The American Title Insurance Industry: How a Cartel Fleeces the American Consumer

by Joseph Eaton, David Eaton

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[A] work that provides newly detailed history and analysis of title insurance, a little-studied industry.
Library Journal

"In this important and fascinating book, the authors expose a scam that has fleeced Americans of billions of their hard-earned dollars since World War II. The title insurance industry, they show, has captured its regulators, and imposed exceedingly high costs on American homebuyers by means of a cartel-like arrangement. If that arrangement can be broken, price gouging would end and all American homeowners would enjoy what Canadians and Iowans doreasonably priced peace of mind."
Robert E. Wright, Stern School of Business, New York University

After World War II, banks and other mortgage lenders began requiring insurance to protect them against flawed or defective real estate titles. Over the past sixty years, the title insurance industry has grown steadily in size, power, and secrecy: policies are available for both lenders and property owners and many title insurers offer an array of other real estate services, such as escrow and appraisal. Yet details about the industrys operational procedures remain closely guarded from public exposure.

In The American Title Insurance Industry, Joseph and David Eaton present evidence that improvements in recordkeeping over the last sixty yearsparticularly the advent of computers—have reduced the likelihood of a defective title going unnoticed in a property transaction. But the industrys flaws run deeper than mere obsolescence: in most states, title insurers are allowed to engage in anticompetitive business practices, including price-fixing. Among the findings in this meticulously researched study are instances of insurers charging premiums well above the amount necessary to compensate them for assuming the risk of defect and identical policies with identical risk that vary in price by hundreds of percentage points for different geographic locations.

The authors also examine the widely ignored role that the federal and most state governments play in perpetuating the title insurance industrys unfair practices. Whereas most private industries prefer as little government intervention as possible, title insurers welcome it. Federal statue exempts title insurers from anti-trust liability, opening the door for price-fixing and destroying any semblance of free-market competition or market power for consumers.

A landmark study for elected officials, and all those involved in the insurance, real estate, and brokerage industries, The American Title Insurance Industry brings to light a long-neglected problemand offers suggestions for how it might be remedied.

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All Customer Reviews
Average Customer Review: 1 out of 5 stars

1 of 1 people found the following review helpful:

1 out of 5 stars

Biased and Uninformed, 2007-12-10
In their introduction, the authors state that this book is different from others written about the insurance industry because the others are by people who have some knowledge of the industry. These authors are experts in social policy and natural resources management; but they do not understand even basic concepts of title insurance, and it shows.

There are numerous footnotes and an extensive bibliography to give the impression that thorough research was undertaken. It seems, though, that the authors used (or "twisted") any information they could find to fit their preconceived notion that there are large title insurers making too much money. There is not even much pretense of objectivity.

It would be easy to present an extensive list of the misinformation contained in this book. It seems more useful to advise others to save their time and money and avoid the book. I checked it out from a public library, so it didn't cost me any money. I continued reading after the first two chapters primarily so I could repeatedly tell my wife, "You can't believe what this says now."

1 of 1 people found the following review helpful:

1 out of 5 stars

Biased and one-sided, 2007-09-17
Clearly the author has an agenda and skews his facts to justify his view. Someone just looking for the next industry to demonize.

0 of 0 people found the following review helpful:

1 out of 5 stars

Unadulterated incompetent trash, 2007-09-14
While it masquerades as a scholarly work, this is a piece of pure propaganda. The sources are almost entirely drawn from the left-wing popular press. The calculations (such as they are) reflect total incompetence in understanding or even reading financial statements. Save your money.

6 of 6 people found the following review helpful:

1 out of 5 stars

Broadstrokes...too broad for meaningful discourse, 2007-08-02
1. I am positive there are abuses taking place in the industry
2. State regulation and pricing are WIDELY varied. Having purchased homes in Indiana, title insurance was cheap, efficient and valued. The same cannot be said in Texas. The cost is ABSOLUTELY BURDENSOME.
3. Reform and greater oversight are absolutely required.

Having worked outside the US in real estate, the author must address the comparative costs of home acquisition in the US compared to other countries. Though a consumer is charged for title insurance benefiting both the lender and purchaser at the time of closing; the long term cost of money in the form of interest rate is lower as a result of credit enhancements, such as title insurance, widely available in the United States that allow money to be available at a lower cost to consumer.

Lenders that cannot access credit enhancements at a low cost to the consumer, price the title risk into their loans. So, as an example, instead of a loan being available at 6% for 15 years; lenders will add a quarter point to the loan for title risk and make the funds available at 6.25% for 15 years. To have a truly meaningful review of the title insurance industry, there must be a discussion of the long-term cost of additional interest consumers avoid by paying a one-time premium.

Maybe one of the key reforms that should be undertaken is to significantly reduce the cost of title premium paid at the time of a refinance. This is one of the most objectionable practices I see daily in the title industry.

The author mistakenly argues that title agents retain too much of the title premium when issuing a title policy, especially when compared to property and casualty insurers. Such a sweeping statement cannot be maintained when comparing states and the wide disparity between percentages retained by agent and amounts remitted to underwriters. There are many states in which the agent ultimately takes the risk of writing the policy and justifies the agent keeping more of the premium.

If an agent makes a mistake in searching the property that causes a loss, by contract the underwriter will settle the loss with the insured. However, if the agent's negligence is the cause of the loss, the agent will have to pay the underwriter back for actual loss and expenses associated with the claim pursuant to their agency contract. This fact alone makes meaningful comparison to property and casualty insurers impossible. To quote loss figures of $.47/$10.00 as evidence of overcharging laughable and misguided.

I am confident that figure is close to accurate for underwriters, but is net of the underwriter's salvage from agents and those individuals who actually are responsible for paying the loss. To accurately gauge the claim ratio, the author must look to the amounts paid by agents as loss to gain a clearer picture of how much goes out in the form of loss and loss adjustment expenses paid by the industry to claimants.

Again the author shows why his lack of any meaningful experience in the industry is a glowing weakness in his book. Texas, cannot be used so widely to condemn the industry in the other 49 states.

There are many other instances to point out the author's lack of understanding of the function title agent's play...but that is the topic for another book.

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