DID YOU pay too much for title insurance the last time you refinanced? Maybe.
No one knows how much American homeowners lose annually by overpaying title premiums when they refinance their mortgages. Even title insurance industry officials admit the problem is substantial. They say some consumers could save 50 percent or more at refinancing if they'd simply memorize two words: "Reissue rate." Use them as a mantra at your next refinance.
But what is a reissue rate? The theory is straightforward: When homeowners refinance a few years after purchasing a home, there is no reason they should be charged for a new, full-price, comprehensive title search and insurance coverage. The post-search risks of claims are clearly lower than the first time around.
But the existence of discount-rate coverage sometimes is a trade secret. Take the case of a Virginia homeowner who was asked to pay $1,400 for a new title search and insurance policy when he sought to refinance barely eight years after buying his house.
A few minutes before closing, he asked: Why should I be paying for full coverage when the same title company searched the records and insured me so recently? He didn't know the magic words - reissue rate - but when he threatened to torpedo the entire settlement, the title agency got his point. He walked away with a $547 title policy, carrying a discounted reissue rate.
Was the lack of disclosure about the availability of a lower fee unusual?
Unfortunately not, concedes James R. Maher, executive vice president of the American Land Title Association, the national trade group for the title industry. Though the association considers it "a very bad practice," according to Maher, it is "aware that not all of our members disclose" the availability of cut-rate reissue title policies to those refinancing.
Rates, discounts and eligibility requirements differ from company to company and state to state, says Maher. The average reissue discount for a refinancing is 50 percent to 60 percent and can go higher in certain instances. Some insurers limit reissue rates to consumers who have taken out owner's title coverage in addition to lender's coverage. Others have strict time limits beyond which they decline to offer cut-rate premiums.
Why are the reissue rates often kept under wraps? Because typically there are no incentives for the professionals involved in the transaction - title agencies, settlement attorneys, escrow officials or title insurers - to inform the consumer about lower-cost options.
To the contrary, there is often a powerful financial disincentive at work: The agency or lawyer that pulls together and conducts the settlement often pockets most of your premium.
Though rarely disclosed to the homebuyer or the person refinancing, the "split" of the title insurance premium paid at closing is often 70 percent to 80 percent to the title or escrow agency or settlement attorney, and just 20 percent to 30 percent to the insurance company itself.
Put another way, just 20 percent or 30 percent of the dollar amount you are charged for your title policy actually is paying for insurance. The balance is a commission to the title or legal personnel who orchestrate the closing, and more important, who choose the title insurer.
The average split nationwide, according to Maher, is 70 percent to 72 percent. In California, it can range as high as 92.5 percent to the agent, 7.5 percent to the insurer. A few states limit the split by regulation to a lower maximum percentage - say 50 percent.
So when that Virginia homeowner was kept in the dark about his alternatives to a full-price $1,400 title fee, who had the incentive to let him in on the secret? Not the title or settlement agency that was in line to collect most of the $850 higher charge. And certainly not the title insurer, which was going to receive a higher net premium amount after the split.
One of the country's major suppliers of home mortgage money, Freddie Mac, has taken note of the lack of disclosure. In a recent meeting with title insurance executives, Freddie Mac pointed out the huge savings that could accrue to refinancers if they were informed about the existence of reissue discounts.
The American Land Title Association agreed and pointed out that it periodically issues press releases noting the existence of the lower rates. An advisory currently posted at the association's Web site (www.alta.org) urges consumers "to ask the person handling their closing" about the availability of reissue discounts.
Good advice. And given the new emphasis on full disclosure, you might also ask the same person running the closing about the size of the split he or she is taking from your title premium. The answer - or refusal to answer - could be eye-opening.
Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071. Or e-mail him at email@example.com.