Making the Title Insurance Pay

MAKING THE TITLE INSURANCE PAY A Harris County district court has ordered Stewart Title Guaranty to pay $2.8 million to a Sugar Land developer after the title company failed to pay out on a title policy. Back in 2007, Ponderosa Land Development was hoping to build a Chase Bank branch at the corner of Settlers Way and Highway 6. AmeriPoint Title, the title company for the transaction, had obtained title insurance from Stewart Title to cover its work. But AmeriPoint’s title search failed to uncover a deed restriction on the property that specifically prohibited banks from being built on that site: “Stewart Title only offered to pay $200,000 of the $1.83 million title policy, arguing that the land was not worth that much. [Ponderosa’s James] Chang says the purchase price was dictated by the value of the property with the ground lease to JP Morgan and planned sale of the bank to an investor upon completion. Ponderosa is now free to sell the vacant property. Houston Suds has had a contract to buy the site for $953,000 since November 2008, but could not close the transaction and build a car wash until the legal matter was resolved.” [Houston Business Journal; previously on Swamplot]

12 Comment

  • I’m missing something here. A bank is worse than a car wash. Neither are something I want close to my house, but really!

  • What I’m missing, actually, is how well car washes do if they can shell out close to a million just for the lot!

  • If I were Ponderosa I wouldn’t count the cash just yet. Stewart Title will no doubt appeal. And probably prevail when it hits the Texas Supreme Court. If you think Bob Perry is the only one who buys courts as well as legislatures, think again.

    It is curious that a carwash is allowed but not a bank. Probably to protect a bank that didn’t want any competition. The way things really work in First Colony. The way they work everywhere else. Which is why nothing works.

  • I guess someone at AmeriPoint lost their job but how deep does a deed restriction have to be hidden in order to get ‘missed’?

  • It’s easier than you think, due to the difficulties of indexing. If something has a confusing legal, it can be mis-indexed as to property description and will be very difficult to find.

  • Title Companies: worth less than their weight in dried blood, yet protected by state-guaranteed monopoly. Their day will come.

  • Sebastian,

    Please explain to me how title insurance companies (plural) have a “monopoly” (singular) and how your statement is not a oxymoron (and just plain moronic).

    Also, I have personally represented dozens of people who purchase property without title insurance and who have suffered terribly for it. We’re talking about people who built homes and built lives around those homes, only to find out that they never really had title to them. They would have been saved that grief and many thousands of dollars in legal fees if they had gotten title insurance.

    Sebastian, I doubt you even know how title insurance works and how it is completely different from every other kind of insurance out there. Unless you can explain to me how a monopoly exists as to title insurance, I suggest you refrain from commenting on the value of title insurance again.

  • You may hate it, but Title Insurance is intendeded to protect the Buyer. In Texas, property is everything.

  • In some parts of Texas, the mineral rights to property are more important.

  • Don’t give up too easily, Sebastian.

    Title insurance premiums are regulated in many states, and the industry is protected by serious lobbying–laws in many states effectively guarantee profits and make it difficult for a new company to compete with the entrenched companies or to introduce new insurance products. Once you couple all this political cover with the fact that a premium is generally unrelated to the actual title risks of a particular transaction or to the time/efforts of the company in underwriting those risks (technology has made it much easier/faster/cheaper/safer to search title), most title insurance costs a lot more than it should. If you’ve refinanced your home a time or two, you understand what I’m talking about from a premium paid vs. risk underwritten standpoint. When you consider that the industry payout is something on the order of 5% of premiums, and that it’s virtually impossible to buy or finance real property without it, the whole thing is insurance nirvana–low risk and high premium, and politically protected.

    As it’s currently priced, title insurance is a huge racket that is imposed on a captive, largely ignorant, consumer. That doesn’t mean that title insurance or some equivalent isn’t important–it is–but it means that we’re all being feasted on with our legislature’s approval–and Texas is one of the worst offenders.

  • Mitch,

    Title insurance is heavily regulated, but that doesn’t make it more profitable – quite the opposite actually. I, for one, wish the rest of the insurance industry was so regulated. For example, if I’m involved in a car accident that is in no way my fault, my next premium will increase – I’m punished for no reason. Title insurance premiums, however, are set by the state and do not vary from company to company. You seem to think that this hurts the consumer by not allowing for lower premiums, but it also prevents premiums from rising. Do you know the last time title insurance premiums were raised in Texas? Of course you don’t. You probably think that rates are raised every year, or least every other year, because of all of lobbying the title insurance industry supposedly does. But all of that is just in your head.

    You are also completely wrong that title insurance premiums are unrelated to risk. The premium is a factor of the sales price. It cost more to insure a $500K property than a $100K property simply because the title insurance company will be on the hook for the amount of the sales price if something goes wrong. Doesn’t Farmers charge a higher premium to insure a $500K house versus a $100K house? The difference is that Farmers can keep jacking up your premiums year after year whether you suffer a loss or not, but title insurance premiums remain set.

    I also don’t understand your point about technology making it cheaper to check a property’s title. Yes, the title insurance industry has been using digital records (as opposed to flipping through index cards at the county office) since the 70s, but so has every other industry. Are the costs of those industries decreasing with this digital revolution? A title company still has to keep up with rising costs, which is really hard to do when premiums have been flat for so many years. You seem imagine a world where the receptionist at the title company receives an earnest money contract and simply types the property’s address into a computer, pushes a big, red button, and immediately gets a print out back that says “TITLE OKAY – PROCEED WITH CLOSING”. You don’t understand the human and other costs of examining a title and closing a transaction. There is still work to be done. But if you refinance with the same title insurance company that you originally closed with, you should receive a substantially discounted premium because that company already did most of the title work beforehand. Something tells me that you were never told that, and like the genius you are, you just went with whatever title company your mortgage broker pointed you to.

    Nor do you have any true sense of whether it is easy to open up a title company or not. At the top of the real estate bubble, title companies were opening up on every corner despite the “entrenched companies” you imagine. Most of them were created by builders and realtors attempting to cut out the “entrenched companies”. And now that things have bottomed out, dozens of those new companies have closed up (along with many builders and realtors). It has nothing to do with any kind of regulations. It’s the economy, stupid.

    For all of your crying about lobbying and the legislature, even you have to admit that (unlike car insurance) there is no legal requirement for anyone to purchase title insurance. But it is so prevalent because it’s relatively affordable and it works the vast, vast majority of the time. That is why every professional lender requires it – for the peace of mind. And every property owner should have it for the same reason. Title insurance is completely the product of the marketplace, and the state does nothing to promote it.

  • “I, for one, wish the rest of the insurance industry was so regulated. For example, if I’m involved in a car accident that is in no way my fault, my next premium will increase – I’m punished for no reason.”

    Believe me the insurance industry is VERY regulated. Virtually no industry needs the socialists in Washington (mind you, who have no experience running a private business) controlling more of industry.

    If you are involved in a car accident and the other driver is at fault, your premium most likely won’t go up at your next policy renewal. If you have an additional claim during that same policy period, chance are good that your policy will be non-renewed and an offer to be covered by the carrier’s higher risk subsidiary will be provided to you. You also will be free to seek coverage with any other carrier.

    The government telling private companies how to run their business and how much they are allowed to charge their customers is absurd. What on earth makes anyone think that the government is capable of running a business?