Title insurers, too, feel a pinch
January 08, 2009 12:55PM By C. J. Hughes
To the long list of professionals hurt by the cratering residential real estate market -- brokers, mortgage lenders and appraisers, among others -- add another victim: title insurers.
These businesses, which sell insurance policies to buyers of apartments, to protect them from sellers who unload homes that were never technically theirs to begin with, are laying off employees in droves, instituting hiring freezes or outright closing, according to industry leaders.
"Everybody is very, very slow," said Sharon Sabol, the executive vice president of the New York State Land Title Association, a Manhattan-based trade group made up of title insurance underwriters and their agents.
In fact, between November 2007 and October 2008, her group shed 17 percent of its members, because they either went out of business or they could no longer afford the annual dues, which at most cost $800, said Sabol. This plummet was the largest in her 20 years with the group, she added.
Although title insurance policies are not required by New York State law, 98 percent of city buyers purchase them anyway, because most lenders require them before issuing mortgages; the lenders want to protect themselves from deals that could sour down the road if, say, a long-lost relative turned up, claiming dibs to the property.
But, as sales activity dips, so do opportunities to write new policies, and activity levels in the fourth quarter were clearly down, according to reports from New York's top real estate brokerage firms. The Corcoran Group, for one, found that in the last year, Manhattan apartment sales dropped 40 percent.
And in what's a double whammy of trouble, title insurance claims are up. Many claims are from the problems suddenly coming to light with homes sold in a rush in the boom without proper vetting, said Jonathan Richards, a senior vice president with Fidelity National Title Insurance Company, one of the country's largest underwriters.
While the surge in the number of distressed properties is creating opportunities for different kinds of work for title insurers, like insuring foreclosed homes rather than non-distressed ones, Richards said, that type of work tends to be less rewarding.
That's because foreclosed properties, with their various liens and potentially checkered trails of ownership, require way more research by insurers, and "abstracters," which are like real-estate detectives, Richards said.
And since policy rates are fixed by the state, at roughly $4 for every $1,000 in real estate, sales of foreclosed homes end up being a lot more work for the same money, he added.
"It's high-risk work that involves a lot of cooperation from various parties," Richards said.
And insurance brokers are also getting squeezed, like Marvin Yoches, an
independent contractor who works for LI-based East Coast Abstract, who
has frozen hiring.
Note: correction appended.
"It's a cyclical business, but I don't remember it ever being in the toilet like this," said Yoches, a 47-year veteran.
But even though they may be under more financial pressure than in the past, buyers should still invest in home insurance, Yoches added. In fact, in a down market, homes are more likely to have existing black marks against them, like if a seller had failed to pay his income taxes to make his own end's meet.
"And Mr. Jones could be liable when the government comes knocking, saying 'Where's my money?" he said. "The title insurance protects the buyer, too."
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Comments
Anonymous
Title insurance is such a scam.. I don; feel bad for theses people at all. Basically, they charge you a hefty fee to first research the property (To ensure that the property is actually owned by the seller, and that there are no liens against it). Then they charge an additional fee to insure against the fact that they might have not researched the information properly. This is an overpriced scam which continues to drive the cost of real estate higher. IF they charged a fair price for their services, this would not bean issue!!
Comment #1 Posted By: Anonymous 01/09/09
ASH
I agree it is overpriced but I disagree it is a scam- there is definitely a purpose for a title search and insurance.. As for the title search, however, these days with the internet having so much public information at easy access I think a search should be A LOT less than it runs.
Comment #2 Posted By: ASH 01/09/09
Anonymous
People always think title insurance is overpriced but when you think about it, you only pay for insurance once compared to other insurances where you pay a premium every year and it's coverage is forever. Besides, it's not mandatory so if you really think you don't need it, go ahead and take the gamble to do the research on your own. I certainly wouldn't take that risk if I was spending over a $1 mil on a property. But that's just me....
Comment #3 Posted By: Anonymous 01/09/09
Anonymous
The individual making the first comment obviously knows nothing about subject. The cost of researching the property is included in the premium. There is no separate charge in NYC. Also Title insurance covers fraud and the cost of legal defense. This only is worth the price.
Comment #4 Posted By: Anonymous 01/09/09
Anonymous
Buyer beware: Costa Rica prior to US Title Insurance the same Realtor sold the beach front lot to 5 different unlucky American purchasers. World Economists have stated that if in Third World Countries ( Russia included) if a system of Title Insurnace was in place would free up Trillions of dollars of Investment Capital. Title Insurance is worth every penny, for a one time fee payable at closing you and your hiers can occupy your home in peace. Try purchasing Disabilty Insurance the cost alone will make you disabled.
Comment #5 Posted By: Anonymous 01/09/09
Anonymous
Buyer beware: Costa Rica prior to US Title Insurance the same Realtor sold the beach front lot to 5 different unlucky American purchasers. World Economists have stated that if in Third World Countries ( Russia included) if a system of Title Insurnace was in place would free up Trillions of dollars of Investment Capital. Title Insurance is worth every penny, for a one time fee payable at closing you and your hiers can occupy your home in peace. Try purchasing Disabilty Insurance the cost alone will make you disabled.
Comment #6 Posted By: Anonymous 01/09/09
Stan Levine, Pres.
This comment is directed to the writer C. J. Hughes and the editorial staff: I am Stan Levine, President and CEO of East Coast Abstract, Inc. This article quotes an associate member of my staff without proper authority to talk about the status of my company to the press or public in general. For the record, East Coast is not in a hiring freeze, but just like any other business in today's climate, we are very careful about costs and employee cost's in general. Having said that, we have added members to our sales staff and accounting staff recently. Even though Sharon Sabol, the Executive Vice President of the New York State Land Title Insurance Association, has stated, the industry is "very, very slow", we are holding our own, weathering the storm and have actually increased our market share. If you have any questions about the industry, title rates or business in general, please contact me directly at slevine@ecabstract.com
Comment #7 Posted By: Stan Levine, Pres. 01/12/09