Well, as we have recently discussed, when you buy a home, you basically do need title insurance.
Vincent Dovydaitis makes the case: “We purchased our home as part of a new subdivision (had it built to our specs actually). And had been living in it for a couple of years before it was discovered that the original survey for the subdivision was in error. (The surveyor neglected to “close” the survey by returning to his starting point.) It took a little while, but the problems were worked out (my boundaries shifted, some people lost slivers of land that they were reimbursed for, etc.) and I received a new title based on the corrected survey. I forget whose title insurance paid for the paperwork, but in the end the fixes and issuing new titles didn’t cost me a dime. Our local building inspector assured me at the time that this sort of thing happens a lot. (People don’t discover that their house, driveway, etc., is in the wrong place until they or their neighbors go to make improvements). And suddenly you no longer have clear title. Ouch. Buy title insurance — better safe than sorry.”
I agree with that. And I also agree with those who wrote in to say it’s much too expensive. But not because so little of the premium you pay ever gets paid out in claims. Unlike almost any other kind of insurance, with title insurance you are paying mostly to avoid what you’re insuring against. Life insurance won’t stave off death, auto insurance won’t deflect an onrushing drunken driver. But with title insurance you’re paying mostly for the legal research to make sure there normally won’t be a claim against you (though not in the case of careless surveyors).
The problem is that this legal research, and the system of property records down at the county courthouse it rests on, are so inefficient!
Stephen Simcock: “In a recent article, you bemoaned the persistence of the archaic title registration system in today’s digital world. I have some good news. My company is a charter member of the Mortgage Electronic Registration System (“MERS”), an organization which grew out of a FannieMae/Mortgage Bankers Association white paper. Its purpose is to create an electronic registration system for title that is similar to the CUSIP system for securities. [Every stock or bond you buy has a “CUSIP” number — take a look at your confirmation slip next time you buy something.] MERS was developed to cut the phenomenal cost associated with the recordation of assignments in connection with the bulk transfer of mortgage loans and on the secondary market and subsequent transfers of servicing portfolios. [Often, your one little mortgage is grouped with hundreds or thousands of others and gets traded in one big pool — and somebody has to keep track of all of this.] It will make the mortgage industry considerably more efficient, but I believe that it will also revolutionize the title industry. They have asked me to chair their legal advisory group.
“The weight of tradition embodied in real estate law is bone crushing as you can imagine, and many are reluctant to let go of its anachronistic, archaic and arcane systems. MERS has met considerable industry reluctance because it represents such a sea change in the way we do business. ‘My lord, how can we possibly dispense with all of those tens of thousands of assignment documents with their obscure language and nifty stamps?’ The situation has been exacerbated by the recent boom in mortgage refinancings, which has left most mortgage companies struggling to stay on top of current production and disinclined to innovate. We are, however, slowly making headway, and now companies like First Nationwide (us), Norwest and Merrill Lynch have significant numbers of loans on the system.
“I could go on ad nauseam (perhaps I already have) about the inefficiency of our current system, but will stop here. In case you ever got tired of tilting your lance at the windmill of auto insurance reform, however, and wanted to adopt a truly sexy issue (like electronic mortgage registration), I will send you some information.”
In short: There may be hope yet. And one of your fellow readers is right there in the thick of it. Full speed ahead, Stephen! Every home buyer in America will owe you a note of thanks.