Who gets to pick the title company?

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09/30/2015 | Author: Editorial Staff

Who gets to pick the title company that will issue the owner policy of title insurance?

It depends. If the seller pays for both the owner policy and the lender policy of title insurance, then the seller can pick the title company without violating the Real Estate Settlement Procedures Act (RESPA). However, if the buyer pays for the owner policy, then the seller cannot condition the sale of the property on the buyer purchasing the owner policy from a particular title company. Rather, the buyer would get to pick the title company.

In situations where the seller pays for the owner policy and the buyer pays for the lender policy, RESPA application is less clear. At least one court has held that, where the seller paid for the owner policy and the buyer paid for the lender policy, the seller did not violate RESPA by insisting on a particular title company for the owner policy. The court explained that the seller did not require as a condition of sale that the buyer use that same title company to issue the lender policy. However, the Consumer Financial Protection Bureau, the government agency that enforces RESPA, has yet to take an official position on the law’s application in this scenario. Therefore, if a seller wants to avoid a possible violation of RESPA, the seller should not insist on a particular title company for the transaction unless the seller is paying for both the owner policy and the lender policy of title insurance.

Read more legal questions and answers on the Legal FAQs page.

Categories: Legal
Tags: legal faq, legal, buyers, sellers, title company


Comments

Jim Clifford on 08/02/2016

cjmtm0104 - here is an article on the case you asked about.  Clearly if the seller is paying for the Owner’s Policy, it is NOT a RESPA violation!

http://www.hsblawfirm.com/media/pnc/1/media.291.pdf

David Davis on 08/02/2016

Dear cjmtm0104,
Why do you ask?  It would be pretty hard for the seller to violate RESPA.  RESPA typically only regulates lenders and title companies.  A seller is a party to a transaction and for the most part a party can pretty much do as they wish so long as the opposing party does not object.
David Davis
REALTOR®

cjmtm0104 on 08/02/2016

Does anyone know what case is being referred to here:
“At least one court has held that, where the seller paid for the owner policy and the buyer paid for the lender policy, the seller did not violate RESPA by insisting on a particular title company for the owner policy.”?

David Davis on 05/09/2016

The question “Who gets to pick the title company that will issue the owner policy of title insurance?” can be answered simply by stating who does the policy protect?  The buyer.  So the buyer gets to chose.  The buyer may have to pay for it, but the buyer ultimately has the right to chose.  Afterall, think about it.  When an offer to purchase is submitted, isn’t that when the information is filled in on the contract?  There’s the buyer’s chance to make his/her stand if they want to chose a certain issuance….

Jim Clifford on 05/09/2016

“Therefore, if a seller wants to avoid a possible violation of RESPA, the seller should not insist on a particular title company for the transaction unless the seller is paying for both the owner policy and the lender policy of title insurance. “

This is just simply not the case.  When the Seller is paying for the Owner’s policy, the seller can choose where that will be.  The fact that the buyer can purchase their lender required Lender’s policy at a significantly reduced rate does not REQUIRE the buyer to do so.  In fact, if the buyer is adamant and determined to purchase their lender’s policy else where, there is nothing stopping them.  The court case that (in Texas) that I believe you are referring to specifically noted that in it’s ruling. 

Moreover, the reference to a lack of CFPB’s ” official enforcement inaccurately implies that the CFPB would somehow, someway be willing, and have the authority to, circumvent legal precedence.  In a state where it is the custom that the seller pays for the Owner’s policy and the buyer pays for their lender required lender’s policy, the suggestion that the seller should only insist on where they spend their $$$ if they are willing to also pay for the buyer’s lender policy is irresponsible and based on no material fact or logic.  Where did this come from anyway?

Deborah Wheeler Morales on 10/01/2015

Sounds like any ‘traditional’ expectation of Seller paid “OTP” will not be the strategy for Buyer’s acquisition it has been in the past.

J.A. on 10/01/2015

@ .(JavaScript must be enabled to view this email address) You do have a great point, but I think depending on what side of the fence you are on would make sense who should be in control of which title insurance company to use. I think that if you do have a title claim and depending on the type of title claim I as the seller would want the best insurer to defend title that I conveyed to the buyer. If you do not have a strong title insurer behind that policy the seller might have to be in a position to defend title on their own. If you notice the TX deeds state “Warranty” across the top, so there are different types of “Warranty” the sellers are given when conveying title and title insurers are insuring the fact that the seller has good indefeasible title as to which to insure upon. So I think that if I as the seller do have a claim I would not only want to have the best title insurer behind me, but also to protect the buyer and their lender. You can also debate this subject on the buyer’s position as well…

Kate on 10/01/2015

This is to say nothing of builders refusing to pay for either title policy, but entering into a contract ONLY if you use their title company.

aleshia@dreamcatcherhomes.com on 10/01/2015

J.A. - doesn’t the OTP protect the new buyer on any title issues that may arise?  As far as my understanding that is the case.  Therefore the seller should NOT have the choice to choose the OTP based upon that argument.  Correct me if I am wrong though.

David Davis on 09/30/2015

@Andrea P. Sunseri,
Foreclosure companies do not typically REQUIRE the use of any settlement service provider.  That would be a RESPA violation.  They do not have to agree to pay for the title policy, or their (seller’s) half of the escrow fee,  Also keep in mind that the conveyance will in most cases be by Special Warranty Deed drawn by the seller’s attorney.  If you are not using the title company associated with that attorney, your buyers choice of title company may have issues with the deed or other documents drawn elsewhere.

@ J.A., No the current TREC forms are not up to date with the “Know Before You Owe Law” changes that will be going into affect on October 3.  As it stands right now there are some last minute changes being considered, and TREC will consider those changes at their next meeting which I believe is on November 2, 2015.

J. A. on 09/30/2015

I believe our TREC contracts are not in sync with the new forms. The Closing Disclosure and Loan Estimate both show the Owner Policy to be “optional”, however even with today’s forms the Owner policy is shown to be paid by the buyer/borrower and a credit shown on the HUD from the seller.  If the seller chooses to pay for the owner policy then I believe they would be in a position to choose which title company they would want to protect them in the event of a title claim against them, and go with the strongest insurer to protect them. Just like a homeowner or auto policy, you want to go with the best insurer out there…

Andrea P. Sunseri on 09/30/2015

I’d like to know RESPA’s comment regarding foreclosure companies requiring a certain title company for their transactions.  Hopefully, someone has an answer to this inquiry.


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