The State of California may not have enough money to pay its bills, but apparently, the State Senate believes you have too much money to pay yours. That attitude is semi-understandable when it comes to raising taxes in hopes of closing the deficit. When the money is going to a well-heeled private industry, however, it is utterly inexcusable.

When you buy a home, you also buy an owner’s title insurance policy. This policy protects you against any undisclosed title defects in the property at the time that you purchased it. For example, if someone later claims that the property was his, and the guy who sold it to you was never the real owner, your title insurer will defend your claim and compensate you if you lose. This policy also protects the mortgagor, i.e., the lender who issues the mortgage to you at the time of the purchase. It does not, however, protect you or the lender against any new title defects based on activities that occurred after the sale.

Later, when you refinance, a big piece of the cost will be for a lender’s title insurance policy. This is cheaper than the owner’s policy, but it is still very expensive, and can account for upwards of $800 of your closing costs. This policy only protects the new lender; it does not protect you. Nevertheless, few if any lenders are willing to gamble with the possiblity that you have sold interests in your own land between the time you bought the land and the time you refinance it (remember that the first policy is still in force to protect you against defects that arose before you bought the house). If you default on your mortgage on a home you don’t really own anymore, the mortgagor will have nothing to foreclose on, so it looks to the lender’s title insurance policy for indemnity.

If $800 sounds like a lot of money to insure against the remote risk that you sold your own house (or some interest in it) and didn’t tell anybody, you’re right. Some lenders agree, and purchased “lien protection” insurance from mortgage insurers instead. That policy did not protect against title defects per se, but did protect the lender against the risk that the lender really cares about: defaults caused by title defects. The coverage wasn’t quite as comprehensive, but consumers don’t care; after all, they weren’t protected by the lender’s title policy, either. What consumers did care about was the price tag: where a lender’s title policy ran $800, a “lien protection” substitute could be had for a little over $300.

By now, you’re probably thinking “hey, that lien protection” stuff makes it cheaper to refinance my mortgage, without skimming a dime off the lender’s profits. Sounds like a win-win. Unfortunately, neither you nor the lenders are adequately represented in government, but the title insurance industry is. Last year, the California Department of Insurance, with ample prodding from the American Land Title Association, ruled that since lien protection policies offered higher limits for defaults caused by title defects than they offered for other defaults, this made the policies “title insurance” which cannot be written by a company not licensed as a title insurer. Worse, California law prohibits any insurer that writes “title” insurance anywhere in the world from being licensed to write any other line of insurance other than title insurance here. So if your local Department of Insurance think “lien protection” insurance is hunky dory, it still won’t do you much good unless you can find a “lien protection” company that doesn’t want to be admitted in California.

Enter Jackie Speier, the chief sponsor of Senate Bill 344. If passed, SB 344 would allow both title insurers and mortgage insurers to write policies that adequately protect the lender in a refinance transaction. The decision to use title insurance vs. lien protection insurance would rest with the lender, but to the extent that closing costs play a role in your decision which lender to refinance with, it would ultimately rest with you. Unfortunately, however, at least four members of the Senate Insurance Committee disagree, and voted yesterday to oppose SB 344.

I rarely have nice things to say about Jackie Speier, but she deserves your support on this bill. ALTA and the Insurance Committee are banking on what P.O. O’Rourke once dubbed a “dictatorship of boredom.” They figure that few consumers know or care what title insurance is, and that all but a few will either ignore the debate or fall for their empty “protect the consumer” arguments. Now is the time to prove them wrong.