The foreclosing banks title company regularly issues indemnity letters and title policy exceptions. The title company may try to convince you that those are "normal" or "industry practice" and threaten you with default if you don't proceed to closing (some exceptions may actually be "normal".) It usually doesn't help that the issues aren't discovered until last minute.
In Virginia you should be able to use your own title company for your part of the closing. In my opinion it is worth loosing the closing incentives in return for gaining a better understanding of what you are purchasing.
Using the sellers closing company for a foreclosure is sort of like the seller providing a home inspection and saying all is good and normal. Wouldn't you want to rather do your own inspection?
It is possible that the bank will refuse to enter into a contract with anyone other than their title company and this could be for a couple of reasons. First, many foreclosures have been undone lately and the bank may want to use a company that they are sure will get the process correct. They don't want to deal with an issue later.
Second, the title in a foreclosure is often messy and it is possible that their title company has cleaned the title and has all the paperwork to show it. If you pick another title company, that work will need to be repeated and it is possible they have trouble fixing all the issues and you don't make it to settlement. The bank does not want to get 99% of the way through the process not to settle.
I would look into a split settlement and if that does not work, I would look into their company if that is what it will take. It may not be the best alternative, but sometimes that is what it takes to get the house. In the end, you will still have a title insurance policy.
But I have a different opinion from the last poster. The sellers prefer you to use their preferred company for many reasons, but in VA they can not require you to settle with their company. Buyers have the right to choose in VA. They can "entice" you with paid closing costs and such, but that is it.
While there are many pure motives and a massive convenience factor for sellers to use one title company on their side, it is entirely possible that the company they chose will insure a defective title. That's not a good thing. I'd much rather have the title scrutinized and have to back out of sale than to get into one where down the road we find out the property was wrongly foreclosed upon and you are forced to give up your home to the person who the bank stole it from. Sure, the insurance kicks in and covers some of your damages, but not all. Can you imagine dealing with this? When I buy a property I want to know I own it fully.
Serving Northern Virginia
Go for the split settlement if you can and be sure you are getting proper coverage in your title policy.
Good luck to you.
Erik J. Weisskopf,ABR,CDPE,CRS,GRI