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Title Insurance - Assumable Title Insurance

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[This material is for discussion purposes only and has not been approved by the Transactions and Regulatory, Legislative or Executive Committees or the Board of Directors]

The Question: Should C.A.R. adopt a proposed "assumable title" bill as its SPONSOR?

Action: Required in order to respond to pending legislation

1. Sponsor the proposed legislation
2. Support the assumability of title insurance
3. Do Nothing

C.A.R. has been approached by a powerful senator to consider sponsoring a re-introduction of legislation previously sponsored by C.A.R.  The senator is seeking C.A.R.'s input in advance of introducing the legislation.

In 1994, at the recommendation of its Affiliated Business Task Force, C.A.R. sponsored a package of legislation related to title insurance. One of the bills was SB 319, Burton, which attempted to create a right for successors in interest on a property (buyers) to also succeed to whatever title insurance had previously been purchased on the property. The theory was that the risk of a title defect had already been paid for by the seller, and that a buyer ought to be able to rely on the earlier title report and coverage. The buyer would then only buy title coverage for the "gap" or intervening period between the new purchase and the last title search. The hope was that the gap policy would be substantially cheaper and thus reduce transaction costs.

SB 319 proved to be extraordinarily controversial. Title insurers hired multiple lobbying firms to oppose it, mounted media efforts, and most importantly, took their campaign directly to Realtors(r) to undermine support for the Association's bill. Even with the President pro tem (Sen. Burton) as an author, and with an all-out "Red Alert" effort by C.A.R., the bill was ultimately defeated on the floor of the Assembly. 

The senator believes that the time is right to reconsider the concept of assumable title insurance, but wants to see if C.A.R. will adopt the proposal as its own (assuming the role as "Sponsor") and commit the level of resources that might be required to pass the bill.

Should C.A.R. take on the commitment to SPONSOR a new assumable title bill? [Note: In the absence of a change in direction, existing policy would already result in C.A.R. support for such a proposal].

What's in it for Homeowners? What's in it for Realtors®?
Title policies are effectively identical, and nearly identically priced. After the sales commissions, title insurance is often the largest item in the escrow net sheet. Premiums are set based primarily on valuation, and can typically cost $1000 - $1500, depending upon value, for a policy on a median priced home.  Typically a seller purchases a policy for his or her own protection, and a second policy protecting a mortgage lender's interest in the property. In the case of a refinance, the homeowner would only be required (by the new lender) to purchase a new lender's policy, since the homeowner has already purchased an owner's policy in the connection with the initial purchase of the home.

If the proposed bill were to become law, the home buyer could rely on the seller's old title search and only purchase a policy covering the gap between the seller's search and the current sale date. The lender, if it is willing, could do the same, or could insist on a brand new search of the entire property history.

"Sauce for the Goose" considerations
C.A.R. has typically not supported or sponsored legislation to regulate the fee structure of other players in the real estate transaction. In the assumable title situation, title premiums themselves were not regulated—savings would have come to the transaction by the fact that a cheaper "gap" policy would be purchased instead of the more expensive back-to-the-beginning-of-time coverage. If C.A.R. supports what amounts to a discount policy on title premiums for repeat searches of the same property, will it be able to effectively resist calls for the same sort of discount when a real estate company engages in repeat sales of the same property?

Should C.A.R. take on the commitment to SPONSOR a bill requiring 5-year "short term" title policy discounts?