Why New Yorkers Need Title Insurance Reform
By Yvette Chen, Program Manager, Center for NYC Neighborhoods
While title insurance is an essential protection, the opaque business model allows lawyers and insurance companies to charge exorbitant fees at the expense of homeowners. In New York, average rates are nearly $3,000 (about 0.6% of the purchase price), a cost that must be paid for up front at closing. In 2022, New York had a title premium volume of $1.36 billion, which made it among the top five states with the largest title premiums along with Texas, Florida, California, and Pennsylvania.
Of the billions of dollars the title insurance industry took in nationwide in 2021, they spent less than 3% of that on claims from homeowners. By comparison, property and casualty insurers spent 73% of their revenue on claims for losses like house fires and vehicle accidents.
A Legislative Solution
A bill proposed by New York State Senator Jessica Ramos (D-Queens) creates the necessary regulations to curb the accelerating costs of title insurance. Senate Bill S7744 establishes a state title guaranty program, which will oversee and administer fair and equitable regulations and save New York homebuyers upwards of $82 million a year by eliminating extra fees.
While title insurance is an important step in the homebuying process, new regulation and oversights would align rates with actual insurance costs. The purpose of title insurance is to protect the purchaser and lender from potential financial losses resulting from title defects or claims. In the New York context, the price of title insurance factors in the state’s significant number of real estate disputes and litigation cases, thus driving up premiums. Additionally, high property costs can lead to higher insurance costs. However, over the past decade, title insurance revenues have vastly increased while the pay out in claims has trended downwards.
While the New York Department of Financial Services regulates title insurance rates, the regulatory framework is not enough to protect consumers from high costs incurred during the process such as search fees, examination fees, and closing fees. These extra charges can tack on as much as $2000. The Government Accountability Office reported that with no national regulation of title insurance, there has been a patchwork of rules and practices across the states where companies are charging rates that do not reflect actual insurance costs.
Proven Results
In the absence of federal regulation, proposed legislation by New York State Senator Jessica Ramos (D-Queens) would create an affordable title insurance model and a centralized system that would save homeowners thousands of dollars. The bill establishes a state title guaranty program for title insurance. It also creates a statewide electronic database of all real property to better protect homeowners from defects in a title of property. A similar program exists in Iowa, where the Iowa Title Guaranty Program offers comparable coverage to traditional title insurance policies and keeps premiums lower than the average rates. For example, the state of Iowa guarantees a flat fee of $175 for all transactions up to $750,000. Compared to New York’s rate of 0.6% of the purchase price, the Iowa Title Guaranty Program charges a premium rate of 0.10–0.15% of the purchase price for residential properties.
For too long, the title insurance process has been shrouded in added fees and a lack of transparency at the expense of homeowners. In light of this burdensome practice, we call Governor Hochul and leaders of the legislature to ensure homebuyers have affordable title insurance. The proposed state legislation, which creates a public option for title insurance, would provide affordable coverage for homeowners and lenders while ensuring consumer protections.
