cut of that money; we aren’t the ones working in the title industry every day; we don’t want to talk about title insurance.’”
Title insurance is often misunderstood by many because it differs greatly from other lines of insurance. Much of the confusion stems from the fact that claim payoff rates in title insurance are lower than those experienced in other lines of insurance, which charge premiums to provide protection against future events. In contrast, low loss rates in title insurance are actually good for consumers because the curative work performed by title agents ensures that their properties are free of encumbrances or liens such as unpaid mortgages, property taxes or child support. Title agents also look for anything that could limit the use of the property, such as utility easements, going forward.
In addition, title insurance industry practices can vary due to differences in state laws and local real estate customs. Who pays for the owner’s policy varies from state to state — sometimes even within a state. For example, the state of New York has historically been split into two zones. Upstate, premiums cover search fees, whereas south of Albany, they do not.
In the summer of 2014, ALTA set out to survey recent homebuyers about these issues as part of a consumer messaging project, with the intention of using the results to update its educational outreach and marketing efforts. The trade group conducted 10 focus groups in cities across the country. Participants were not aware of the scope of the survey and had no preconceived notions about title insurance.
The results were startling. Although 75 percent of the project’s participants said they thought they understood what title insurance is and recognized its importance, more than half were unaware of the two types of title insurance policies that exist — one to protect the lender and one to protect the homeowner — much less what kind of policy they had.
Some Realtors and lenders who participated in the focus groups said they didn’t have a problem explaining title insurance to consumers, but “that got even scarier, because they would go into a number of incorrect details about it,” Stanley said.
“Some thought title insurance has a deductible — sometimes as high as $25,000 — and we continue to hear, ‘Can’t a title search be done using a Google search these days? Isn’t everything online now?’” he said.
The information collected in a title search may be derived from public records, but not all of those records are online. They can also be obtained from title plants owned privately and maintained by title companies. Some records are digitized, but some are not, depending on geographic location and local customs, particularly in rural communities.
In response to the survey’s results, ALTA will ramp up its educational efforts in the coming months and work to collaborate more with real estate agents and lenders, Stanley said, particularly as the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule takes effect in August and changes how closings are conducted.
“We really have a perfect storm happening for our industry right now,” Stanley said. “I know it is hard for people to see the trees through the forest, but we have to be working more closely with our real estate partners than ever before.”
And Stanley has a message to those partners.
“The more peace of mind you can provide to the consumer, whether you are a title agent, a lender or a Realtor, the better they will feel about the whole experience,” he said. “The CFPB, and the National Association of Insurance Commissioners at the state level, have said that is what they want to see. Everything happening to this year will help lead to that. It’s not going to be easy, but it’s important.”