The Real Property and Conveyancing Legislation Amendment Bill (2)

Last time I wrote of some of the bad features of the Real Property And Conveyancing Legislation Amendment Bill 2009.
I wrote mainly about the Bill’s restrictions on the Assurance Fund and its effect on mortgages. I have a bit more to say about this before I turn to the Bill’s effect on easements.
Already some mortgagees are turning to private "title insurers." I wrote about these people a long time ago but briefly they are American companies which arose because of the very peculiar title system in the USA which has the worst features of the old system title we inherited from England and nothing much else. The American title insurers insure against defects in title and things like encroachments and some breaches of laws – e g a breach of the building codes.
There are three problems with these. The first is that they are very expensive. The American lenders (most of which are now in financial problems themselves) insist on title insurance- except in Iowa where there is a state government scheme very much like the Assurance Fund our state government runs. Conveyanceing in Iowa is an average of $1000 (that’s US and the equivilent here is about $1500) cheaper then anywhere else in the USA. That is title insurance adds a huge amount to the cost of conveyancing- perhaps more than the average total solicitor or conveyenacers fees in this state.
The second is that only about 4.3% of the premiums are ever paid out in claims. The rest is used in kickbacks (the US Senate had an investigation into these practices last year; two years ago Conneticut fined title insurers $700,000 for the kickbacks), maintaining their own multiple land registries (which the government does here and in Iowa at a fraction of the cost) and most of all in profits. It’s a very inefficient scheme because so much money goes on other purposes. Perhaps that’s really just another way in which title insurance is expensive.
The third –and only just emerging now is that despite the high profits the companies are almost bankrupt. The third largest company in America Land America is bankrupt and the receivers are selling off the assets. What happens if you want to make a claim under the policy remains to be seen. The other four main title companies all reported huge losses (most over 100 million US dollars) last year.
The problem with the Bill is that mortgagees may seek the ‘protection’ that the private title insurers advertise. And that will increase conveyancing costs. After all that is exactly what happened when the government turned the home building insurance scheme over to private enterprise. Ever since builders had to be licensed (the early 1970s) the government had a scheme which covered people for major building faults. IT cost $200 per building –a fee levied by local councils on each building approval and it covered people for most problems. IT was replaced by private insurance in the mid 90s. Since then the cost has increased enormously (in fairness though so has the cost of living) and the cover is now much less..
Perhaps that’s enough for this week and I will write about easements next week. But in the meantime I urge you if you want cheap conveyancing tell your state MP that you want him to vote against Real Property And Conveyancing Legislation Amendment Bill 2009.
Further reading on title insurance
A critical look at the whole idea
http://www.mtgprofessor.com/A%20-%20Title%20Insurance/what's_wrong_with_the_title_insurance_industry.htm
The kickbacks in Conneticut http://www.ct.gov/cid/lib/cid/Reinerkickbacksettlement.pdf
The financial crisis http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUKN2346783320081023?pageNumber=2&virtualBrandChannel=0&sp=true

(local papers article for week of 4.5.09