You pay the price for TITLE INSURANCE coverage. But everyone else reaps the benefits.

WHO WOULD be foolish enough to shell out several thousand dollars for an overpriced product that they knew little about and would most likely never really need?

Just about everyone who has ever bought a house. Home buyers can spend days haggling with sellers over a few thousand dollars on the purchase price or whether the chandelier conveys. But once the deal is done they don't bat an eyelash at spending another 0.5% to 1% of the mortgage amount as a one-time premium for title insurance. What's more, they don't bother to look for the best deal and probably can't even name their insurer.

Home buyers are in this fix because you can't get a mortgage without title insurance. Lenders require it to protect themselves against any title problems that may surface after the property changes hands. But while it's the lender that benefits, it's generally the homeowner who pays the bill--which totaled more than $8.7 billion in 1999, one-third more than doctors and hospitals spend on medical-malpractice coverage. Home buyers generally funnel all that money directly to the title insurer their real estate agent or settlement company recommends.

So this is title insurance in a nutshell: You, the homeowner, pay a premium to the title company to protect your lender from mistakes made by the company when it does a title search. Are you a sucker, or what?

To make matters worse, even though you're paying the bill, the title company's client is the real estate agent, lender, lawyer or homebuilder who brought in your business. Part of your premium likely goes toward rebates or other rewards for the referral (critics call them kickbacks), which many title insurers consider a cost of doing business.

"At one time, title companies would take entire real estate firms on ski trips," says Erin Toll, director of consumer affairs for the Colorado Division of Insurance, one of several state insurance departments that have been taking more aggressive action against insurers for their cozy business practices. During the past four years California has levied financial penalties totaling more than $4.2 million against title companies for unlawful rebates. Two pending cases could result in an additional $11 million in fines.

"It's a very creative industry, and they are extremely competitive with each other," says Toll. But it's the middlemen, not consumers, who benefit, because companies don't compete on price. "The consumer isn't in a position to exert market pressure to drive down the price of title insurance," says Birny Birnbaum, an economic consultant who has served as an expert witness at title-insurance-rate hearings.