Residential Real EstateTitle Insurance Industry Fights Potent Competitor
A battle over title insurance in California has entered the courts in what promises to expose the American Land Title Association (ALTA) as either an heroic protector of consumers" interests or a dastardly, anti-innovation protector of its own market share.
Earlier this month, ALTA filed suit in Orange County on behalf of its California members against Radian Group, Inc., and two of its subsidiaries, Radian Guaranty, Inc., and ExpressClose.com.
The lawsuit"s demands are extensive. ALTA wants an injunction prohibiting Radian from selling California customers a product called Radian Lien Protection. The trade group also wants damages for all licensed title insurers and agents in California, who allegedly have been harmed by Radian"s sale of its mortgage impairment product.
The dispute comes down to a simple question: does Radian"s product constitute title insurance?
The product costs about half the expense of a traditional title insurance policy, but Radian Lien Protection is not meant to cover all real estate transactions. It"s currently offered only for refinance, second mortgages and home equity loans. In other words, consumers can buy the policy in situations where they feel quite secure about title on the property, since a title search likely was conducted in recent years during application for the first mortgage.
Radian says that it bases the product on three credit reports, a mortgage lien report and an affidavit from the borrower stating that there are not any intermittent liens on the property. What"s more, the company says it has received the blessings of several states, including California. And by the way, Radian says, this is not "title insurance," a product which is heavily regulated in most states.
But the title insurance industry is not satisfied with that explanation. After all, most mortgage business these days is centered on home equity loans and refinancing, not new home purchases. So an alternative product -- which, by the way, the industry claims carries too much risk for consumers -- could severely damage title companies" revenue prospects.
Plus, ALTA insists that Radian is, in fact, selling title insurance.
"To the best of our knowledge, the Radian product and similar mortgage impairment products that are currently being sold (unlawfully in our opinion), are title insurance in that they insure against undisclosed liens," said James Maher, executive vice president of ALTA "But none of these products measure up to traditional title insurance.
"They don"t clear up title defects. They don"t guarantee a right of access. And, they don"t pay attorney"s fees to represent insureds in establishing the priority of the mortgage or validity of title to the subject property. Those benefits can only be obtained through traditional title insurance sold by insurers who, unlike Radian, are licensed and regulated as title insurers by state insurance authorities.
"Thus, there is a great danger to lenders and borrowers who may be misled into believing that what they are getting from Radian and other sellers of similar mortgage impairment products is comparable to standard title insurance," Maher added.
So is this quicker-and-cheaper alternative to title insurance legal? Most savvy, credit-worthy consumers seeking to refinance likely would appreciate the lower cost, especially since they paid for extensive title searching a couple of years ago when first purchasing their residence. Already, at least one state, Iowa, allows consumers to buy and refinance without title insurance -- instead there is a state-backed guarantee fund in the event title defects are found.
Or is Radian, as ALTA claims, offering an unregulated product while harming a viable industry at the same time?
It"s up to the courts to decide. Stay tuned -- the fate of the title insurance industry could hang in the balance. After all, court approval of a product like Radian"s would open the door for a slew of new competitors.
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