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Title Insurance: What You Need To Know Before You Buy | All Roads LTR Podcast | Ep. 33
25 Plays8 months ago
Join us in a conversation with expert Chris Keelty, a licensed title insurance producer and attorney in Maryland. If you've ever wondered whether title insurance is worth the investment or if you're unsure about what it even covers, this episode is a MUST-LISTEN. Matt and Chris delve in with clear explanations and real-life examples. From gaps in land records to fraudulent activities, they shed light on the risks homeowners face without adequate coverage.
Don't miss out on this essential guide to safeguarding your most valuable asset – your home.
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Transcript
Understanding Title Insurance
00:00:09
Speaker
This is the question I probably get maybe the most or one of the most related to what you guys do, which happens to be, do I really have to get that title insurance because it's not free. So I'm going to ask you a couple questions. One is, what is it? What is title insurance? You've gone over it, but I'd love to get a condensed version. And not only that, um, what does it typically cost and do we really need to get the thing? I mean, yes, yes.
00:00:35
Speaker
Yeah, so the cost is I'll start with what is title insurance. It's like any kind of insurance, you know, you're insuring against things that you may not know of. So when we research title title insurance, basically you're looking backwards in time, you're seeing what affects the property. So there's
00:00:55
Speaker
Unknowns though, so let's say you know in and recently during the pandemic and during the blackout in Baltimore City There's a lag in our land records. So like I said Land records shows what everything affects title what what what documents affect title you have notice of everything. It's called record notice You'll see in land records, you know the deed the deed of trust, which is a mortgage sometimes
00:01:22
Speaker
The mortgage might be recorded in what's called the gap, which is a period of time between when the deed is recorded and when it shows up in land records. So they're basically paper filed. They're getting better. Now you can do Simplify, which is an electronic transfer system.
00:01:38
Speaker
And that's that that lag has been or that gap has been closed significantly But there's still a period of time in there where you can't see What's been filed? So say we go to settlement on the first someone might record a mortgage, you know a couple days prior to that
00:01:56
Speaker
we won't see that mortgage until way after we've closed.
Real-life Implications of Title Insurance
00:01:59
Speaker
And that mortgage, they have rights, that lender has rights in the property. And if we didn't catch it through our abstract, you would be on the hook if you didn't have title insurance, you would be on the hook to pay that person's mortgage. Now you can go back and sue them and all this, but they might've taken the money and left the state country or whatever. So that insurance then comes in and it defends your title.
00:02:19
Speaker
So you wouldn't have to pay that mortgage off or sue the people, chase them down, whatever. They will pay that mortgage off so you don't have to deal with it. Title insurance is pretty much a nominal fee for what you get. So let's say, you know, you buy and here's I'll give you an example because this is the prime example that that I give. We had a client come to us. He bought a lot from a developer. That development had a three million dollar
00:02:45
Speaker
Construct had a three million dollar development learn to put roads in sewers all that stuff This guy bought a lot for five hundred thousand dollars. He put a million dollar house on it the developer and the title company while the developer never told the title company that they had a mortgage on it that mortgage got recorded in the gap and The the owner then got a notice from his let from this lender that he had no idea Saying that he owed three million dollars on his house
00:03:12
Speaker
And he only had title insurance won the lot, which was like $400,000. He didn't get it for the construction? He didn't get it for the construction. Now, they did work it out, and the title insurance came in and defended him. Or otherwise, because if he didn't have title insurance, he would have had to hire attorneys, chase down the developer,
00:03:33
Speaker
chase down and see, you know, what happened? Did someone lie? Did someone not say that there was a loan on the property? How did, you know, how did that happen? So he came to us to help work through that
Cost and Types of Title Insurance
00:03:45
Speaker
issue. And we finally got the title insurance company to to help defend it. He had to put up a little bit, little bit of money, but he didn't have to put up the three million dollars. So after he did that, he then bought a three. But I can tell you, so that gives you some idea of kind of what it is. So what does it typically cost? So.
00:04:02
Speaker
So it's the it's it's all to establish. They're called filed rates and the rates are filed with the Maryland Insurance Administration. It's a complex formula or computer system. So I wish I knew how to do it by hand. I used to. It's it's a certain amount up to one hundred thousand. Then it's a different amount from one hundred to five hundred thousand. It's a different general rule of thumb. Let's say of four hundred thousand dollar house.
00:04:23
Speaker
A couple grand, like three grand. And that's a reoccurring fee or a one-time fee? So it's a one-time fee. It lasts for the life of the property. There's two types of... Life of the property or the life of you owning the property? The life of you owning the property, you're correct. So there's actually several types of policies, but there's regular and enhanced or basic and enhanced.
00:04:44
Speaker
Enhanced will follow you and it'll increase in value. It'll increase with inflation. So if you bought a $100,000 house and it's now worth $200,000 and there's a title insurance claim, it'll defend you to the $200,000.
00:05:02
Speaker
Is that pretty standard? Is that what most people quote out? That's an enhanced, yes. And you normally want to quote the enhanced because of all the regulations with the lenders, you can't increase fees after the loan has been disclosed, right? After the CD has been disclosed. So we normally quote the enhanced just so everybody knows worst case scenario. And then you can always say, you know what? I only need the basic. Enhanced does cover fraud. So, you know, you see these commercials lately with, hey, it's like life lock for your title.
00:05:32
Speaker
This covers your title insurance policy. Generally covers that if you got the enhanced policy, if there's fraud, like someone forges your name on a deed, you're generally covered. And in terms of cost with it, I'm going to go back to that again. Sure. If I go to three title companies, do do all three have different
00:05:50
Speaker
cost associated with the title or is it all pretty standard? So it's all pretty standard. Like I said, I think in the beginning we discussed title insurance is set and we have three different underwriters and they're all within like a couple of dollars of each other. And when people are shopping us, like they might shop you, you know, they might see our settlement fees, a hundred dollars difference, you know, more or less depending, you know, they might see, um,
00:06:17
Speaker
Like a release fee is a little bit more or less, but they're all pretty close. Like when you shop title insurance, it shouldn't be like a $5,000 swing in price. It's going to be a couple hundred dollars at the most. Right. Yeah. So I see it where you have two fee structures
Regulation and Fees of Title Insurance
00:06:33
Speaker
in your business, right? When you look at title, it's going to be your title insurance, which is one revenue stream, right? Because it's a product you can sell. And then the other is just for your services, the title services.
00:06:43
Speaker
So those are like abstract surveys. I know you wanted to touch on that. And those are all fairly close. We all charge a settlement fee because sometimes we do have other costs. And so I'll back up a little bit. It used to be that an attorney would search your title and they would then write a title opinion. And if there was a problem with the title,
00:07:10
Speaker
say the attorney missed a mortgage or whatever in the gap or there's an heir in an estate because estates when they sell a property, they're basically giving you a deed without any warranties. So it's basically a quick claim deed. So the seller in that instance isn't giving you a warranty. So say an heir comes out, the attorney in that situation would have to defend the title, either themselves or their heirs and emissions policy.
00:07:38
Speaker
So there was a change a bunch of years ago where they said, you know what, let's have an insurance company, you can basically offload the risk to another company. So when it comes down to it, the fees are, you know, you have the title insurance, then you have like the settlement fee, maybe a doc prep fee, you know, some title companies don't have attorneys on staff, so they charge an attorney fee to sign the deed because all deeds in Maryland have to be signed off either by an attorney, the grantor or the grantee.
00:08:06
Speaker
Most most buyers and sellers the grant the grantor is the is the seller the grantee is the buyer Most buyers and sellers don't know how to write a deed and you know and they and if they do they generally goof it up And then when we see it we have to kind of fix it, but the fees are all fairly strict
00:08:23
Speaker
you know, similar. And when you shop it, take a look. And sometimes people are like, well, hey, this this company is charging, you know, $500 less. Well, OK, why is that? Then you got to take a look at the cell at the sell side. Sometimes the title company puts a fee on the seller side, which they're not entitled to.
00:08:41
Speaker
So under the Maryland contract, you're only entitled to charge the seller fees incident to clearing title, meaning paying off a loan. But we've seen recently, and especially in southern Maryland, that title companies are including a fee on there, like a doc prep fee. They're not allowed to charge that. I see that, but it's usually in Montgomery County. Yeah, Rockville.
00:09:03
Speaker
We're seeing that creep up because everybody's shopping fees and it's literally it's a couple hundred dollars. It's not, you know, and look, sometimes if it's a hundred thousand dollar house, a couple hundred dollars makes a difference. But not over there. There's no such thing as a hundred thousand dollar house over there. No, there isn't. Yes. But so when we see that, we'll say take a look at the seller side because the seller is going to squawk
00:09:25
Speaker
and say, you can't do that. And then what happens is they put it on the buyer side. So then it increases their fees, you know, significantly sometimes. Well, I can tell you it's, you know, so I'm going to get through these couple questions because then I have another question, which I'm so tempted to ask now, which I
Integrating Title Services into Brokerages
00:09:42
Speaker
will. Who cares? Why do I see title getting wrapped into it? So I just got introduced to like all these people that are trying to create real estate brokerages that have built in title.
00:09:54
Speaker
They try to build the in Zillow, for example, I'm interviewing him I think next week where it's a Zillow executive that is going to describe what they're trying to do. They want to they want an easy button. Yeah. They want to include title. They want their own lender. They want it all because they want all the auxiliary services with the real estate services and bundle it.
00:10:12
Speaker
Yeah, so. How do you see that? Or what have you heard about? So it's basically like fee compression, you know, agents or the brokerages are basically, you know, hosting all these agents for pennies on the dollar. You know, you're paying an admin fee to the broker up to, you know, thirty thousand dollars or whatever it is. Then that agent or his team or whatever gets to keep everything from that. And I will say, and I don't know the exact amount. Brokerages can change. So every brokerage in the country has a different fee structure.
00:10:42
Speaker
That's one of them. That's that's typical of a lot of Keller Williams. But there's also Coldwell Banker. There's a bunch of them that have a fee where there's a max and you get to keep the difference. But I've heard it. The brokerage side, the real estate brokerage side, it's like a race to zero. Yes. Whether the brokerage side keeps going down and down and down because it's so competitive to get top agents. Yes. So what's happening is the brokerages started the race to zero and they say, how do we make money? And they said, title insurance.
00:11:11
Speaker
And look, title insurance can be a good revenue generator. So can selling mortgages, you know, doing lending. So what they're doing is they're taking those ancillary companies and trying to make the money off of that so that they can get the brokers. It's basically the brokerage is the lost leader.
00:11:30
Speaker
And they're bringing in the title company. But so the one thing we've noticed is that in-house title companies, in-house mortgage companies, they hire order takers who basically, you know, hey, you send me the order and I'll process it. And it's, you know, some some person in the back room who's disgruntled and really isn't treating your clients how you want to be treated.
00:11:52
Speaker
When you come to us, we are not order takers. We're order makers So we we want to make you happy because your repeat we want to make your clients happy So we invest in the best technology We invest in everything that we need to to make sure the process is as smooth as possible that everybody's happy you know, we frequently hear that
00:12:14
Speaker
the in-house title and in-house mortgage captures about 20%, 20, 22% of in-house business. It's because the agent will throw them a bone because they know they got to kind of do that to keep the lights on. Well, I can tell you because I'm on the agent side, the real estate agent side is that there's not typically a good enough incentive to give those folks the business because they're not really sharing revenue back with the
Independent vs. In-house Title Services
00:12:38
Speaker
agent.
00:12:38
Speaker
Correctly some brokerages are trying to change that but there's no financial incentive and then you just stated in my limited experience with this the in-house Folks that are doing it aren't as good as the folks you can get that have made it on their own You guys are good because you've made it on your own. Yeah, you it's not like thank you I appreciate that if you were inside the Matt Ryan group and you were just in my little bubble I'm gonna give you the deals, but it's like you didn't have to earn it really exactly and the difference is
00:13:07
Speaker
is enormous. Yeah. So like I said, we're order makers, not order takers. And there's a huge difference. And I think you see that when you deal with in-house. I can give you an example of why we are able to capture agents from certain brokerages is because, especially during the pandemic, when they were like, look, the in-house title companies were saying, you need to come to our office. You need to do this.
00:13:35
Speaker
We said, what can we do to help you? Can we send somebody? We'll send somebody in a full hazmat suit. Yeah. We invested heavily in Ron, which is remote online notarization. We got very quick, you know, we became experts in it. We started talking to the attorney general's office about it because they were rolling out rules that no one understood. So we started communicating with them and they actually would communicate with us because we're attorneys too. We have
00:13:59
Speaker
you know, several attorneys on staff that that can understand and decipher the the rules that they were putting out. And some of the rules, no one understood. And they didn't even understand what was going on. So, yeah, that's one of the main reasons why it's, you know, beneficial to use a third party
Impact of Tech Giants in Real Estate
00:14:14
Speaker
title. I think it's a comment.
00:14:15
Speaker
I think there is going to be the Amazons of the world that are approaching in the zillows of the world that are going to be going into this space. Sure. Because I think there's inefficiencies within the space that we operate. I do believe the total fee structure, all combined is probably higher than it needs to be because of the inefficiencies. So I, you know, who doesn't love everybody hates Amazon for clicking that. Yeah. That darn button. Right. They're great. But I like one day shipping. Everything's one day shipping for free. It's like you can't.
00:14:45
Speaker
So I think I bash them all day and the next thing you know, I'm clicking the button. And so I feel like that is going to happen to our space. There'll be some benefits, but boy, there's some certain aspects of it that scare the living bananas out of me. So well, and it shouldn't because you're on the forefront of everything. I mean, you really are. I mean, we're sitting in this room again. It is. It's impressive.
00:15:05
Speaker
So there's always going to be fee compression, but are you, you know, and you're always going to want to order from Amazon. I order from Amazon, you know, but I still go to my local grocery because I want to see the meat there. I want to see the vegetables there. You're not going to order a custom suit from Amazon, are you? No. So when when this started happening to like E-Trade and and and fee compression with real estate with stockbrokers and and those types of advisors,
00:15:33
Speaker
What happened was people started getting different designations. They started adding value to the product that they were selling. There is the basic bear model of, hey, I'm going to be a day trader, I'm going to be on Robinhood or whatever that's called, and start selling with my phone and buying and selling and selling stocks on my phone.
00:15:52
Speaker
What happened is, you know, you're not maybe you are investing with E-Trade or not. You know, generally you have I pay the fee. I have I have a friend or a confidant that you call and you're like, hey, I want to buy this stock. And they'll say, well, hold on.
00:16:09
Speaker
Let's take a look at your portfolio. Let's take a look at the tax consequences of what you're about to do. E-trade is not going to do that. So when you go to you, no one's so like Redfin and Zillow and all these other discount brokerages. People who are selling a two million dollar house aren't going to go to Zillow or Redfin or
00:16:28
Speaker
They're going to go to Matt Ryan and the Matt Ryan group because you guys have expertise that they're not going to be able to provide. You know, AI is coming out and we can talk about AI all day long because it's coming. It's here. It's pretty amazing. It's scary. And you know, Redfin and all of them might have a lot of AI, but it still sometimes is more beneficial, depending on what you're doing, to talk to a real life human so that they can analyze a situation that, you know, maybe AI can't recognize.