Guaranty Fees Changing on April 1st

Effective April 1, 2008, the Guaranty Fee that closing agents are required to collect for each policy issued will go from $1 per policy to $5 per policy. This fee is required by Texas Department of Insurance (TDI) and is used to fund an account held by TDI, the purpose of which is to pay claims made on title insurance policies issued by underwriters, and for escrow liabilities of title agents that have gone out of business. At this time, there is only one such company that has any material level of liabilities, and that is U.S. Life Title Company, which later became Title USA. It failed in the 80’s and policies with claims are paid from this fund. We are often asked, "Why are current policy purchasers forced to pay this ‘penalty’"? Although it may be viewed by some as a ‘penalty’ for the ‘sins’ of others, in reality it serves as an insurance fund within the insurance fund. It represents money that will be paid to claimants in the event that an underwriter, or an agent, does not have the funds to protect the claimants. Someone paying in today may actually be paid on a claim out of these very dollars.

Once this fund has reached an adequate level, TDI has the prerogative to cease collecting the fee, and actually did so during the mid 90’s, when the fee was $4 per policy. A fee of $1 was re-instituted in 2004 and closing agents believed that after three years of collections, the fund would be nearing a level to cease collections. It appears that the recent turndown in the real estate market has resulted in both higher claims (even for these older policies), as well as a slowing of collections in the last two quarters of last year. We hope this will not last long. As a consolation, title insurance premiums have fallen continually since the early 90’s. I will give a history of title insurance rates as my next news item.
Mike