Owners Title Insurance - Super Heavy Handed Pitch

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topofthebellcurve
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Owners Title Insurance - Super Heavy Handed Pitch

Post by topofthebellcurve » Tue Apr 10, 2018 11:19 am

Hi BH!

Closing on a ~$1MM first time home purchase on Friday. It's new construction.

We've got a mortgage, and so the lender has title insurance in place. Our lawyer has also done a title search going back 50 years.

I was told by our agent that the lawyer representing us (and all buyer's lawyers) make the bulk of their fee on overpriced owners title insurance. I'm planning to waive it and got what I find to be a super "scare tactic" waiver from my lawyer that I've been told I need to sign as a part of closing. Pasting it below.

Two questions: (1) do I need to sign the waiver? and (2) am I being too cheap and the owners title is worth it? It's $2,300 which I'd much rather save. My thinking is that the big concern is a major title risk that would jeopardize the whole asset transfer (such as the divorce mentioned below) would be fought by the Lender despite what my lawyer says, as that would put their loan at risk.

---

"A title search has been conducted going back 50 years to ensure that the title is clear. What the title search cannot uncover, however, are potential claims due to fraud, attorney error, mistakes in property lines, liens for unpaid estate, inheritance, income or gift taxes, misrepresentation of martial status, unfiled divorce claims, and other "hidden" risks.

The cost of owner’s title insurance for this property at closing is $2,226.60, discounted with the lender’s policy in place and the first-time homebuyer’s discount available at closing.

Our waiver is made knowing that the title has some transfers in its chain that increase the risk of a title claim. The current owner purchased the property less than a year ago from four siblings that inherited it. When there is an estate in the chain of title, there is a risk of heirs coming forward to make claims against it. Or the spouses or former spouses of the family that sold it could make claims against the title. Given that the transfer was less than a year ago, these potential claimants may not even know that the property had been transferred yet or there may be taxes owed on the transfer. In addition, the seller has a divorce proceeding pending. The divorce filing places an automatic restraining order against all assets owned by the parties, and while the non-owning spouse will sign off on the deed, she could still make a claim. While that claim would not be successful ultimately, the owner’s title insurance would pay all costs of defending it. The lender’s portion would not cover such a scenario.

We also acknowledge that the Law Office of [REDACTED] is not liable for any title issues may that arise. We acknowledge that any title claims made against the property will not be cured by the Law Office of [REDACTED], and we will be responsible for paying all costs of curing said issues, if any. We have been informed that litigation attorneys in the Boston area charge upwards of $450/hour and the estimated cost of standard title claims is $12,000. In the event we elect to purchase an owner’s policy of title insurance after the closing, we understand that the discounted cost of the insurance may not be available."

Silk McCue
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Silk McCue » Tue Apr 10, 2018 11:25 am

I thoroughly read your entire post. I can't fathom not paying for the title insurance given the value of the property and paltry cost of the insurance in comparison The lawyer is providing you with very good guidance in my opinion.

Cheers

knightrider
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by knightrider » Tue Apr 10, 2018 11:39 am

I fully agree that title insurance is a borderline scam. Way overpriced and nobody I know ever files a claim...

But in reading their email, it may make sense to buy it.. Sounds like quite a mess!

hpryder
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by hpryder » Tue Apr 10, 2018 11:42 am

Get the owners title insurance. It will require the title insurer to correct any and I mean any title defect, historical claim against the title or any mistake the attorney search made, as long as you own the property. At least in So.Ca you'd only get one chance to get this insurance. After title changes, it was my experience, that no title insurance co would issue an owners policy. If something does affect the title years from the transfer, the lenders policy will only protect the lender up to the amount of the policy limit. You'll be stuck with paying for anything above that limit as well as being stuck with the title clouded property which may cost you much more to cure. And from the sale background information you've provided, there are plenty of reasons for there to be title challenges later on after title changes.

Get the insurance. It's cheap at that price. You'll may only get one chance to get it.

Spirit Rider
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Spirit Rider » Tue Apr 10, 2018 11:44 am

The waiver is standard practice. They have done due diligence and do not want to be liable for something beyond their control.

Depending on your state you may be able to purchase title insurance yourself and substantially save. If so good.

Those may be scare tactics from the lawyer, but they are 100% true. Do you really want to lose a $1M home for lack of proper title insurance.

Unknown title defects are not common, but happen all the time. Especially in new construction. Play the lottery, go to Vegas, but don't take your risk without title insurance.

bhburnsy
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by bhburnsy » Tue Apr 10, 2018 11:56 am

Some thoughts and questions...

- Assuming you put 20% down, you are paying $2,300 to cover only your equity ($200,000 but rises with appreciation and paying down your mortgage).
- How much was the lenders title policy, which covers the $800,000 mortgage? Seems like your policy should be 1/5th the cost. Ask for a discount.
- If there is a title defect that could result in a total loss, you can be sure that the lender (or title insurer) will get it taken care of so they do not lose $800,000.
- Title industry claims losses are 5% of premiums, so this does not make financial sense, but like most insurance decide if you could afford or live with a loss.
- The lawyer says most title claims are resolved at $12,000 (some more\some less?), so are you really paying $2,300 to save on a possible $12,000 expense? Can you afford this?

Some great info about evaluating your possible risks here...

https://money.stackexchange.com/questio ... -insurance

chevca
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by chevca » Tue Apr 10, 2018 11:57 am

Get the title insurance and don't think about it again. Will it ever be needed? Probably not? If it ever were though, would it be worth it to have skipped it just to save $2300 on a $1MM house purchase? I would say, no.

No one likes paying for these sorts of things. But, it's chump change in the big picture.

topofthebellcurve
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by topofthebellcurve » Tue Apr 10, 2018 12:03 pm

Appreciate all the responses here. I still think the waiver is a scare tactic :happy

I'm putting 40% down, and yes I could afford the $12K cost to resolve a title dispute if needed.

I came across this very interesting article about title insurance and the general argument that it's WAY overpriced (particularly in Massachusetts). It also mentioned that buyers rarely purchase supplemental owners title. Worth a read: https://commonwealthmagazine.org/econom ... insurance/

Nate79
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Nate79 » Tue Apr 10, 2018 12:10 pm

Clark Howard highly recommends owners title insurance.

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Pajamas
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Pajamas » Tue Apr 10, 2018 12:14 pm

The disclosure seem to appropriately reflect some specific potential problems that the lawyer sees. The lawyer wants protection from you if something goes wrong. Is it a scare tactic as well? Yes.

Title insurance is way overpriced, but there is a lot at risk, so people buy it anyway.

Either get the insurance or sign the waiver and take the risk. You have a choice.

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whodidntante
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by whodidntante » Tue Apr 10, 2018 12:19 pm

I like that you have a lot of gamble, lol. It's a good bet if you can stand to lose.

If you don't sign the waiver your attorney might resign.

123
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by 123 » Tue Apr 10, 2018 12:26 pm

Owners Title Insurance protects you against "what you don't know". Could be anything from 100 year-old pipeline or utility easements to survey issues. If risk of total loss won't impact your standard of living, now or in the future, I'd say you can forgo it.
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bobolinx
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by bobolinx » Tue Apr 10, 2018 12:27 pm

When I bought my first house, I included title insurance at the behest of the mortgage company. There were so many forms and tiny fees that I just went along not fully understanding the implications. As I sold the house, my lawyer asked if I had title insurance and with which company. It seemed trivial at first. But then I realized that the buying attorneys were going to charge a huge fee to do a title search, if the title was not registered with one of the recognized title insurance companies. Fortunately, I kept track of all paperwork and was able to find the name of the company. Immediately, the request was withdrawn, and no need to "prove" the title was valid. It seemed to me that title research was a fee-generating process. Does it have a legitimate use? Probably, but I certainly felt that this was just another part of the real estate game. Hope you enjoy your new property!

Spirit Rider
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Spirit Rider » Tue Apr 10, 2018 2:12 pm

topofthebellcurve wrote:
Tue Apr 10, 2018 12:03 pm
I'm putting 40% down, and yes I could afford the $12K cost to resolve a title dispute if needed.
A fundamental misunderstanding of insurance. You do not insure for average risk, you insure for maximum risk. Otherwise, we would all get health insurance that only covered some % < than the insurance premiums (insurers profit).

You are putting $400K down. Can you self-ensure that catastrophic loss.

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Pajamas
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Pajamas » Tue Apr 10, 2018 2:16 pm

Spirit Rider wrote:
Tue Apr 10, 2018 2:12 pm
topofthebellcurve wrote:
Tue Apr 10, 2018 12:03 pm
I'm putting 40% down, and yes I could afford the $12K cost to resolve a title dispute if needed.
A fundamental misunderstanding of insurance. You do not insure for average risk, you insure for maximum risk. Otherwise, we would all get health insurance that only covered some % < than the insurance premiums (insurers profit).

You are putting $400K down. Can you self-ensure that catastrophic loss.
There's also no guarantee that $12k would resolve it or that it would be resolved in your favor at any cost.

quantAndHold
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by quantAndHold » Tue Apr 10, 2018 2:39 pm

Tail risk. People are terrible at judging tail risk. The risk is not that you might have to spend $12k fixing a title issue. The risk is that you would lose the house and every penny you put into it. The odds of this happening are long, but not zero.

They don’t tell you this, but you can shop around for a better deal on the policy.

chevca
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by chevca » Tue Apr 10, 2018 5:52 pm

topofthebellcurve wrote:
Tue Apr 10, 2018 12:03 pm
I'm putting 40% down, and yes I could afford the $12K cost to resolve a title dispute if needed.
Then $2300 is likely pocket change to you, yes?

Is this really about wanting to "save" $2300 or a matter of principle to you? Seems silly to avoid this just to be right. But hey, your choice.

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unclescrooge
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by unclescrooge » Tue Apr 10, 2018 6:03 pm

quantAndHold wrote:
Tue Apr 10, 2018 2:39 pm
Tail risk. People are terrible at judging tail risk. The risk is not that you might have to spend $12k fixing a title issue. The risk is that you would lose the house and every penny you put into it. The odds of this happening are long, but not zero.

They don’t tell you this, but you can shop around for a better deal on the policy.
This.

I think I paid half that in California, and $800 on a lenders ALTA policy.

Is the seller covering the buyers policy, with you covering the lenders policy?
Last edited by unclescrooge on Tue Apr 10, 2018 6:08 pm, edited 1 time in total.

Silverado
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Silverado » Tue Apr 10, 2018 6:04 pm

We have always just paid for it, fully knowing it is part of what is essentially a scam. Everyone gets their cut. It perpetuates because the seller gets a check and the buyer gets keys (for existing home). Analogous to the metoo situation, for way too long we have simply taken it, and getting it undone is going to take tremendous effort. Worth it for metoo, maybe not for house buying. I once asked to see the receipts for a set of courier fees I was charged. I did not get a favorable response. I expected a visit from a mob/union rep later that night.

CMD1
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by CMD1 » Tue Apr 10, 2018 6:16 pm

I don't follow how it is a scam. Maybe you could call being forced to pay for lenders title insurance the scam. But protecting one of your biggest purchases is kinda smart, and relatively cheap.

mortfree
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by mortfree » Tue Apr 10, 2018 6:19 pm

By no means am I an expert.

My limited understanding is that there is title insurance and then there is “enhanced” title insurance.

Does the lawyer’s title Insurance then fall under “enhanced” as it seems the lender has also provided title insurance??

ETA: since it is new construction does that change things?
Last edited by mortfree on Tue Apr 10, 2018 6:26 pm, edited 1 time in total.

CMD1
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by CMD1 » Tue Apr 10, 2018 6:24 pm

Lender's title insurance doesn't protect you. So if you bought the house from someone who didn't legally own the house you just spent a lot of money for something you can't legally own.

Spirit Rider
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Spirit Rider » Tue Apr 10, 2018 7:51 pm

CMD1 wrote:
Tue Apr 10, 2018 6:16 pm
I don't follow how it is a scam. Maybe you could call being forced to pay for lenders title insurance the scam. But protecting one of your biggest purchases is kinda smart, and relatively cheap.
Just because something doesn't cost a lot doesn't mean is relatively inexpensive.

The relative price you have to pay for owner's title insurance compared to what other insured risks cost, is what is the scam.

jalbert
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by jalbert » Tue Apr 10, 2018 8:07 pm

I know someone who did a refi on their home and the title search uncovered a very old claim of mineral rights from before the property was divided into lots. The title insurer at time of purchase missed it, and I assume had to cover it, but I never heard about the final resolution.

22.6 basis points is cheap and well worth it. Would new construction have the risk of unpaid subcontractors placing a mechanics lien on the property after the title search was completed?
Index fund investor since 1987.

letsgobobby
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by letsgobobby » Tue Apr 10, 2018 8:09 pm

It's always fascinating to see where different people try to save a buck.

topofthebellcurve
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by topofthebellcurve » Tue Apr 10, 2018 8:46 pm

First, thank you to everyone for their responses.

I understand that insurance is trading some amount of money for protection against tail risk. I further understand that, were there a major title claim, I could lose all of my equity in the house (in this case $400K -- the lender's title, which I'm also paying for as part of closing costs, will cover the remainder).

That said, I think this topic deserves a more rigorous analysis than I'm seeing here, and more rigorous than I've come to expect of BH'ers in every other aspect of their financial life. Consider a similar claim about protecting large amounts of assets: "Don't you want a professional financial adviser to look after your $1MM++ retirement? You want to do this yourself? You think that's a good way to save money? It's only 1-2% a year!"

We know is that title insurance is a massive outlier in terms of the profitability for insurance companies. While most types of insurance (auto, home, etc.) pay out in the range of 80-90%+ of the premiums they collect, title insurance pays out around 5%. Further, the buyer's (my) lawyer receives between 65-85% of the premium I pay as a kickback / commission for referring me. So, if the title company collects $2.3K for my premium, they're paying $1.5-2K to my lawyer; as I've heard separately, that's where they make most of their money.

The math determining whether this is a good use of money seems relatively straightforward: it's the percentage chance of the tail-risk event multiplied by the magnitude of this tail risk. Let's ignore all situations in which I only have some amount of loss and focus on the big fish -- losing all $400K.

Therefore, I need to expect at least a 1 in 173 chance of a major title claim for this to be worth my $2,300. Let's round up to 1 in 200 for the sake of simplicity and because of the value of the psychological comfort insurance brings.

I'm not sure if the payout number of 5% of premiums is based on their gross or net (i.e. if it's before or after the kickback to the lawyer). Let's be generous and assume it's gross. So of each dollar I give them, they expect to pay out $0.05. Let's assume 1,000 homes identical to mine receiving owner's title to create a portfolio. The total insured value is $400K * 1,000 = $400MM. They've collected $2.3MM in premiums, of which they expect to pay out $115K (5%). Therefore, on average they expect to pay out only $115K, or 0.2875 homes worth. So they're expecting a major title event to happen a maximum of one in every 3,478 homes. To put it another way, they could sell my title policy for $115 and break even (assuming no staff cost, etc.).

Home owner policies don't like to cover correlated risk like volcanoes or nuclear war. Those two could also cause me to lose my $400K. I could probably buy insurance to cover them, but why would I? At some point I have to do a risk/reward calculation.

Should I still buy the policy if it was $5,000? $10,000? $20,000?

Too much of the home buying process seems to be on automatic ("you must do XYZ") and there are a lot of people with their hands out. I'm just not seeing the math.

letsgobobby
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by letsgobobby » Tue Apr 10, 2018 10:52 pm

[OT comments removed by admin LadyGeek]
The math determining whether this is a good use of money seems relatively straightforward: it's the percentage chance of the tail-risk event multiplied by the magnitude of this tail risk.
Not really. It’s first and foremost a function of whether you can afford the tail risk. You say you can. So go for it. But if one can’t, then the price of the insurance, while important, may not matter in the end. In other words even if the insurance is ‘overpriced’, there are some one can’t afford to be without. Witness: health insurance. (but not everyone. Warren Buffet probably doesn’t need health insurance, or life insurance, or owner’s title).

I also have an umbrella policy and apparently those have a miniscule chance of ever paying out. I still have one. Do you?

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Pajamas
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Pajamas » Tue Apr 10, 2018 11:03 pm

topofthebellcurve wrote:
Tue Apr 10, 2018 8:46 pm
Should I still buy the policy if it was $5,000? $10,000? $20,000?
Depends on how willing and able to accept the potential loss you are and what it's worth to you to insure against it. The answer would be different for different people.

There are credible risks specific to this property that the lawyer outlined in the waiver. The insurance covers not only a potential loss, but also the cost of legal fees for defending against a claim that could result in a loss.

ag1
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by ag1 » Tue Apr 10, 2018 11:19 pm

Title insurance is useful. I will relate true story of a close friend who slipped it.
My friend bought an old house on 7 acres of land from the estate sale on the death of a fairly old person. That fellow had stated in the house for 40+ years. All the docs were clear. My friend was paying cash almost 350k. So he decided to save title insurance money.
There is a private daycare next to the property. Six months after he moves in the daycare facility sues them for half the land claiming "adverse possession". In plain English they were saying that they had used the property without the permission of the previous owner for more than seven years and therefore under Massachusetts law they were entitled to the property.
This was not a joke as my friend realized but actual law. It cost him more than 50k in legal free and over a year of headache to get the claim dismissed .

Title insurance is overpriced but I think you must still buy it

Ag

HEDGEFUNDIE
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by HEDGEFUNDIE » Wed Apr 11, 2018 12:03 am

letsgobobby wrote:
Tue Apr 10, 2018 10:52 pm
[OT comments removed by admin LadyGeek]
The math determining whether this is a good use of money seems relatively straightforward: it's the percentage chance of the tail-risk event multiplied by the magnitude of this tail risk.
Not really. It’s first and foremost a function of whether you can afford the tail risk. You say you can. So go for it. But if one can’t, then the price of the insurance, while important, may not matter in the end. In other words even if the insurance is ‘overpriced’, there are some one can’t afford to be without. Witness: health insurance. (but not everyone. Warren Buffet probably doesn’t need health insurance, or life insurance, or owner’s title).

I also have an umbrella policy and apparently those have a miniscule chance of ever paying out. I still have one. Do you?
Give the OP some credit, percentage chance X size of loss is the definitional standard of quantifying risk. Entire industries are built on this concept. And some risks really do cost too much to insure - earthquake insurance in CA, for example. It’s available but almost no one buys it.

That said, in this particular case, it seems like the OP is in a higher-than-average-risk scenario, and therefore should be more willing to buy the insurance than in an ordinary transaction. Especially as the cost of title insurance doesn’t scale according to the risk context (e.g. seller divorces, deaths, etc.), one could even make the case that the OP is getting a good deal on the insurance.

z91
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by z91 » Wed Apr 11, 2018 12:11 am

A few cents:

1) IMO you should not forgo title insurance. It's high margin, but think of it like umbrella insurance. You don't really want to ever exercise it, but you'll be glad you have it when you do.

2) My understanding is that you don't necessarily need to purchase the "default" title insurance -- you can actually shop it yourself and likely get a better price, assuming you are getting a raw offer on it now.

3) Even with title insurance, my understanding is there is a limit of liability for them anyway, so if something catastrophic comes up, they'd hit the max coverage and you'd be left holding the rest of the liability.

Given all this, I still highly recommend you get it, but would understand if you decide to make a gamble on it given this information.

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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by jalbert » Wed Apr 11, 2018 2:44 am

The math determining whether this is a good use of money seems relatively straightforward: it's the percentage chance of the tail-risk event multiplied by the magnitude of this tail risk. Let's ignore all situations in which I only have some amount of loss and focus on the big fish -- losing all $400K.
1. What makes you believe your exposure is limited to your down payment?

2. What makes you think there can only be a single "event"? There could theoretically be any number of outstanding liens for you to inherit.
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quantAndHold
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by quantAndHold » Wed Apr 11, 2018 2:47 am

OP, if you’re still listening, one of the things I did in my working life was risk management. That probably times cost thing is a nice intuition for creating a spreadsheet to show the pointy haired bosses, but it isn’t accurate or rigorous, and it falls apart when looking at low probability but potentially catastrophic risks. Humans tend to misjudge low probabilities. Our mind turns the probability into zero, which it isn’t. Low probability events do still happen. They just happen less often than higher probability events.

The paragraph from the waiver about the siblings and the estate would definitely give me pause.

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celia
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by celia » Wed Apr 11, 2018 3:55 am

OP, It looks like you live in Boston, one of the oldest cities in the country, founded in 1630 (per wikipedia). That's an awful long time compared to California. How many past "owners" do you think once owned the land? How many heirs do they have living at this time (or in the future)?

It sounds like the lawyer ONLY went back 50 years. That could be 2 owners worth (before the current 1-year owner). I would be more concerned with all the owners before that and their dealings that might have left a claim somewhere. The cost seems reasonable if it helps me sleep at night, not worrying about all the "what-ifs".

It also seems like you are looking at the cost compared to the cost of defending the title. You haven't considered if there was a legitimate claim, the claimant would have to be paid, in addition. So you would not just be out the $12K, but considerably more. I'm not sure about this part, but after you no longer own the house but you declined the insurance, would you be financially liable it there was a claim after you sold?
topofthebellcurve wrote:
Tue Apr 10, 2018 11:19 am
We've got a mortgage, . . .
We? What does your spouse think about this (without pressuring him/her)?
Last edited by celia on Wed Apr 11, 2018 4:08 am, edited 1 time in total.

letsgobobby
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by letsgobobby » Wed Apr 11, 2018 4:05 am

Hedgefundie, that approach may work for an industry, but it doesn't work for an individual if he can't withstand tail risk, regardless of the odds. In fact isn't this the lesson of many of the most spectacular investing flameouts of the last two decades, from LTCM to Lehman? They also did not insure against what they felt were the infinitesimal odds of certain bad outcomes. Unlike a corporation, an individual does not have competing interests: the need to make a profit or accede to demands of a chief executive or board. The individual simply has to determine if he can survey the tail risk, and if not, how much/how/whether to pay up.

As for earthquake insurance, further proof that many people analyze these situations incorrectly. I myself have earthquake insurance. Well, maybe they're just counting on socializing their losses, in which case I'm the sucker.

It could definitely pay OP to shop around, as I understand title insurance is available online in some states for a steep discount.
Last edited by letsgobobby on Wed Apr 11, 2018 9:12 am, edited 1 time in total.

2cents2
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by 2cents2 » Wed Apr 11, 2018 4:30 am

Doesn’t your owner’s title insurance stay in force as long as you own the property? Is there a limit? The mortgage holder’s exposure would go down as you pay off the mortgage. But, the homeowners exposure would increase as the home is paid off and the value of the property increases over time.

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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by Jack FFR1846 » Wed Apr 11, 2018 6:33 am

50 years in Boston? Are you kidding me? That's negligence on the part of the lawyer. When we closed on our first house outside of Boston, we went with the lawyer as he searched titles. We found "protective covenants" which are like HOA rules in old developments before HOAs existed. Like a shed was not allowed on the property. Since every house besides the one we were buying had a shed, we didn't worry about that and there was no HOA to enforce these so a neighbor would literally have to bring us to court if we built a shed and they didn't like it.

Ok.....so the 50 years? We $went back to the times when Harvard University owned the land and leased it for $1 a year and then gifted it to the town because the tax paid to King George was more than that $1. Yes, titles went back to grants by King George. 50 years? Pffffft, what a clown. I would dump this guy and get a "real" lawyer.
Bogle: Smart Beta is stupid

goaties
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by goaties » Wed Apr 11, 2018 7:02 am

Jack FFR1846 wrote:
Wed Apr 11, 2018 6:33 am
50 years? Pffffft, what a clown. I would dump this guy and get a "real" lawyer.
Unfortunately, that seems to be the norm these days. To me, real estate lawyers are merely insurance agents for the title insurance companies. They do a perfunctory title search then cover their asses by making you pay for title insurance. That said, you should buy it, although perhaps you could shop around for a cheaper policy. At least this lawyer had the honesty to tell you about some potentially serious problems they did find. In this case, I think the threat is real.

gd
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by gd » Wed Apr 11, 2018 7:31 am

I had a "mistake in my property line" due to survey errors discovered when formally marking an ambiguous line with my neighbor, two different mis-measurements or recording errors obvious enough to confirm with a length of clothesline. I saw nothing in my title insurance that covered this case, and the lawyer we used to amicably rewrite the deeds agreed. We were out several thousand dollars for lawyer and surveyor. I'm mildly confident that that portion of your lawyer's statement is at best an exaggeration of benefits.

Side comment to that point, don't buy anything if you can't walk physical markers described in the deed. If none, resolve it first in a legally-secure way, just like the rest of the deed.

I agree with the comment about 50 years being curiously short for the sole title search, at least in my area, and would inquire. BTW, I found every scrap of deed information I'd paid for at purchase or resurvey (the surveyor researched deeds as part of their due diligence) myself online.

surveyor
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by surveyor » Wed Apr 11, 2018 7:59 am

Exceptions to the policy. Investigate what those are as well.

psteinx
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by psteinx » Wed Apr 11, 2018 10:20 am

I am sympathetic to the OP's reluctance to pay for a policy that is apparently, on an actuarial basis, stunningly overpriced.

We all face many risks in life - some we can insure against, but many that we cannot or do not. Fully enumerated, the latter would likely vastly outnumber the former. Yes, many of them are rather remote risks, more remote than the risk of a title problem on a property. But collectively, they're not trivial.

Chasing insurance that is highly overpriced for many of these remote risks seems to me more about psychological comfort than true utility maximization in a purely economic sense (absent the comfort/sleep well factors).

That said, OP should consider the particulars of his/her case. If the titling risk seems unusually high, then perhaps either a more robust lawyer title search, or a discounted owner's title policy (perhaps by a third party), or conceivably even the contemplated policy, might be worthwhile. But simply stating that the maximum exposure is high is insufficient, IMO, to mean that one should automatically buy an insurance policy where the payout to premium ratio is apparently so highly tilted against the purchaser.

topofthebellcurve
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by topofthebellcurve » Wed Apr 11, 2018 11:53 am

Hi everyone! Still listening, as is my wife.

I did not mean to cause offense in my last post -- that part about BH was a late-night comment which I should have holstered. Also, it's my birthday, so be nice :D

My wife had a useful interpretation of this thread: "I've never seen BH be so unanimous on anything. This makes me want to buy it." So I now have your strong recommendations plus my wife's desire, and the true tail risk of not just losing $400K+ but having to hear "I told you so" for the rest of my life :happy

I'm probably going to buy it. My heart (and my math) says I'm getting ripped off, but so it goes.

I'll read through the responses in more detail later today. For now, I'm going to enjoy the weather in Boston. Have a good one!

talzara
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by talzara » Wed Apr 11, 2018 12:03 pm

topofthebellcurve wrote:
Tue Apr 10, 2018 8:46 pm
I'm not sure if the payout number of 5% of premiums is based on their gross or net (i.e. if it's before or after the kickback to the lawyer). Let's be generous and assume it's gross. So of each dollar I give them, they expect to pay out $0.05. Let's assume 1,000 homes identical to mine receiving owner's title to create a portfolio. The total insured value is $400K * 1,000 = $400MM. They've collected $2.3MM in premiums, of which they expect to pay out $115K (5%). Therefore, on average they expect to pay out only $115K, or 0.2875 homes worth. So they're expecting a major title event to happen a maximum of one in every 3,478 homes. To put it another way, they could sell my title policy for $115 and break even (assuming no staff cost, etc.).
Insurance loss ratios are always calculated on the gross premium. The expense ratio on title insurance is 85% to 90%.

The Loss + DCC ratio is usually 5-10%. It's 5% in normal years, and it went up to 10% during the 2007-2009 subprime mortgage crisis. This number includes legal costs, so the actual loss is even lower than that.

topofthebellcurve
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by topofthebellcurve » Wed Apr 11, 2018 12:12 pm

talzara wrote:
Wed Apr 11, 2018 12:03 pm
topofthebellcurve wrote:
Tue Apr 10, 2018 8:46 pm
I'm not sure if the payout number of 5% of premiums is based on their gross or net (i.e. if it's before or after the kickback to the lawyer). Let's be generous and assume it's gross. So of each dollar I give them, they expect to pay out $0.05. Let's assume 1,000 homes identical to mine receiving owner's title to create a portfolio. The total insured value is $400K * 1,000 = $400MM. They've collected $2.3MM in premiums, of which they expect to pay out $115K (5%). Therefore, on average they expect to pay out only $115K, or 0.2875 homes worth. So they're expecting a major title event to happen a maximum of one in every 3,478 homes. To put it another way, they could sell my title policy for $115 and break even (assuming no staff cost, etc.).
Insurance loss ratios are always calculated on the gross premium. The expense ratio on title insurance is 85% to 90%.

The Loss + DCC ratio is usually 5-10%. It's 5% in normal years, and it went up to 10% during the 2007-2009 subprime mortgage crisis. This number includes legal costs, so the actual loss is even lower than that.
So what do you think the expected value is for each $1 spent on title insurance?

talzara
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by talzara » Wed Apr 11, 2018 1:59 pm

bobolinx wrote:
Tue Apr 10, 2018 12:27 pm
As I sold the house, my lawyer asked if I had title insurance and with which company. It seemed trivial at first. But then I realized that the buying attorneys were going to charge a huge fee to do a title search, if the title was not registered with one of the recognized title insurance companies. Fortunately, I kept track of all paperwork and was able to find the name of the company. Immediately, the request was withdrawn, and no need to "prove" the title was valid. It seemed to me that title research was a fee-generating process. Does it have a legitimate use? Probably, but I certainly felt that this was just another part of the real estate game.
Title research is just make-work. Entrenched interests have kept it from being relegated to the scrap heap.

In most Canadian provinces, land is registered with the government. If your name is on the title, then you have unquestioned ownership of the land. There is no need for title research, because the government registers the land itself rather than the deed that transfers the land. There is no need for title insurance, because the government guarantees your title to the land.

Land was converted from the deed system to the registry system the next time it was sold. There was a one-time cost to do the title research and register the land. Once the land was in the registry, that was it. No future buyer ever had to pay for title research or title insurance on that piece of property.

Massachusetts is one of the few U.S. states that has a land registry, but it's optional. Most land in Massachusetts is not in the registry, because you have to pay for title research and court fees. Why would you do that when the main beneficiary is the person who buys the house from you?
Last edited by talzara on Wed Apr 11, 2018 6:14 pm, edited 1 time in total.

talzara
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by talzara » Wed Apr 11, 2018 2:02 pm

topofthebellcurve wrote:
Wed Apr 11, 2018 12:12 pm
talzara wrote:
Wed Apr 11, 2018 12:03 pm
Insurance loss ratios are always calculated on the gross premium. The expense ratio on title insurance is 85% to 90%.

The Loss + DCC ratio is usually 5-10%. It's 5% in normal years, and it went up to 10% during the 2007-2009 subprime mortgage crisis. This number includes legal costs, so the actual loss is even lower than that.
So what do you think the expected value is for each $1 spent on title insurance?
5-10%. The legal costs are included in the expected value. If you self-insure, then you would have to pay the legal costs too.

My point was that even 5-10% is an overestimate of actual losses. The insurance companies are disclosing a loss + DCC ratio rather than a pure loss ratio.

letsgobobby
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by letsgobobby » Wed Apr 11, 2018 2:25 pm

Here is the name of the online ‘discount’ title broker. They may save you some money if they’re licensed in MA.

https://www.entitledirect.com/Homeowners

DrakeSRT
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by DrakeSRT » Wed Apr 11, 2018 2:45 pm

Does the Buyer in Boston always pay for the Owners Title Insurance? Or whas this negotiated in the deal?

Everywhere I have bought property (3 states) the Seller always paid it.

bsteiner
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by bsteiner » Wed Apr 11, 2018 3:28 pm

DrakeSRT wrote:
Wed Apr 11, 2018 2:45 pm
Does the Buyer in Boston always pay for the Owners Title Insurance? Or whas this negotiated in the deal?

Everywhere I have bought property (3 states) the Seller always paid it.
Real estate procedures vary from state to state, and sometimes within a state.

Everything else being the same, wouldn't the purchase price in a state where the seller pays for the title insurance be higher than in a state where the buyer pays for the title insurance by an amount equal to the cost of the title insurance?

bobolinx
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Re: Owners Title Insurance - Super Heavy Handed Pitch

Post by bobolinx » Wed Apr 11, 2018 3:41 pm

So...forgetting the odds of needing insurance, or the cost...the decision can also boil down to convenience. Some people have the time and resources to deal with the inconvenience when issues may arise, others may not. We were on a time crunch to sell. Others are needing to move quickly and the industry takes advantage of this need. We just went along with the established tradition to "move on". I, personally, recommend that the average person purchase the title insurance so that they can avoid issues when selling.

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