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The American Title Insurance Industry

How a Cartel Fleeces the American Consumer

Joseph Eaton, David Eaton

Publication Year: 2007

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 industry's 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 years—particularly the advent of computers—have reduced the likelihood of a defective title going unnoticed in a property transaction. But the industry's 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 industry's 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 problem—and offers suggestions for how it might be remedied.

Published by: NYU Press

Title Page, Copyright

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Illustrations

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pp. vii-viii

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Foreword

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pp. ix-xii

I believe the Professors Eaton are on to something. With this book, they cast a bright and thorough light on a topic that mostly has lurked in the shadows—title insurance. Title insurance is mandatory for most homeowners and real estate investors, who must produce such a policy to the lender that provides the mortgage, but it is something most consumers (and policymakers...

Abbreviations

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pp. xiii-xiv

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Introduction: Titling America

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pp. 1-8

Capitalism relies on a free market to establish prices, reward innovation and efficiency, and balance the needs of buyers and sellers. In the United States, however, firms that sell real estate titles to property owners and mortgage holders are an exception. Their trade organization, the American Land Title Association (ALTA), lobbies strenuously against any plan to allow market forces to influence the industry’s...

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1. Title Insurance as a For-Profit Business

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pp. 9-36

A title recorded on parchment, papyrus, or a clay tablet is among humankind’s earliest administrative inventions to document ownership of land to farm, fish, or hunt. In the present era, the assurance of title is a multibillion-dollar business insuring trillions of dollars in property value. This chapter describes the origins of this privileged U.S....

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2. Alternative Title Guarantee Models

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pp. 37-52

Four alternative models for title insurance coexist in North America: for-profit corporations, the Torrens system, governmental title guarantee programs, and mortgage-bundled self-insurance. This chapter describes how each of these organizational arrangements insures title and affects consumers. Title insurance, like homeowners’ insurance, is nonelective whenever a real estate purchase involves a mortgage. It is...

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3. Title Insurance as a Government Service

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pp. 53-76

The North American continent contains a rare natural experiment between two alternative patterns of rendering title insurance services: private enterprise title agencies versus a state-operated title insurance system (see table 3.1). Both market title insurance policies for premiums fixed by state agencies. Private enterprise services clearly dominate...

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4. Title Insurance: The Legal Dimension

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pp. 77-96

The title insurance industry has been protected from competition since 1945 by three public policies: (1) exemption from federal antitrust liability; (2) state endorsement of fixed prices; and (3) toleration of corporate secrecy about actual losses. This legal structure has led to excessively high rates and reverse competition. This chapter explores how...

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5. Title: The Administrative Dimension

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pp. 97-126

As noted in the introduction, title insurance is administered through a two-tier system of title agents and insurers. Title and escrow agents solicit customers from an attorney, realtor, or mortgage agent. The actual insurance coverage is handled by a separate entity, a direct title insurance provider. This chapter describes how the two-tier system of...

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6. Title Interest Groups

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pp. 127-154

The purchase of furniture is likely to involve just a salesperson, a store manager, and a bookkeeper. In contrast, at least a dozen specialists earn their living from the average real estate transaction. Their gross income constitutes the closing cost, a one-time expense added to the purchase price, which the Internal Revenue Service allows to be deducted...

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7. Title Income and Losses

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pp. 155-180

The title insurance industry is immune to catastrophic events. There are no title tsunamis or damages induced by acts of terrorism, such as the destruction of the twin towers at the World Trade Center, to generate massive claims. Furthermore, it is likely that the incidence of title defects has been declining. Only two direct title insurance companies...

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8. Title Reform Is a Definite Maybe

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pp. 181-206

More than two-thirds of the U.S. population own the home in which they live. They have valid title, often with a mortgage that has to be paid off. In the United States, the quality of most real estate titles is enhanced through no-fault insurance against recording errors and omissions that may have escaped the attention of abstractors. The insurance...

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9. The Future of Title Insurance

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pp. 207-220

Scott Woolley, a reporter for Forbes, asserted that the title insurance industry is “America’s Richest Insurance Racket.”1 The authors met many executives and employees of title insurance agencies. We interacted with the staff of the American Land Title Association (ALTA). None of them deserve to be designated as racketeers. There is no Godfather...

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Acknowledgments

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pp. 221-224

The authors are indebted to many persons for encouragement and for information about the title industry and its affiliated enterprises. Robert R. Carter Jr., the deputy commissioner of the Texas Department of Insurance (TDI), encouraged the authors to study the title insurance industry and apply for a research grant. He facilitated contact with insurance commissioners throughout the country. Clare Pramuk, the...

Notes

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pp. 225-246

Bibliography

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pp. 247-258

Index

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pp. 259-286

About the Authors

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p. 287-287


E-ISBN-13: 9780814722817
E-ISBN-10: 0814722814
Print-ISBN-13: 9780814722404
Print-ISBN-10: 0814722407

Page Count: 304
Publication Year: 2007