There are many moving parts to a Real Estate transaction. One of the parts is who picks the title company to use to close the transaction. The job of title company is to act as an intermediary to make sure that every party does what is legal and to transfer the ownership of the deed from the seller to the buyer.
One of the reasons I am writing this blog is due to some information that I saw on the internet and a situation I ran into with another agent. Normally, when something happens that is negative I just shrug it off and move on, because it isn’t worth my time or energy. Sometimes though, there are situations that you just have to step up and call out in order to bring to light ways of doing business that may have worked in the older days, but with the changes of laws and guidelines with RESPA and TILA, they aren’t always acceptable any more.
Recently I read an article on line from an agent on a business site stating the reasons why she tells the seller the title company they should use that she does business with and why. There were multiple comments from other agents telling her that the buyer is the one who picks the title company.
Shortly after reading that article I had a situation with an agent that was trying to make my buyer use their preferred title company. She had left me a message after both parties had already come to an agreement on the terms and conditions of the contract, a clean set of documents had been signed and sent over for the seller to sign and execute. She said that we needed to change the title company and who they wanted to use and that they had listed in the mls who we needed to use. The crazy part is that she wasn’t the actual listing agent. She was taking care of a listing for an agent that was out of town on vacation.
When I stated what the law was and that she was in violation of Section 9 of the RESPA guidelines, by trying to force my buyer to use her company, she was not happy about my answer. I received a call about an hour later telling me that she talked to their title attorney, that I was wrong and that if they were paying for the owner’s title policy that we had to use their company. I let her know that she was still misinformed based on the RESPA guidelines and that she may want to refer to the legal requirements. She then told me that it was common courtesy that I use their title company.
To be clear, if I am representing a buyer, I am responsible and required to put the interests of the client above all others, including the broker’s own interests. My job is to do what is best for the buyer. It is not about me doing a favor or courtesy for another broker. Agents need to stop thinking about what is best or convenient for themselves or their friends that they work with and have relationships with and uphold the law that they agreed to honor through our code of ethics when they got their license. Every agent want a nice, clean and easy deal when working with other agents, but when an agent is trying to force an agent to do something that is in violation of the code of ethics to do them a favor or because they want to use their preferred vendors, then that is a problem.
As agents we have to be very careful about the information we are stating unless we really know what we are talking about, have read the laws and confirmed with the TAR lawyers or TREC about the requirements. Sometimes if we talk to someone at the title company and don’t communicate all of the information necessary, they can give us an answer based on our information and give misinformation since we didn’t tell them the whole story.
Sadly, I would imagine most agents that haven’t been doing this very long would just cower to the listing agent and use whoever they want, just to get the deal done or because they are afraid of an agent that is a bully just trying to get their way. There are many extremely good title companies available to use and I don’t have anything against or any reason not to use the title company that they recommended. What I did have a problem with is that she was breaking the law. As a listing agent, we need to be extremely careful about how we represent not only our sellers but our brokerages. As real estate agents, we are operating under the name of the broker that is holding our license. We have many rogue agents out there acting as though they are brokers and running their own show. The agents need to always remember they are just a representative of the broker, they are NOT the broker and owner of the business. They make statements that can wind up putting them and their brokerage in hot water with the Texas Real Estate Commission, along with winding up in a legal issue over something they said or did. In this case it was a violation of a HUD RESPA (Real Estate Settlement Procedures Act) Regulation that is administered and enforced by the CFPB (Consumer Financial Protection Bureau). Many laws have been put into place for the protection of the consumer – the buyer – exactly for these reasons, to make sure the seller and/or agent is not trying to control the deal.
In Section 9 of RESPA guidelines, it prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.
I have included the full Section 9 from the HUD.gov site below, to make sure you are completely aware of the specifics of the law.
For Buyers entering into a contract, here is information on what the title company services will include:
Securing Title Services
Title insurance is usually required by the lender to protect the lender against loss resulting from claims by others against your new home. In some states, attorneys offer title insurance as part of their services in examining title and providing a title opinion. The attorney’s fee may include the title insurance premium. In other states, a title insurance company or title agent directly provides the title insurance.
Owner’s Policy. A lender’s title insurance policy does not protect you. Similarly, the prior owner’s policy does not protect you. If you want to protect yourself from claims by others against your new home, you will need an owner’s policy. When a claim does occur, it can be financially devastating to an owner who is uninsured. If you buy an owner’s policy, it is usually much less expensive if you buy it at the same time and with the same insurer as the lender’s policy.
Choice of Title Insurer. Under RESPA, the seller may not require you, as a condition of the sale, to purchase title insurance from any particular title company. Generally, your lender will require title insurance from a company that is acceptable to it. In most cases you can shop for and choose a company that meets the lender’s standards.
Review Initial Title Report. In many areas, a few days or weeks before the settlement or closing of the escrow, the title insurance company will issue a “Commitment to Insure” or preliminary report or “binder” containing a summary of any defects in title which have been identified by the title search, as well as any exceptions from the title insurance policy’s coverage. The commitment is usually sent to the lender for use until the title insurance policy is issued at or after the settlement. You can arrange to have a copy sent to you (or to your attorney) so that you can object if there are matters affecting the title which you did not agree to accept when you signed the agreement of sale.
Coverage & Cost Savings. To save money on title insurance, compare rates among various title insurance companies. Ask what services and limitations on coverage are provided under each policy so that you can decide whether coverage purchased at a higher rate may be better for your needs. In Texas, title insurance premium rates are established by the state and may not be negotiable. If you are buying a home which has changed hands within the last several years, ask your title company about a “reissue rate,” which would be cheaper. If you are buying a newly constructed home, make certain your title insurance covers claims by contractors. These claims are known as “mechanics’ liens.”
Survey. Lenders or title insurance companies often require a survey to mark the boundaries of the property. A survey is a drawing of the property showing the perimeter boundaries and marking the location of the house and other improvements. You may be able to avoid the cost of a complete survey if you can locate the person who previously surveyed the property and request an update. Check with your lender or title insurance company on whether an updated survey is acceptable.
Here is what the Texas Association of Realtors says about the topic:
Who gets to pick the title company that will issue the owner policy of title insurance? (updated September 25, 2015)
It depends. If the seller pays for both the owner policy and the lender policy of title insurance, then the seller can pick the title company without violating the Real Estate Settlement Procedures Act (RESPA). However, if the buyer pays for the owner policy, then the seller cannot condition the sale of the property on the buyer purchasing the owner policy from a particular title company. Rather, the buyer would get to pick the title company.
In situations where the seller pays for the owner policy and the buyer pays for the lender policy, RESPA application is less clear. At least one court has held that, where the seller paid for the owner policy and the buyer paid for the lender policy, the seller did not violate RESPA by insisting on a particular title company for the owner policy. The court explained that the seller did not require as a condition of sale that the buyer use that same title company to issue the lender policy. However, the Consumer Financial Protection Bureau, the government agency that enforces RESPA, has yet to take an official position on the law’s application in this scenario. Therefore, if a seller wants to avoid a possible violation of RESPA, the seller should not insist on a particular title company for the transaction unless the seller is paying for both the owner policy and the lender policy of title insurance.
Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.
While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on TexasRealEstate.com. Any legal or other information found here, onTexasRealEstate.com, or at other sites to which we link, should be verified before it is relied upon.
- See more at: https://www.texasrealestate.com/for-texas-realtors/legal-faqs/category/choice-of-title-company#sthash.sbV06en3.dpuf
Here are the specific RESPA guidelines:
Section 9 of RESPA (12 U.S.C. §2608) states that:
- No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.
- Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.
The only way a Seller can mandate that the purchaser use a particular title company is if the seller paid 100% of all title insurance and related title costs. HUD’s RESPA Division has stated on numerous occasions that unless the seller pays 100% of the title related costs then the seller has violated RESPA. REO companies need to pay particular attention to Section 9 because required use practices by REO companies are on the HUD’s radar right now.
Additionally there are several local real estate purchase agreements that are in use in parts of the United States where the language in the purchase contract states that Seller picks the title company but purchaser pays for title costs. It should be clearly noted that you can not contract out of a RESPA Section 9 violation. Just because the purchase agreement is signed by the borrower doesn’t prohibit the borrower from coming back and suing the seller for required use if the borrower is stuck with any of the title related fees.
Lastly another clever technique that is in use is where the seller says they will pay for the owner’s title insurance policy but that purchaser has to pay for the lender’s title insurance policy and all other costs. This does not pass the smell test nor does it pass HUD’s smell test. The practice while novel in its approach is still considered a Section 9 violation. If you are a borrower has been a victim of this technique within the last year please give an attorney a call.
If you are a victim of a Section 9 violation within the last year please give an attorney a call or if your transaction was more than a year but less than three years please contact HUD’s RESPA Division so you can file an official complaint.
As you can see from the information above, it is clear that there are very specific guidelines where we as a listing agent can tell another agent that the buyer needs to use our preferred company. We would need to have a specific conversation with the seller that they would be required to pay 100% of all title fees in order for us to put that stipulation as a part of the contract. Most sellers don’t care who is used and they want to pay the least amount of money out of pocket as possible and make as much from the sale of their home as they can. As listing agents we should be careful with how we handle this situation to make sure we are not in violation.
A lawyer from the TAR hotline mentioned to me that, if the buyer asks for closing cost assistance, the seller is not even allowed to dictate that those funds have to be used for paying the mortgagees title policy. She said that the seller and buyer would have to agree in writing that the seller would pay for the owner’s title policy, the mortgagees title policy and all title fees in order to be able to choose the title company. This has to be written outside of the closing cost assistance section 12(b).
If you are a buyer or seller, it is important for you to realize that the agent you choose can wind up costing you a deal if they are mishandling any part of the transaction. It is important to know that you are choosing an agent that is going to represent “you” and not make it about themselves winning or getting their way or about any other company they use as service providers.