I've owned a home for two years, and still didn't really understand all of the stuff around title insurance until this essay. It's incredibly long, incredibly detailed, and incredibly accessible and well-written. It's about how home sales are recorded, how title searches work (and used to work), how the industry makes a killing off it, and more.
Title insurance has been called an expensive racket. A wag might say that this is grossly unfair. To rackets.
That's arguably the thesis line (halfway into the piece), but the entire write-up is fantastic.
Is title insurance mandatory in the US?
Not by law (AFAIK), but I believe pretty much every mortgage underwriter requires is, so if you're not buying your home outright in cash, you've got to do it.
Title Insurance is an expensive racket!
2 years ago, I get the final escrow ledger and I almost fainted when I saw the title fees
Bookmarked this post and the article you linked
Title insurance is an expensive and complex product in the United States real estate market. Here are the key points:
Title insurance has an extremely low loss ratio, around 5%, compared to other insurance products like fire (65%), workers' comp (48%), and auto liability (76%).[1] This means title insurers collect far more in premiums than they pay out in claims, making it a very profitable business.
The high cost of title insurance is driven by the way it is sold, not the actual risk. Title insurance agents are often affiliated with the seller's lawyer and receive a large commission, around 80-85% of the premium, which drives up the cost.[1] There is little incentive for buyers to shop around for lower prices.
Unlike many other countries, the U.S. does not have a centralized government database of property ownership. Instead, ownership is determined by tracing a chain of private transactions, which title insurance companies claim to verify.[1] This creates opportunities for title defects and the need for title insurance, even though most title claims are for minor "off-record" issues.
Overall, the title insurance industry in the U.S. has been described as an "expensive racket" that extracts substantial fees from real estate transactions without providing commensurate value.[1] Reforming this system to reduce costs for consumers would require overcoming the political influence of the real estate industry.
The article references a "real estate lawyer".
Is Illinois a state where a lawyer is mandatory for buying/selling?
A quick google says it's not, but looks to be a state where it's pretty much standard practice.
If there is a dispute over title or ownership, obviously lawyers would be involved