Now question or better yet my statement is that why not in all cases should it not be the buyers choice to choose the title company? Remember it is the buyer who is being insured, it is the buyer who will need to rely on that "policy" in the future. Lets use an example: when buying a house does the seller dictate what homeowners insurance the buyers obtain or does the buyer?
The buyer must be assured that the companies they are using for any type of insurance is financally sound. This should not be just for federally funded transactions, it should be the law for all transactions. Title companies and underwriters are just as likely to go under as any other business - one claim can take them down - Look at Ticor Title in the 80's and US Life Title in the 80's - LandAmerica Title filed bankruptcy in 2008/2009 - Every transaction should be at the buyers choice even if it is a cash transaction!
I'll try to go through the steps and see if I can make any sense out of this for you. Here is the part of Title 12, Section 2608 of USC that you refer to above:
(a) 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
Okay, so now that we know what the code says the first question to ask is are you getting a loan? I assume, yes. And is the loan federally related? Again, I assume yes, because virtually every loan is. Forgive me for taking what might seem to be a wasted moment on "duh" questions, I do so because a lot of people make assertions about RESPA without reading or understanding the code, and therefore fail to analyze completely.
Youâ€™ll also notice there is nothing in the code that says its okay for the seller to condition title Insurance from a particular company as long as the seller pays for the policy. So a flat assertion that as long as the seller pays its all right is also incorrect.
So whatâ€™s going on then? Is RESPA broken? How are banks and relocation companies getting away with this? Primarily because there is no complaint acted upon, along with an argument about â€œsale conditioned upon,â€ and the â€œspiritâ€ of RESPA is not violated. Iâ€™ll cover these in reverse order.
The Spirit of RESPA. RESPA was a lobbied response to threatened regulation by HUD. The consumer was confused by settlement fees, many which were unnecessary and partly driven by â€œkickbacks.â€ At one point UD proposed to do away with Title Insurance entirely, and create a â€œNational Land Registry.â€ Title companies werenâ€™t happy about that proposal and lobbied successfully to avert the end of their business. he â€œkickbackâ€ part of Title Insurance has been in recent times, more successful in thwarting Title companies pursuit of business. In your particular case the arrangement is probably partly control and convenience, but most likely itâ€™s because the Relocation Company received a short term coverage arrangement with Title. They paid less for the insurance because the Title company expected to get another transaction on the sale. If the title company was not used on the subsequent sale (generally within a specified period of time) the Relocation
Company would not receive the discount. They could have said â€œSure, use your own Title company if you want, but because we lose money that way, we need to charge you more for the house,â€ but that might be â€œConditioning the Sale,â€ which Iâ€™ll discuss next,
â€œAS A CONDITION TO SELLING PROPERTY.â€ This language was made for lawyers to fight over. I know one attorney who asserts that arguably the only way this language is triggered that Title selection privilege is the only item that appears on a counter-offer to the Buyer. Otherwise, itâ€™s simply an add-on to a laundry list of true impedimentsâ€”usually price, terms, timing, etcâ€¦ Additionally Banks and Relocation companies use the
language â€œReserve Right To Select Titleâ€ in listings to condition the Real Estate agent to deliver an offer where it seems the Buyer has made the selection. Real Estate agents go along with this because they donâ€™t really see a â€œkickbackâ€ condition, and know that the Seller will reject the offer or modify it as an add-on item in a counter. They also do this because of the lack of enforcement, which I discuss next.
Lack of Enforcement. To fight a RESPA violation, you have to do something. Itâ€™s not Self-enforcing. Hereâ€™s partial language from HUDâ€™s website with advice on acting when A RESPA violation is encountered:
Most settlement service providers are supervised by a governmental agency at the local state and/or federal level, some of which are listed in the Appendix to this Booklet. Your state's Attorney General may have a consumer affairs division. If you feel that a provider of settlement services has violated RESPA or any other law, you can complain to that agency or association. You may also send a copy of your complaint to the HUD Office of Consumer & Regulatory Affairs. The address is listed in the Appendix.
Conclusion: Your options and the issue arenâ€™t as simple as many suggest. If you want to pursue this follow HUDâ€™s advice above or contact an attorney.
s/ Allan Cory
I agree with you, it is a RESPA violation that the seller requires you to use a certain title company; and the sellers they represent can be fined for requiring that you have to use a certain title company.
You are correct that since you are the one who is paying for the title insurance and your house will be the one that is going to be insured, you should be the one who choose which company to use. That's exactly the reason why they set the rules.
I, myself and my company, have a policy of not asking buyers to use a certain title company as listing agents, . But I do want to provide you with some reasons why others might suggest that.
However, sometimes it is easier for the seller to use a particular title company. For example, if they are doing a 1031 exchange and they are using an exchange / title company for the property they have to buy, then they might want to use the same company for they property they are selling - just make the whole transaction so much cleaner and easier to process; or if there is a short sale/bank owned property, the title is insured by a certain title company after much research, then it'd be easier to use that one; also, for relocation company, as they either deal in volume and have a certain company they do business with and they feel confident in using that one, or maybe the person who is relocating is using the same company so the transaction is smoother - just some of the reasons why they may prefer to use a certain company.
Just thought it might help you if you know why they sometimes do that. Unfortunately, it is always tough when you have no choice because you love that property; especially when you know they have no right to do so.
I do hope you get the house you love!
I am not clear on why you are upset about the term that's contained in the addendum. It does not seem to dictate why title company you use. It just says that you'll order and purchase through a mutually agreed upon agent. When you made the offer, did the relocation company counter you on which company you should use. Maybe things are done differently where you are. In CA, the buyer's purchase offer sets forth the title company that the buyer wants to use and then when the seller accepts the offer, that means the buyer's choice is mutually agreed upon.
I have seen this happening in transactions that involve a bank owned property, but the bank's addendum also provided that the bank was going to pay for the owner's title insurance policy in it's entirety.
So right now, based on the facts that you describe, it does not look like the relocation company is making you choose a particular title company. "Mutually agreed upon" is different from saying you have to use company X.