The title insurance toll

You buy car insurance in case of an accident. Health insurance covers you if you get sick. Homeowners insurance helps you rebuild after a fire.

But what do you get when you buy title insurance?

Americans spend more than $16 billion annually for title insurance when buying, selling or refinancing their homes. But few people question the expense, even though they're probably paying too much, say consumer advocates and government regulators.

What's more, title insurers have been fined repeatedly for illegally giving concert tickets, trips and even cash kickbacks to real estate agencies, lenders and builders. Consumers typically go with a recommendation from one of those sources, experts say, and may not even realize that they have a choice.

"Consumers of title insurance often tend not to get the best deal because they're not the ones who end up selecting which title insurance policy they will end up buying," California Insurance Commissioner Steve Poizner said in an interview.

"Unfortunately, what's happened in this industry is there's been a lot of illegal kickbacks and incentives that have been paid by the title industry to others to steer business in a particular direction," Poizner said.

Title insurance is part of virtually every real estate transaction. It covers claims and legal fees for home buyers and lenders if problems arise -- even years later -- over ownership of a property's title.

Defects in title include errors or omissions in deeds, mistakes in examining records, forgery, liens for unpaid taxes or contractor's bills, conflicting wills related to the home and missing heirs who suddenly appear and claim to own the property.

Typically there are two title policies for each property: one to protect the home buyer; the other to protect the mortgage lender.

In California, coverage that protects the buyer would probably cost about $1,200 to nearly $2,000 for a $500,000 home. In Southern California, the policy is customarily paid for by the seller, but practices vary by region. In the San Francisco Bay Area, for example, the buyer usually pays.

In most places, the buyer must pay for the policy that protects the lender. For a house with a $400,000 mortgage, the policy would usually cost $500 to $600.

Such policies can offer peace of mind even though there's little chance a homeowner will ever encounter a title-related problem. While auto and homeowner insurers return about 70% of their premiums to customers in claims, title insurers pay out just 5%.