In an effort to reduce the cost of title insurance by 30% or more, commercial real estate developers, investors, and lenders are increasingly forming partially or wholly owned title insurance agencies to service their own real estate acquisition, disposition, and refinancing activity. These ventures, or “affiliated business arrangements,” are licensed title insurance agencies whose business is primarily supplied or controlled by one or more of the agency owners.
The cost savings can be significant for REITs, pension funds, life insurance companies, and other institutional real estate investors that spend millions of dollars annually for title insurance. For banks and other lenders, owning a title insurance agency can generate significant new fee income from mortgage loan transactions financed by the institution.
To illustrate the potential savings, assume a hospitality industry investor is acquiring a hotel in Orlando for $250 million. The investor orders a title insurance commitment from a title insurance agency in which it is a 50% partner. The premium for an owner’s title insurance policy in the amount of the purchase price is over $500,000. The portion of the premium remaining after paying title search and exam fees, an underwriting remittance, operating expenses and payroll, would be distributable net income to the title agency’s partners, often resulting in a 30% or higher net savings to the investor on the pretax cost of the title policy.
The entity taking title to the real estate, usually an affiliate of the investor, will be the principal insured party on the owner’s policy of title insurance issued by the agency. The investor’s mortgage lender will be the principal insured party on the lender’s Policy of title insurance.
Learn more about investor owned title insurance joint ventures or inquire (866.945.4200) about Everest Land managed title insurance agencies.