Direct Sales Of Title Insurance Could Cut Lawyers' Fees
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When selling direct to consumers, Entitle has no commissions to pay, so can offer a lower price.
Title insurance is required by lenders for home purchases and refinancing, but consumers must pay for it — a one-time premium based on the purchase price or mortgage amount. The policy guarantees that title ownership is sound and promises to defend against challenges to ownership.
Few, if any, Connecticut consumers try to shop for the insurance themselves. It wouldn't make much sense anyway because a handful of companies dominate the much-criticized industry, and they use the same rates. Nationally, four companies wrote 93 percent of the $14 billion of premiums in 2007.
Timothy Dwyer, president and chief executive of Entitle Direct Group, calls the industry an "oligopoly" and recalls spending thousands of dollars on title insurance when he bought his New Canaan home a few years ago.
"At closing, I was seeing all the documents for the first time," recalled Dwyer, a former investment banker who routinely dealt with contracts. "I felt like a sheep ready to be shorn. ... It was just wrong. That's when I decided to create something new and different."
Entitle Direct, known until last year as Guardian National, charges about $752 for a Connecticut policy that protects the lender and home buyer on a $300,000 home with a $240,000 mortgage, according to the EntitleDirect.com website. Competitors charge about $1,155. Policies for refinancings cost less.
The company also plans to sell policies in the state the traditional way, through lawyers, paying commissions and charging rates that reflect them.
"One more entrant [in the market] makes it more competitive today than we were yesterday," said Insurance Commissioner Thomas R. Sullivan, "so I like that ... because consumers win."
It could be a challenge for Entitle to build direct sales, but if it can, other title insurers may be pressured to lower their rates, said J. Robert Hunter, director of insurance for the Consumer Federation of America.
Consumers who buy title policies directly might face a tough choice when they tell their attorneys.
"Either the attorney will say 'I'm sorry, I can't do business that way because the amount of work is not compensated by [my] small fee,'" says Edward M. Rosenblatt, vice president and counsel for Fidelity National Title Insurance Co., a competitor. "Or the attorney will say, 'Sure I'll do it, but I will have to charge you more.' And then the savings is gone."
Lawyers in private practice agree and defend their 60 percent commissions, which are far higher than in other lines of insurance. The commissions are disclosed on the "HUD-1" settlement statement a home buyer gets, and often in letters from lawyers confirming their hiring.
An attorney may charge only $350 to do a closing but work five to 10 hours on it, said Jomarie T. Andrews, a partner at Levy & Droney P.C. in Farmington. "We generally charge a low fee for closing and make up the difference through the commissions," she said.
Attorneys don't just consult with clients on the purchase/sale agreement, Andrews noted. They spend time explaining all the liens and other encumbrances on the property's title, and the easements and restrictions that could limit where home additions, pools and tennis courts go, she said. Attorneys also get involved in resolving problems that turn up in home inspections, she said.
Lawyers say they're concerned that consumers who buy title insurance themselves might not hire an attorney, and suffer later on.
"The whole mortgage mess in our country, in many instances, is that borrowers were not represented by attorneys at their closing" and didn't understand documents they signed, said Mark Steier, a partner in Steier & McCormick LLC in West Hartford and Avon.
If Entitle Direct customers decide not to hire an attorney, the company said it will handle the closing for an additional $425 fee in Connecticut and arrange a title search for $295.
Entitle Direct will start an ad campaign soon and do mailings to consumers who are refinancing homes.
Title insurance is required by lenders for home purchases and refinancing, but consumers must pay for it — a one-time premium based on the purchase price or mortgage amount. The policy guarantees that title ownership is sound and promises to defend against challenges to ownership.
Few, if any, Connecticut consumers try to shop for the insurance themselves. It wouldn't make much sense anyway because a handful of companies dominate the much-criticized industry, and they use the same rates. Nationally, four companies wrote 93 percent of the $14 billion of premiums in 2007.
Timothy Dwyer, president and chief executive of Entitle Direct Group, calls the industry an "oligopoly" and recalls spending thousands of dollars on title insurance when he bought his New Canaan home a few years ago.
"At closing, I was seeing all the documents for the first time," recalled Dwyer, a former investment banker who routinely dealt with contracts. "I felt like a sheep ready to be shorn. ... It was just wrong. That's when I decided to create something new and different."
Entitle Direct, known until last year as Guardian National, charges about $752 for a Connecticut policy that protects the lender and home buyer on a $300,000 home with a $240,000 mortgage, according to the EntitleDirect.com website. Competitors charge about $1,155. Policies for refinancings cost less.
The company also plans to sell policies in the state the traditional way, through lawyers, paying commissions and charging rates that reflect them.
"One more entrant [in the market] makes it more competitive today than we were yesterday," said Insurance Commissioner Thomas R. Sullivan, "so I like that ... because consumers win."
It could be a challenge for Entitle to build direct sales, but if it can, other title insurers may be pressured to lower their rates, said J. Robert Hunter, director of insurance for the Consumer Federation of America.
Consumers who buy title policies directly might face a tough choice when they tell their attorneys.
"Either the attorney will say 'I'm sorry, I can't do business that way because the amount of work is not compensated by [my] small fee,'" says Edward M. Rosenblatt, vice president and counsel for Fidelity National Title Insurance Co., a competitor. "Or the attorney will say, 'Sure I'll do it, but I will have to charge you more.' And then the savings is gone."
Lawyers in private practice agree and defend their 60 percent commissions, which are far higher than in other lines of insurance. The commissions are disclosed on the "HUD-1" settlement statement a home buyer gets, and often in letters from lawyers confirming their hiring.
An attorney may charge only $350 to do a closing but work five to 10 hours on it, said Jomarie T. Andrews, a partner at Levy & Droney P.C. in Farmington. "We generally charge a low fee for closing and make up the difference through the commissions," she said.
Attorneys don't just consult with clients on the purchase/sale agreement, Andrews noted. They spend time explaining all the liens and other encumbrances on the property's title, and the easements and restrictions that could limit where home additions, pools and tennis courts go, she said. Attorneys also get involved in resolving problems that turn up in home inspections, she said.
Lawyers say they're concerned that consumers who buy title insurance themselves might not hire an attorney, and suffer later on.
"The whole mortgage mess in our country, in many instances, is that borrowers were not represented by attorneys at their closing" and didn't understand documents they signed, said Mark Steier, a partner in Steier & McCormick LLC in West Hartford and Avon.
If Entitle Direct customers decide not to hire an attorney, the company said it will handle the closing for an additional $425 fee in Connecticut and arrange a title search for $295.
Entitle Direct will start an ad campaign soon and do mailings to consumers who are refinancing homes.
