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Insurance that doesn't insure

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Bone up on the law to avoid being taken advantage of by experts

By Merilee Dannemann

We New Mexicans dearly love to take advantage of one another’s ignorance. It’s how many of us make a living.
Title insurance, for example.  You are required to purchase title insurance when you buy a house. Since you probably buy a house once or twice in your lifetime, it’s understandable that you are not an expert on the legalities.
You’re probably relying on your real estate agent and the other professionals who are supposed to be acting in your interest.  
You may have thought that you were buying an insurance policy that would, well, insure you.
As it turns out, not exactly. And you didn’t focus much on the cost of the insurance, because it was just another thousand or two, rolled into the biggest purchase of your life.
Title insurance, you thought, would ensure that your title would be unencumbered by liens, lawsuits, or restrictions hidden in the history of the property.
So when it was reported in 2002 that a title company had missed such a restriction on a property in Santa Fe, and that the owner could not build the planned two-story office project because of a height restriction, but the title insurance company had no liability for its error and the owner had to take the loss, I thought, am I the only one noticing that this is nuts?
Title companies were absolved from responsibility, through a 1999 amendment to the law, for their own failure to do what you thought you were paying them for. Only in New Mexico — or Wonderland.
Except you may not have been paying them to protect you, anyway.
You may have bought a policy that protected the lender but not you, because that’s all your mortgage required.
Home mortgage lenders: You remember them, right? Those wonderful people who brought us 2008?
The almost good news is that two other problems with the title insurance law have been reformed, sort of ­— thanks in large part to an advocacy group called Think New Mexico, which had noticed that our unjustified high premiums affected families of modest means trying to buy homes.
Think New Mexico published a report in 2007 showing New Mexico costs for title insurance were high compared to other states, even though very little was paid out in claims (the report is still on the website at thinknewmexico.org.)   This led to legislation in 2009.
One prior provision had made anti-competitive pricing not only legal but mandatory:
The law required premium rates to be set by the Superintendent of Insurance.  The 2009 law got rid of that, but we have yet to attract new insurers offering competitive rates.
Another issue, especially critical in these times, is the cost of a second title policy when you refinance your home. When you bought your house, the first title policy should have ensured that the title was good, so when you refinance, the second insurer is theoretically taking no risk at all.  
That second policy should cost you next to nothing.
The 2009 legislation provided for substantial discounts on title policies for refinanced properties.
But, whoops! You qualify for the discount only if, at closing, you bring a copy of your original closing statement, which documents the first policy.
Easy enough? The catch is that nobody is required to advise you to do this.  As I said, we love to take advantage of one another’s ignorance.
But our law still hasn’t fixed the negligence problem. The director of the industry association was quoted in 2009 as saying, “That negligence liability will decimate the industry.”
In other words, insurance shouldn’t insure. It should just be something we are required to pay for.
This is New Mexico. Go ask the white rabbit.

Merilee Dannemann
© New Mexico
News Service 2011