Home Buying in 94501>Question Details

Salena, Home Buyer in Fremont, CA

My short sale contract states buyer (me) will pay for title policy provided by seller selected title company, is this legal?

Asked by Salena, Fremont, CA Wed Jun 9, 2010

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Hi Selena,

This has been a pet peeve of mine for as long as I have been in real estate which is 26 years. It is against RESPA which is a Federal law that the seller cannot make the buyer use a particular title company unless the seller is willing to pay for title costs. If a transaction is all cash then it is not subject to RESPA and the seller then request you the buyer to use a particular title company. The RESPA law applies only if the buyer is getting a federal loan. Your agent should know this law and advise you properly. The seller can be liable for not only the title fees but 1 1/2 times the costs in penalties. Of course the seller in a short sale does not have any money so it is senseless for a buyer to sue the seller after the close of escrow. A short sale transaction is performed just like a normal transaction subject to lender approval. In our area it is normal for the buyer to pay for title fees but it is the buyer's choice. Across the bay in some cities the seller pays for title and escrow fees so the seller has the right to choose the title company. I hope this helps.

There is a new law in which REO sellers cannot mandate to the buyer the title and escrow company.. The buyer can then choose their title and escrow company or have the seller pay if the buyer is willing to use the bank's title company.
Web Reference: http://www.jeanpowers.com
1 vote Thank Flag Link Thu Jun 10, 2010
Thanks to all of you. My post was a result of agent believing that there was no contradiction. I contacted the RESPA division of HUD, who responded that what has occurred is a clear violation and illegal. They have requested that I file a complaint against my broker. I feel that my agent is not working in my best interests. In the least I will ask to resolve the error rather than sue the seller. No one wants that. The request by the seller for a short sale does not mean that the seller does not have the availability to contribute to some of fees. Now I know bottom line whomever picks title pays.
0 votes Thank Flag Link Sat Jun 12, 2010
Hello Salena,

They can not force you to use their title company but if the all the paperwork has been submitted already, its just easier. This is an issue that should have been brought up early but at that point, everybody is willing to go with whatever the banks want so their offer gets accepted. I'm sorry you are in an unhappy situation. Good luck to you.

Kamal Randhawa
0 votes Thank Flag Link Thu Jun 10, 2010
By law a buyer cannot be required to use the title company or escrow officer chosen by the seller's side. However, as we all know short sales can be very complicated. The seller's side has probably selected an escrow officer who knows his/her way around a short sale. They probably are working with someone who knows what to look out for on the pre-liem, what needs to be included on the HUD,and how to work with the Seller's loan servicer. Most importantly they understand that the short sale servicer deadlines are not to be fooled around with. So, can a buyer say "we want to use someone else," sure they can. However, I would make sure the buyer understood the importance of the escrow officer's short sale experience and if the seller is asking them to use a specific escrow company and officer, it is probably because the seller's agent has experience with that escrow officer and know that he/she will get them to closing with a clear title and that all the sevicer demands set forth in the approval letter are met.
0 votes Thank Flag Link Thu Jun 10, 2010

IMO these banks are cruising for class action lawsuit by some resourceful attorney after this whole mortgage debacle is over. I mean why should anyone sue now? These banks are still volating RESPA and are in the process of their own financial recovery. Timing is everything.

If I were a good attorney looking to lititage the last penny out of some blatant legal violation that is still going on, I would wait. The last of the bad loans go away in a year and a half, then another year to wond down the inventory, by then a bulk of the violations will have occurred. Why leave money on the table right now when the banks are still breaking the law and will be for another two orso years?

Rest assured those bank attorneys will be chasing all those buy and bailers for offenses a lot less blantant violations in law. What goes around does come around!

Even though only the attonreys will make any money off this lawsuit, it would be one of the cases where that money would be justly earned.
Web Reference: http://bob2sell.com
0 votes Thank Flag Link Thu Jun 10, 2010
Hi Salena,

Bottom line is that they can not require you to purchase title insurance from a particular company. As several people have said, everything is negotiable.

However, I have completed 18 short sales in the past two years and it can be difficult switching title companies if you are far into the game if the Seller's Lender has approved your contract. The bank doing the Short Sale has been communicating with one company and when a new one is introduced, problems can occur

I would try to get a clear understanding of why they are asking this. It could be that the bank doing the short sale may be requiring more NET than your current offer will get them and the Listing Agent is trying to get the whole deal to work, or it could be a particular lender's policy is to not pay for that. There have been instances in even my short sales where the bank wants more money and the Buyer wont increase their price so we redivide charges like the property taxes to ensure the Buyer gets the house they want and the Seller is happy that it closed.

Short Sales are interesting animals and may require a little give and take to get you the house. closed. Make sure your RE Professional is getting all the information.
0 votes Thank Flag Link Thu Jun 10, 2010

As James mentioned, by the time a short sale is approved, a specific title company has been working with the lender for a long time. Their specific fees have already been factored into the deal the bank is willing to cut with the owner and you. It really does not make sense to switch title companies at this point.

Could you? Probably.

Should you? No.

Short sales take so long to approve and have so many moving parts that, by the time you get approved, it’s best to accept the bank’s terms and get going with your escrow. And they are not asking you to pay for any title fees that you would not normally be paying anyway.

You really don’t want to rock the boat at this point.
0 votes Thank Flag Link Thu Jun 10, 2010
It is legal if all parties agree to it by signing, If you dont agree to it, this is a negotiating point that should have been outlined in the initial offer and again when teh seller counters with this you can then counter the counter offer with you choosing your own.

It is actually common for the bank to provide the title, almost all of teh banks will ask for this, the key is that you have to stay firm on you choosing your own closing company/attorney. Your attorney will tehn get the title from them however they will check it again as well to make sure there are no liens on teh property. Your buyer agent should be guiding you through this.

good luck with your purchase
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Thu Jun 10, 2010
Salena if you agree to it you are fine. Just to give you some insight on wht this may be in the contract. A lot of lenders require a HUD-1 that is done by title company or attorney to be submitted with the purchase offer showing their net. The title company that I work with in my area will check for other liens and HOA status at no charge if they are in the contract as the closing title company. They have done a lot of work and incurred some expense on a property that may not close so it is only fair as they have helped the sale happen that they close it also.
0 votes Thank Flag Link Thu Jun 10, 2010
It's only legal if both parties agree to it.

You as the buyer have the right to choose your own title/escrow company. And generally, you as the buyer pay for your own title insurance.

However, there are times when this item is negotiated.

If the property is an REO (bank-owned), they usually have their preferred title companies. If you agree to use their preferred company, you can specify that the seller will pay for title insurance. And generally, they do.

If the seller opened a pre-escrow with a title company, and the preliminary report is already available, the seller may have considered that as an extra service or information to provide to the buyer as part of the buyer's investigation. But you don't have to use that title company. If you do choose your own, you may be expected to pay your own title insurance as customary

In a competitive situation --- depending on whether it's a buyer's market or seller's market, many items are negotiable regardless of what expenses are customarily paid by either party.

As they say, everything is negotiable. And once everyone agrees --- it becomes an enforceable contract. And yes, that's legal.

Shouldn't you be asking your realtor this question?
0 votes Thank Flag Link Thu Jun 10, 2010
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