ALTA Responds to Consumer Federation of America's Misunderstanding of Title Insurance
July 27, 2010
The American Land Title Association issued this response about the value of title insurance in reaction to a release issued by the Consumer Federation of America:
Organizations such as Consumer Federation of America exist to protect consumers, yet the association’s leadership clearly hasn’t done their research and has put out bad advice about title insurance. Lenders insist on title insurance to protect themselves, and consumers should protect themselves too. There are unforeseen defects in title, and homeowners especially don’t want to be left out in the cold.
Those who question the cost of title insurance lack understanding of the many detailed steps needed to produce a title insurance policy and the value of the consequent protection offered to homebuyers, lenders and investors. A great deal of work goes into the production of a title insurance policy. For a one-time fee, homeowners are protected against undiscovered liens on their home or challenges to ownership for as long as they or their heirs own the property.
Before a policy is issued, a trained title agent examines the history of a property contained in public records where problems turn up in one out of every three title searches. In order to make sure a homeowner has clear rights to a property, the title agent will scrutinize prior deeds or mortgages, divorce decrees, court judgments, delinquent taxes and child and spousal support payments, vesting, covenants, conditions and restrictions, general encumbrances, and utility or other kinds easements.
A recent example in Texas highlights the importance of title insurance and the protection it provides homebuyers. Earlier this year, Texas-based homebuilder Casa Linda sold residential properties encumbered by different liens, including liens for delinquent property taxes; liens of a third-party lender; or mechanic’s lien for labor or materials used to improve the property.
Purchasers were not warned about the undisclosed liens because Casa Linda did not require homebuyers to purchase title insurance. Thus, the developer could sell the properties without homebuyers – particularly inexperienced, first-time homebuyers – realizing that their new houses were subject to undisclosed liens. When Casa Linda Homes subsequently failed to pay its undisclosed debt, the creditors who were owed money then instituted foreclosure proceedings or filed lawsuits against the homebuyers.
After discovering this scheme, Texas Attorney General Greg Abbott said homeowners should “make sure a title company is involved in the transaction and independently determines who owns the property and checks for liens or outstanding debts for which the buyer could be held liable.”
Consumers have a choice in selecting the provider of their title insurance related services. ALTA is working to help make fees associated with purchasing a home more transparent and to educate consumers about title insurance so that they can better understand their choices and make informed decisions. For more info, go to www.homeclosing101.org .