Back in 2008, I posted an article about whether or not one should purchase owners title insurance when purchasing real estate. In that article, I set out the many reasons why attorneys feel that owner’s title insurance is absolutely recommended and explained what benefits an owner’s policy will provide. Over the years, I have consistently advocated that my clients obtain the owner’s policy, and indeed I have always bought owners’ title insurance myself when buying a new property. I am confident that just about all of the real estate practitioners I know will also advise all clients to purchase owner’s title insurance.
Recently, however, I had a client express some reservations about purchasing the owner’s policy, because, as the settlement statement discloses, the closing attorney, as agent for the title insurance company, retains a portion of the premium as a commission for issuing the policy. This client felt that it was a conflict of interest for an attorney to recommend that a client buy owner’s title insurance when the attorney will receive compensation from the title company if the client does so. I completely understand this client’s unease, and indeed feel slightly uneasy about it myself. Nevertheless, there are several compelling arguments which counteract such perceived conflict, and those reasons bear repeating here:
1. The attorney takes on additional liability by issuing the title insurance policies. The attorney is responsible for the title examination, and if an error is made which results in a claim under the policy, it is possible that the title insurance company may have recourse against the attorney after settling a claim with the insured. The retained portion of the premium is compensation to the attorney for assuming that additional liability.
2. This is common practice in the insurance industry generally. Whether you are procuring life, auto, accident, disability or any other form of insurance, it is the norm that the agent is compensated by a commission for the issuance of a policy. Title insurance is no different.
3. For all of the reasons stated in my earlier article, it is generally agreed that an owner’s policy is a must. For most people, real estate is the biggest purchase they will ever make, and it is folly not to avail oneself of the protections an owner’s policy provides. While some may disagree, the majority of those who are experts in the real estate field will strongly encourage any buyer to spend the proportionately small additional, one-time premium and obtain an owner’s policy for maximum protection.
4. For better or worse, this is how real estate practice works in Massachusetts. No matter which attorney you retain to represent you in a real estate transaction, that attorney will no doubt also act as a title insurance agent, will issue whatever policies are applicable, and will thus earn a portion of the premium for such work. Any attorney with integrity will make recommendations based on the clients’ best interest, and not on their own self-interest. I certainly hope and believe that clients who retain me have complete trust and confidence in my skills and in my integrity, and know that I would never recommend any action simply because I stand to make more money rather than because it is in the best interest of the client.
So yes, this can be a thorny issue for some, and it is every buyer’s prerogative to decline to purchase the owner’s policy. In my view, however, it would be poor decision not to buy an owner’s policy simply because of concerns about a perceived conflict of interest. Trust your lawyer to give you the best advice available, even if it coincidentally means additional compensation to that lawyer. In my case, I can assure my clients with confidence that I will never put my own self-interest ahead of yours. That said, I will continue to recommend owner’s title insurance to each and every client I represent, not because I receive compensation, but because it is the smart thing to do.
