Real Estate Journal — Title/Insurance — October 14 - 27, 2016 — 9A
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T itle /I nsurance
By Neil Stein, Kaplin Stewart Demystifying Title Insurance in the 21st Century
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damages and attorney fees. Another problem is that many consumers actually
his will not be an arti- cle about the merits of title insurance. After
for insurers to deny claims and litigate with their cus- tomers. Unlike life insur-
the underwriting costs. The lower the monetary amount of the transaction, the lower the monetary premiumwhich is charged for the title insur- ance policy. Lastly, title insurance is distributed directly by insur- ers, through agents or “ap- proved attorneys.” In many states, it is not uncommon for a law firm or a builder to have an affiliate which is a title agent. Most consumers do not understand the risks associated with each. How- ever, the consumer some- times comes upon a news story about kickbacks and
other compensation illegally offered for the referral of title business by those in the real estate industry. There has been more regu- latory oversight of the indus- try of late and instances of kickbacks, scams and over- charging are far fewer. None- theless, at least for now, the title insurance process and its cost is unlikely to change and therefore customers will continue to question its ne- cessity and legitimacy. Neil Andrew Stein is a co-founder and principal of Kaplin Stewart in Blue Bell, PA. n
thirty years of counsel- ing clients in complex commercial real estate t r a n s a c - tions, I un- derstand all too well its
“To buy, lease or to finance commercial real estate without title insurance is akin to jumping from an airplane without a parachute.”
believe that title insurance is an insurance product, when it is actually a contract of indemnity. The insurer is not required to pay money if the issue can be solved another way. Therefore, the claims process is often com- plex and it is not uncommon
ance, where the insurer may ask about the applicant’s health or require a medical examination prior to issuing the policy, title insurers will sometimes defer extensive underwriting of the transac- tion after a claim is made. This is principally because of
Neil Stein
importance. To buy, lease or to finance commercial real estate without title in- surance is akin to jumping from an airplane without a parachute. The first policy of title in- surance was issued in 1876 in Philadelphia, Pennsylva- nia. Today, title insurance is available in all 50 states and is frequently available in foreign countries. The need for title insurance first arose to help protect home buyers from being swindled by crooks who sold proper- ties they didn’t own. Today, the industry is dominated by just a few underwriters col- lectively generating approxi- mately $14 billion a year for a product that many people do not understand. So why are there still many sophisticated real estate buy- ers and lenders who view title insurance as an unnecessary expense or even a scam? First, one would think that in this age of digital technol- ogy, the condition of title to any property should be relatively easy to determine. Unfortunately, the digitiz- ing of title records has been slow to evolve and is far from complete. Therefore, the title insurance process remains, to a certain extent, mired in the old days of physical records searches through the dusty books of time. Second, the cost of title insurance is not uniform, but varies from state to state and at times, from transaction to transaction. In most states, rates are pre-determined and regulated by state gov- ernment. Nonetheless, over- charging has been known to occur. The Pennsylvania Supreme Court has ruled that title companies which overcharge for title insurance may be liable to consum- ers under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, including penalties of up to triple the actual financial
Firmly Rooted in the Law and in the Community We are well grounded in every facet of real estate law, from acquisition to construction. We are committed to serving the needs of our clients and our communities.
Contact: NEIL A. STEIN • nstein@kaplaw.com 910 Harvest Drive, Blue Bell, PA 19422-0765 • 610-941-2469 • www.kaplaw.com Visit our Real Estate Blog: www.philadelphiarealestatelaw.com Visit our Construction Blog: www.pennsylvaniaconstructionlawyer.com Other Offices: Cherry Hill, NJ 856-675-1550 • Philadelphia, PA 215-567-3120 Kaplin Stewart A t t o r ne y s a t L aw
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