Actually, one doesn't always have to go with the title company of the bank (that owns the REO). In fact, many lenders will INSIST--or at least strongly recommend--that one uses a title company that already has a relationship with it. I insist on using my own or the lender's title company, because some banks will bury a clause within either the contract or addenda stating that the buyer will accept a title abstract in lieu of the actual title. A title abstract and title are 2 different things. I'll spare you the details--just know that you want the actual title.
Carlos is also correct that many banks are "behaving is border-line abusive" manner; they do it because they can, and because they know most consumers will sign the dotted-line without exercising their right to negotiate. However, now you're empowered, because you do know, and you'll be able to stand your ground with confidence.
Of course, I must admit I've had several listing agents to write me that a particular bank wouldn't accept my offer or some of my modifications. I kindly--but firmly--asked them to submit my offers/counter-offers as-is anyway, and told them the bank will counter or reject my offer/counter-offer if they didn't like my terms.