Taking Stock by Malcolm Berko

Dear Mr. Berko: I recently bought a great home here at a great price. The previous owner refinanced his home last February and had to buy a new title policy for which he paid $2,030. Now because of his personal family problem, the previous owner had to sell the home for which I had to get a new mortgage and pay another title company $2,642 for a brand-new title policy even though there was a new policy written six months ago. This is a rip-off; it's unfair and socks it to the new buyer. I was incensed over this, but because I got such a good price, I didn't make noise. Now I'm mad as a hornet again. I know I can't do anything about it, but since this criminal business is approved by the law, I'd like to invest $5,000 or so in a title company. I figure when the real estate market recovers that these crooked title companies will really take off and go through the roof. So which title company would you recommend? — W.R., Port Charlotte, Fla.

Dear W.R.: Title insurance is an absurd racket, vigorously protected by your state legislature and myriad peripheral parasites, all of whom are amply bodied by the title companies. And you're right as the Ten Commandments — there's nothing you can do! Did you know that the seller also had to purchase a title policy when he sold the house proving that his property was clear?

I know three publicly traded companies in the title insurance business. First National Financial (FNF-$15.52) has 11,000 employees who also provide escrow products and services, specialty insurance products (flood, auto, homeowners, personal) and information services for the human resources, transportation and retail markets. Stewart Title (STC-$12.69) provides all the insurance and related services required for settlement by the real estate and mortgage industry. Stewart also provides appraisals, credit reports, background investigation, pre-employment screening plus related peripheral data. And Investors Title (ITIC-$32.58) does all the same stuff as FNF and STC. So whether you are buying or selling a home, these companies had their gluey fingers in the pie and cut "sin-checks" to lawyers, brokers, builders, etc., who recommend their services. In too many cases, title insurance is one of the most insidious rip-offs of the 20th century and as necessary as fur on a flounder. Between 1998 and 2005, title companies enjoyed a feeding frenzy.

Folks with ten grand, knowledge of the real estate industry, a laptop and willingness to kick back a portion of the title fee to secure business could open a title company in a strip shopping center and earn a small fortune! And for a while, it seemed that there were more title companies in Florida than lawyer's offices, branch banks and pawn shops. Last year, which wasn't a particularly good year in the real estate business, folks like you paid over $10 billion for the title policies. Lenders, who opaquely participate in title insurance fees, insist on title insurance to protect themselves against other creditors, disgruntled heirs or possible claims by descendants of left-handed males who fought for the Confederacy in the Civil War. And I'll wager my entire collection of coonskin caps that you'd be shocked to learn how few claims were made against title policies last year or the year before.

I'm glad that you were able to buy that home at a good price, but I'm appalled that you had to buy a title policy for $2,642. And since the original homeowner purchased a title policy in February of this year when he took a new mortgage on his home, I think actions of the lender, the broker and the title company are larcenous. Cheese and crackers, got all muddy, what a bloody racket and the Florida Legislature also gets a cut of this extortion. It's possible you may have the makings of a class-action suit, if you can find an attorney willing to risk the wrath of his colleagues.

The good news is that title insurance claims per 100,000 policies issued are lower than any other insurance group and profits per premium dollar are probably higher than any other insurance group. The bad news is that 80 percent of the title insurance premium goes to the agent while 20 percent is paid to the insurer that guarantees payment to the lender. Title companies are more profitable than coke dealers, loan sharks and the Mafia.

Recommending a title company is like recommending an autopsy. But if you must own a title company, even in this market where most are struggling to keep their necks above water, I'd suggest that you consider First National, a Jacksonville, Fla.-based company that expects to earn 95 cents this year on $5.6 billion in revenues and $1.21 in 2010 on slightly lower revenues. Its 60-cent dividend yields 4 percent. FNF is probably the largest in the business. RBC Capital Markets, J.P. Morgan, Piper Jaffrey and Barclays Capital have bullish reports on the company and $20 seems to be the upside consensus for the next 12 months.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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