Home > Home Buying > Not all Title Companies are created equal

In Texas, we utilize title companies as escrow agents to hold all monetary transactions until the transaction is completed. Buyers deposit an earnest money to show good faith to proceed with the transaction, along with getting the Title company to examine the deed (title) to the property is clean and free of encumbrances.

Most buyers and sellers to the transaction do not have strong preferences on which Title Companies to use. More than likely, the buyer's and seller's agents will have their own recommendations on which title companies to use. Most real estate agents do not interview and fully investigate the quality of these title companies can be quite bothersome at times. NOT ALL Title Companies are created EQUAL.

Most real estate agents develop a business relationship based on the front end of the business. They select a responsive title company who would be in communication with them, along with doing good title examination - to ensure clean title for their buyers. That is where many real estate agents stop. However, the search for a GOOD Title company goes beyond the large name recognition in the business.

When a recommendation is put forward, a buyer or seller should ask their agent Why this company is selected? Is it just based on the business relationship with the escrow officer over the years? Or it is more than that? Some of the factors you may want to consider are:

• Who underwrites the title insurance?
  Some title companies underwrite their own title insurance while others do not. This is not as important of a factor, but it leads to the next question:
• How strong is the Underwriter of the Title Insurance policy?
  Just like not all title companies are created equal, the Underwriters are not also. It is CRUCIAL to know that the underwriter of the title insurance policy you as the buyer will receive is FINANCIALLY STRONG to be able to withstand large claims at one time so that the company will not go bankrupct. Hence, having a large RESERVE is important.
• How far back is the data at the Title Plant?
  Along with the financial strength of an underwriter, it is important to know how the title examination research is performed. Does the title company have its own title plant? How reliable and how far back are these data?
• How often are claims on the policies?
  This should indicate how professional and thorough the title company and its underwriters are. Claims should be very rare. But when it occurs, it should handled quickly and painlessly.
  
  In the industry, the FSR (Financial Stability Ratings) is a leading indicator based upon a series of quantitative ratios and quantitative considerations. There are 8 ratings: A" (A Double Prime) at the highest (Unsurpassed), A' (A Prime), A (Exceptional), S (Substantial) to the not so great ratings of M (Moderate), L (Licensed), NR (Not Rated) and N/A (Non Eligible).

Hence, you want to receive a title insurance policy from an underwriter who has the financial capability to insulate itself from downturns of business cycle that exists in the economy as well as the underwriting cycle.

At the end of the transaction at the title company, a home buyer purchases the house as well as receiving the title insurance policy. During a real estate transaction, a buyer and a seller can negotiate as to whom will pay for the Title Insurance policy. Here in Texas, it is very common that the Seller pays for it but at the same time, their real estate agents fight to maintain where the escrow work is done. Know your rights under HUD RESPA Section 9 ruling, Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

Ultimately, the Buyer inherits the title policy. Sellers and Listing agents - do not get in their way of obtaining their title insurance policies.

So, what does ALL this mean to you as a Home Buyer?

At best, work with a real estate agent who takes time to study, understand and research the best vendors out there for your real estate transaction. Just like not all title companies and underwriters are the same, not all real estate agents are equal. Some have more knowledge, market expertise along with a strong understanding of how the real estate transaction comes together.

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