Whenever my customers purchase a foreclosed property, the selling bank requires us to use the title company that they chose. Keep in mind that it is actually the buyer’s choice on who to use for title work, but the REO bank will always strong-arm the buyer via bank addendum’s to use their chosen title company. I must have been to 15 different title companies in 2008 for all the REO houses that I sold! Unfortunately, I have found that probably 90% of those title companies are terrible at what they do. They are slow to respond to requests, they miss items on the HUD, and they have miserable customer service.
Finally, ALTA (American Land Title Association) has launched a lawsuit against HUD, banks and asset managers who are requiring buyers to use a particular title/closing company. In a letter to the Federal Housing commissioner, the American Land Title Association accused HUD of violating RESPA because it is directing title and closing services involving HUD-owned properties. According to ALTA, many other lenders also have assumed this practice on their bank owned real estate. For clarity, I have copied for your reference Section 9 of RESPA that deals with this practice.
The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The purposes of RESPA are
- to help consumers become better shoppers for settlement services and
- to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.
Section 9: Seller required title insurance
Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.
Please see the website below for further information: http://www.hud.gov/offices/hsg/sfh/res/respamor.cfm#HE2
3 comments
#1Jeanie Hoholik – Twin City Real Estate ChatJanuary 14, 2009, 10:49 pm
Scott, I now write in the purchase agreement for my client, who buys several REO’s in North Minneapolis, that we will NOT use certain title companies. Specifically, First American Title. We currently are fighting a $2,600+ Minneapolis property assessment issue that they missed back in July. I will not let up until these folks cough up the cash for my client. Next stop, MN Commerce Dept. Should I really have to spend my time doing this? Don’t the City and other taxing bodies want me to be selling properties and getting decent folks in to these homes so we get rid of the crime and poverty that lingers? Sorry, just a rhetorical question.
#2First Time Home BuyersJanuary 15, 2009, 11:08 am
I actually had a buyer back out of a deal that was a short sale, because the listing agent was telling us if we didn’t use their title company, the Sale Price would go up $500.
What a crock, right?!
And yes, these companies are HORRIBLE at what they do, more often than not.
#3MN PropertiesJanuary 20, 2009, 8:24 am
Scott, thanks for the post. I have been down this road a many of times with REO’s and typically I find if you write in the contract up front that the buyer will close with the title company of their choice then the seller will almost 100% agree. I didn’t realize the RESPA requirement existed. I also find it interesting that the MN Dept. of Commerce states that an agent nor a title company can dictate where a buyer closes but a SELLER CAN. I guess I am not the only one that needs to take another look at RESPA.
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