Insurer Cannot Sell Lien Policy

A Philadelphia-based mortgage insurer that tried to sell an alternative to title insurance that was less than half as expensive as regular policies has been told it cannot legally engage in the business.

State Insurance Commissioner John Garamendi ruled that the lien protection policies offered in California by Radian Guaranty fly in the face of a 70-year-old state law that prohibits mortgage insurers from selling title insurance.

Radian’s policies may cost $300; regular title policies may cost $750. An effort in the Legislature to pass a new law allowing the sale of the alternative insurance was defeated earlier this year after a heavy lobbying campaign against it by the title insurance industry.

Garamendi, who had indicated he would allow the sale if he could legally distinguish between lien protection and mortgage policies, said Tuesday that, after reviewing the record, he could not.

“I am satisfied that this product falls within the definition of title insurance as established by the Legislature,” the commissioner declared. “Therefore, unless this law is changed, I am obligated to prohibit the sale of these policies.”

Garamendi’s ruling upheld an earlier finding by Administrative Law Judge Leonard L. Scott. The sales of lien insurance policies had been stopped last year when then-Insurance Commissioner Harry Low issued a cease-and-desist order.

Radian officials said Tuesday that they would appeal Garamendi’s ruling, and general counsel Howard S. Yaruss said the company “respectfully disagrees with his assessment of our product.”

A leading consumer group that has pursued lower cost title insurance, the Consumers Union, said it accepted the commissioner’s finding as based on the existing state of the law.

Gail Hillebrand, a Consumers Union official, said that the Legislature should look into ways of bringing more competition into the sale of title insurance to encourage lower prices.

Robert Fellmeth, director of the Center for Public Interest Law, called Garamendi’s decision “disappointing but not surprising,” and expressed hope that public anger about high title insurance prices could yet force legislative action.

Lien protection insurance was designed to protect lenders and property owners against defects in the title that are detected between the date of the sale of a home and its refinancing. The original title insurance policy continues to apply to defects occurring before the sale.

This not only makes lien insurance far less expensive, but it can be obtained in a far shorter time, because a lengthy search of the records can be avoided.

Mark Bogatich, the main title insurance industry spokesman, could not be reached Tuesday, but he has argued in the past that title insurance was a safer product for the consumer than lien protection, because its search of records for defects was more comprehensive.