- The Washington Times - Friday, August 23, 2002

A high-stakes battle is raging in the real estate industry, involving billions of dollars and millions of American home buyers. Haven't heard about it? Don't be surprised, because it has to do with title insurance something many home buyers don't understand.

Here's the issue in the most simple of terms: Last year, a company called Radian Guaranty Inc. began offering mortgage insurance that could replace title insurance for home equity loans, second mortgages and refinanced mortgages. It's not title insurance, but Radian says it provides lenders with sufficient protection for a flat fee of only $325. That's less than half what a homeowner normally would pay for renewing his title insurance on a house worth about $300,000 in the Washington-metropolitan region.

The title insurance industry isn't excited about the new program. It says Radian is, in fact, selling title insurance, which the company cannot do if it isn't licensed to sell title insurance.

"If it walks and quacks like a duck, it's a duck," says Jeffrey Margolies, president of Maryland Land Title Association. "So far, all of the states that have heard the case have said Radian is selling a duck. We don't mind some more competition in the title insurance industry, but if you want to offer this product, you need to make the proper filings and play the game by the rules."

Insurance is a highly regulated industry because it is important that insurance companies remain solvent. If any fly-by-night operation could sell you an insurance policy, how would you know it would be around and able to pay when you make a claim 10 years later?

"You can't just say, 'Hey, I'm a doctor. Let me work on you,'" Mr. Margolies says. "You need to be licensed to practice medicine, for your health and the public good."

But Radian is not a fly-by-night operation. It is one of the largest insurers in the country, with revenue of nearly $1 billion in 2001 and an AA rating from Standard & Poor's Corp.

Critics of the title insurance industry say it is making millions off overpriced, rarely needed insurance policies. Radian's new product is appealing because it is available only for home equity loans, second mortgages and refinancing. If the title was searched and found to be clear at the time of purchase, why pay for another expensive insurance policy when you refinance?

"I think the idea behind what Radian is offering is good. My customers could save $500 to $600 on a refinance, but we aren't offering the product anymore because of the legal challenges," says one Maryland lender who did not want his name used because of his business relationship with title insurers.

"The majority of the title insurance premium you pay is actually a commission paid to the settlement company," the lender says. "They are really insurance salesmen. And the truth is, the chance of ever having a problem with your title is very, very small. That makes Radian's product quite attractive, and it makes title insurers nervous."

Unfortunately for borrowers who want to save some money with Radian's insurance product, it is not currently available.

"Since the cease-and-desist order in California, we are no longer able to market the product anywhere in the country," says Howard Yaruss, executive vice president and general counsel for Radian Guaranty. "We have a hearing scheduled for early fall and hope to have the product vindicated, so we can resume business."

Radian hopes to convince the California courts that it is not selling title insurance, as the title insurers claim, but is instead offering a mortgage insurance product.

"We feel that our lien protection program is more consistent with the mortgage insurance products we are already offering," Mr. Yaruss says. "Traditional mortgage insurance covers expenses that a lender sustains related to a homeowner's default, and this product does the same thing."

If you are one of the many home buyers who does not really know what title insurance is or why it is needed, here is a primer. The title to your home is your legal proof of ownership. When you bought the property, the title was transferred from the seller to you.

Titles may become encumbered by tax liens, easements and second mortgages. To ensure you are receiving free and clear title to the home you are buying, research is done into the history of the title. The title company or settlement firm handling your closing does a title search to find any problems. (Actually, most firms use third-party title-search firms, known as abstractors.) The purpose of title insurance is to protect you in case the abstractors miss something.

"Title insurance protects you against loss if a hidden hazard results in a claim against your ownership," says Glen Jackson, president of Sentinel Title Corp., which offers title insurance in Virginia, Maryland and the District. "Title insurance covers two general areas: Mistakes that occur when the title is searched, and off-record defects. Examples of off-record defects are fraud or forgery in the execution of title."

Mr. Jackson recently had a case in which a man refinanced his uncle's house, without the uncle's knowledge. The nephew forged his uncle's name and signature on the paperwork for a cash-out refinance and walked away with a lot of money. Before long, the bank was foreclosing on the unwitting uncle to get the money back.

"But the uncle was protected by his title insurance policy," Mr. Jackson says. "The title insurer paid the bank off, and the foreclosure stopped. Then the insurance company sued the title agent, who had never checked the nephew's identification."

Another example is a husband who sold the house he owned jointly with his wife without her knowledge. The husband had his girlfriend pose as the wife, an action that rendered the new title invalid.

A title also may be encumbered by a fence or driveway that crosses over the property line into a neighbor's yard, or by a lien by the government for unpaid taxes. Tax liens are particularly dangerous for buyers, because the new owner of the property assumes responsibility for the unpaid tax bills.

Perhaps you are a gambler and would rather forgo buying title insurance. Sorry, that will not work. Your lender will require a lender's title insurance policy on your mortgage, which is based on the loan amount. For a little more money, you also can buy an owner's policy, which covers you for the market value of the home.

What does title insurance cost? According to Brian Rogers, senior vice president of Security Title in Maryland, a lender's policy for a $300,000 house in Maryland runs $725. A combined lender's and owner's policy is $1,070.

Rates may be a little higher in Virginia and the District, but they are still much lower than other parts of the country. In New Mexico, for example, a combined policy on a $300,000 home costs $1,850. In Texas, the same policy costs more than $2,000.

You can shop around, but you probably will not find much variance among title insurers. States require insurers to charge a "filed rate" that is recorded and tracked. With such public information available about rates, they do not vary much.

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