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Questions and Answers: Do I Have to Use the Seller's Title Company?

By Stephen Howell

Real Estate Agent with Coldwell Banker Residential Brokerage

June 22, 2011 02:13 AM

Questions and Answers: Do I Have to Use the Seller's Title Company?

In Maryland, the Maryland Association of Realtors (MAR) Residential Contract of Sale Paragraph 36 states:

NOTICE OF BUYER'S RIGHT TO SELECT SETTLEMENT SERVICE PROVIDERS: Buyer has the right to select Buyer's own title insurance company, title lawyer, settlement company, escrow company, mortgage lender or financial institution as defined in the Financial Institutions Article, Annotated Code of Maryland.

That pretty much sums it up for Maryland buyers. Sellers from time-to-time ask buyers to use a certain title company to settle the sale of their home. It's not often but it does occur. It's usually because the sellers are doing back-to-back settlements where they're selling one home then turning around and purchasing another. But, Maryland law is clear on this matter, the sale cannot be conditioned upon the seller dictating which title company the buyer must use.

An Exception to the Rule: Bank Owned Properties

Many times when buyers purchase bank owned property (an "REO" as they're often referred to), the bank's addendum (which buyers will be required to sign or they won't get the house) supersedes the standard Maryland Residential Contract of Sale and will state that the buyer has to use a certain title company. Why? Some legal firms become "foreclosure factories" for certain banks and handle all their foreclosures from beginning to end. They foreclose on the defaulting borrower then handle the sale and settlement to the new buyer; all as a way to profit off the entire foreclosure transaction. These foreclosure factories collect attorneys fees, title fees, and as buyers like to refer to them "junk fees" for almost anything else that the firm can think to charge for.

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Scott Godzyk

Godzyk Real Estate Services - Manchester, NH

One of the Manchester NH's area Leading Agents

Despit the banks request you use their attorney, i make it a seperate line item that buyer closes with tehir attorney/title company and with all but 1 bank, it has worked great for the buyer. Thanks for sharing such a great topic

Jun 22, 2011 02:16 AM

Stephen Howell

Coldwell Banker Residential Brokerage - Annapolis, MD

Annapolis MD Homes For Sale 443-994-8043

Scott ... Let me guess which bank, hmmm, Bank of America??? Do you suggest that the buyer write the separate line item into the bank's addendum? In Maryland, unless you're also an attorney, when agents write anything on a Contract of Sale they're practicing law without a license.

Jun 22, 2011 02:29 AM

Lanre-"THE REAL ESTATE...

Bowie, MD

Charita Cadenhead

eXp Realty - Birmingham, AL

Serving Jefferson and Shelby Counties (Alabama)

Stephen I rarely come across this. There has only been one occasion where there was a double closing and the seller requested a certain title company. It did not present a problem for the buyer. I will say that in many cases, it's not the seller who really cares about what title company to use, as it is the listing agent. Do you find this to be true?

Jun 23, 2011 02:47 AM

Stephen Howell

Coldwell Banker Residential Brokerage - Annapolis, MD

Annapolis MD Homes For Sale 443-994-8043

Charita ... I agree, selection of the title company is often the default referral made by the buyer's agent. What I see most often is that buyers are selective about their lender, but, then default to either the agents' or lenders' recommendation about who to use for title work. I'd say it's more of an issue for the buyer's agent, then the buyer, then the listing agent!!!

Jun 23, 2011 04:05 AM

Carla Muss-Jacobs, RETIRED

RETIRED / State License is Inactive - Portland, OR

It's a real bone of contention here. When I first started in real estate there was a section in the listing sheet where listing agents would put in the name of the escrow/title company to be used. It was almost a "contingency" to use listing agents people (because we all know, sellers -- and buyers -- don't know from escrow/title companies). A few years into my practice, that section was removed entirely. Then listing agents (more than likely) balked, and it was re-inserted in the listing sheet as "Escrow Preferred" with the datafield open to insert who the "preferred" escrow/title company would be. I don't even care anymore. I try to explain to my clients that they do have the ability to select their own escrow company, and I have inserted escrow company into the Sales Agreement. It used to irk me when the seller would counter with another escrow company . . .knowing it was really the listing agents preference. Again, sellers (and buyers) don't know from escrow/title. When we go with the "preferred escrow" that the listing agent inserts, and if they screw ... it's a call from me to the listing agent "Well . . . YOU wanted them!!"

Jun 29, 2011 07:06 AM

Charita Cadenhead

eXp Realty - Birmingham, AL

Serving Jefferson and Shelby Counties (Alabama)

Stephen I thought this would have been featured by now. I'm going to try to help it along. Click!

Jun 29, 2011 08:01 AM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

Stephen. Buyers are always free to choose whoever they want to handle THEIR side of the transaction and provide the lenders title policy. Howevew the seller is also free to use whoever they want to handle THEIR side of the closing. The reality is that the owners title policy is the more expensive of the 2. When both policies are issued by the same insurer the buyer gets a little bit of a break on the lenders policy. It makes financial sense to use the same insurer.

Of course if the buyer wants to control the closing then they can just pay the costs of both policies. That's simple enough.

On REO purchases we almost always have the buyer order seperate title search through a different tile company. This cost abojut $150 and gives then a little more peace of mind. No one can prohibit the buyer from doing this.

Jun 29, 2011 01:18 PM

Stephen Howell

Coldwell Banker Residential Brokerage - Annapolis, MD

Annapolis MD Homes For Sale 443-994-8043

Carla ... I hear you on this ... whenever an agent brings up the matter of "buyer must use ...", I'm certain it's because there's some undisclosed benefit. I ran across this the other day with an agent were the two of us got into on who was going to initiate the home warranty. Since the broker could financially benefit from the warranty, that was clearly the motivation. The agent happened to be the broker/owner ... so I'm pretty sure she was arguing over her initiating the coverage so that she could as broker would benefit financially. Stuff like this, demanding that the buyer us this company or that firm is just one more way in which the client receives less, not more, often at a higher price. You're right on when it backfires and we can say "but you picked them!!!".

Charita ... Thanks!!!

Bryant ... In Maryland, there's usually only one title company, most often the buyer's choice, that handles the entire closing from beginning to end. In other states, the settlement table I've heard gets pretty crowded where the sellers have their own attorney, the buyers have their own attorney, and then there's a third attorney to conduct the settlement. In Maryland, the lender's policy and the owner's policy would be issued by the same settlement company (therefore the same issuror) with the buyer paying something for both.

Jun 30, 2011 01:51 AM

Rodney Mason, VP of Mtg Lending

Guaranteed Rate NMLS# 2611 - Atlanta, GA

AL,AR,AZ,CA,CO,FL,GA,IN,MI,MS,NC,NV,SC,TN,TX,VA,WA

Even on the REO properties, buyers are still free to use their own closing agent. With most REO contracts, the seller will often pay for the Owner's Title Insurance policy, but only if the buyer uses the seller's preferred agent.

In GA, there are about 5 firms which handle the majority of the REO closings. Their closing fees are right in line with everyone else. I don't disagree that they can be sweatshops. From a lender perspective, using the same title company for both sides does simplify it though. Bringing in another firm usually complicates matters in the end for everyone.

Jun 30, 2011 09:04 AM