How to keep your clients from getting ripped off on title insurance

by James F. McClister


There’s a common misconception among real estate agents that their clients don’t have the option to shop for title insurance providers. But buyers and sellers are not actually required to work with any particular title company, and agents should know the law when it comes to helping their clients choose their best option.

In section 18.1 of the Illinois Title Act, in relatively clear language, the state outlines its policy on choosing a title insurance company:

It is declared to be the public policy of this State that parties to a contract for the sale of residential real property who are obligated to provide and pay for title insurance have the right to choose the title insurance company and title insurance agent that will provide such title insurance.

Not all real estate agents know that – just as not all agents know that some title companies charge much more in fees than others.

Superfluous, Duplicative and Unnecessary

In the Illinois appeals case Chultem/Colella v. Ticor Title Insurance Company/Chicago Title Insurance Company, the state’s First District Appellate Court reviewed a lower court ruling on the matter of title insurance costs – specifically looking at the fees title attorneys (or “attorney agents”) charge title companies for referring business, which then get pushed onto buyers. The plaintiffs argued the fees were kickbacks (illegal according to the state’s title act); the court, in a 2-1 split decision, disagreed.

In the case, the plaintiffs argued that fees paid to attorney agents (which ranged from 50 to 80 percent of the total cost of the title insurance; though, an anonymous source familiar with the process claimed such charges are more commonly in the 80 to 95 percent range) were “unearned,” because the attorneys did not perform “core title services” but rather referred their business to a title insurance company. However, the court wrote that because “recent case law fail(ed) to support (the) plaintiffs’ position,” it had to affirm the original ruling.

Still, one justice, Aurelia Pucinski, was compelled to disagree.

In her dissent, Pucinski lambasted the attorney agent process, describing it as a “totally superfluous, duplicative and unnecessary line item.” She claimed the court made a fatal error when it held a trial on “what the attorneys did” rather than whether the documents approving the exchange met legal requirements – or “pro forma commitment.”

“These were plain and simple kickbacks for referrals, and no matter how you dress them up, they are still kickbacks,” she wrote. “The are still wrong and the class can demonstrate violations of both the federal and Illinois laws.”

Choosing Cheaper: Suggestion or Duty?

Regardless of whether Pucinski’s assessment is right or wrong, the takeaway should be this: a buyer or seller doesn’t have to settle for the title company they’re referred to – because they have the right to shop around for the best prices.

TRID was a big step in removing the veil from attorney agents fees, as the new closing disclosure form requires more detailed documentation of closing fees, which includes identifying both fees a borrower cannot shop for (such as appraisal and credit report fees) and those they can (such as title insurance fees). Previously, borrowers were shown cumulative fees, with no discerning between what portions of the sum was going where. However, with the new disclosure form, borrowers have a better understanding (or at least easy access to a better understanding) of how their money is being spent, while agents have suddenly found themselves equipped with the knowledge necessary to help save their clients more money – which might be argued as an ethical obligation.

It states very clearly in the National Association of Realtors Code of Ethics and Standards of Practices that “protecting and promoting” the interests of the client is the duty and “pledge” of all members. In this case, “interests” refers to financial interests.

Justice Pucinski wrote: “We know that because the title companies billed the clients for title services at say $1000, but only kept $200 – $500 of it (that) the extra went to the title agent/attorney as an add-on, disguised as a payment for services.”

If a real estate agent is obligated to protect their client’s financial interests, and the difference between one title insurance company and the next is $500 (or more) and not a change in quality of service, is it the agent’s responsibility to choose the more affordable option?

If you accept that “protecting and promoting” a client’s interests includes financial interests, then the answer is almost certainly “yes.”

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