By ISBA President Henry Hamilton III
An ownership interest in real estate is no better than the title that accompanies it. To ensure the integrity of real estate transactions, ownership rights are protected from title defects and unknown liens and encumbrances. Many states offer title insurance. Title insurance insures for risk of defects in title which are not of record. Iowa has a much better system. Iowa requires that the title be cleared before closing and all defects addressed.
Iowa Title Guaranty (ITG) is a division of the Iowa Finance Authority, and it provides lender/owner certificates which protects parties from defects in title. Prior to the issuance of a certificate, there must be an up-to-date certified abstract of title and a title opinion issued by an attorney stating the attorney’s opinion as to the title. Iowa Title Guaranty is the only program of its kind in the nation.
The ITG lender certificate protects lenders from potential financial losses associated with covered risks and title defects. Iowa Title Guaranty will defend the lender and pay all court costs and related fees. If the claim is valid, Iowa Title Guaranty will reimburse the lender for the actual loss up to the face amount of the certificate.
The ITG owner certificate protects the owner’s interest in the title to a property. The owner coverage provides assurance to owners that their property interest is free from certain title defects, liens, and encumbrances.
Iowa prohibits the sale of title insurance and has done so since 1947. This is largely because Iowa’s existing system of maintaining public records and the “40-year-act” marketable title act enacted by the Iowa Legislature, renders defects in title very rare. Accordingly, in most instances, commercial title insurance companies incur a near zero-loss ratio for their products in the State of Iowa. In other words, they collect millions of dollars in premiums, yet pay out virtually nothing in losses.
Iowa is the only state in the nation which prohibits the sale of title insurance. Iowa Code 515.48(10); See, Chicago Title Ins. Co. v. Huff, 256 N.W.2d 17, 19 (Iowa 1977) “[T]his court cannot say the general assembly overstepped its power in barring a costly form of ‘insurance’ for which plaintiff's own testimony demonstrates there is little need.”
Each year, there are efforts to weaken Iowa’s historic prohibition against title insurance. Here are three reasons Iowans continue to oppose title insurance:
1. Title insurance is more expensive than Iowa Title Guaranty. Iowa Title Guaranty provides residential owner coverage up to $750,000 for a flat rate of $175. Coverage over $750,000 is calculated at $1 per $1,000. Title insurance premiums typically are three to five times greater. Iowa Title Guaranty has saved Iowa real estate consumers more than $1 billion in the last 15 years.
Moreover, all Iowa Title Guaranty revenues in excess of operating expenses remain in Iowa and support down payment assistance for Iowa homebuyers. Since its inception, Iowa Title Guaranty has provided more than $62.9 million to Iowa affordable housing programs.
2. Coverage provided by an Iowa Title Guaranty certificate is exactly the same as that provided by American Land Title Association policies, which are those commonly used by commercial title insurance companies.
3. Title insurance is not needed in most real estate transactions in the State of Iowa. It is only needed when a mortgage lender decides to sell the buyer’s mortgage on the secondary market. In situations where mortgages are sold on the secondary market, Iowa Title Guaranty provides the advantages of title insurance with none of the disadvantages. All proceeds stay in Iowa and are used to fund more Iowa real estate transactions.
The ISBA supports the Iowa Title Guaranty program and opposes any effort to legalize title insurance in the State of Iowa.
About the author:
ISBA President Henry Hamilton III is a federal administrative law judge and the 136th president of the ISBA. He can be reached at hhamil3@aol.com or 414-403-9082.
