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Why are Banks allowed to Violate RESPA?

Why are Banks allowed to Violate RESPA?

I just finished reading a great post by Randy L. Prothero, "Lenders Are Causing Property Values to Drop" (if you haven't read it, you need to) and he inspired me to post something that has been bothering me for a long time.

All of us here on ActiveRain know (or SHOULD know) that buyers get to pick the title company they want to work with. Why is it then, in the REO transactions I have been a party to, buyers are DICTATED by the bank's REO department which title company they have to use?

We just closed a loan for a client and dear friend of ours. Smokin' deal - if I must say so myself. The property is located in Coeur d'Alene, Idaho (WAY up North)! The title company the BANK demanded the buyer use was in Boise, Idaho (WAY down South).

For those of you who don't know our geographic location:
Coeur d'Alene, Idaho is closer to Seattle, Washington than Boise, Idaho.

Map of Coeur d'Alene, Idaho and Spokane, Washington

And, to say the least, the title company in Boise left A LOT to be desired:

lost loan docs,
sent the original docs back to the buyer's lender (along with the ORIGINAL Deed of Trust - which is supposed to be recorded by the county BEFORE being shipped to the lender - has anyone heard of "being on record"? That means the DEED of TRUST has been recorded ... A title company of all people should know that! DUH!),
provided wrong wiring instructions for funding of the buyer's loan ... which wasn't caught until they "didn't receive the wire",
rude and unprofessional behavior (don't get me started),
set up an appointment with my buyer to sign in their Boise office - it would take TWO DAYS of driving to get there!
got the buyer so upset she couldn't sleep because she asked for a courtesy signing by their sister company down the street from her house and, at first, they refused - until we got on the phone and had a shouting match,
don't get me started!

So, I ask again, why are banks allowed to violate RESPA?

Maryellen Garasky
Mortgage Broker
KMG Mortgage Group
(208) 664-3600
(509) 638-3455
www.kmgmortgagegroup.com

Posted by Kevin & Maryellen Garasky (KMG Mortgage Group - ID & WA) on 10/09/2008 06:22 AM

Comments (25)

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25 Comments on Why are Banks allowed to Violate RESPA?

OCT

Maryellen: There are many things about REO transactions that are "questionable" at best. I would hope with the current financial crisis, caused in great part by lenders, there will be new regulatory actions taken to make banks toe the line in these sorts of transactions.

Actually, in Ohio, the person that pays for the title insurance gets to pick the title company, and that is the seller. The sellers title company will send a closer to the buyer's location for closing, or the buyer can pick a "courtesy closer" where they can close, but since the seller pays for the important stuff, they get to pick the title company.

You would think in todays market with all the stink of predatory lending that this wouldn't be going on. HUD also does this same thing. Its not good!

Yicks...not a good thing...can you talk to the state banking regulator ? Don't know if that would work...but it works in a minute here for insurance...the companies behave quickly and well when they know they are building a file cabinet for complaints at the state level.

Mryellen ,,,,,,,, Sorry to say ,,,,,, the Regulations are in place . Plus, it will get harder !

I was going to post something like what Dennis said... The buyer's side may request their choice of title company in any transaction here, but most of the time the seller has already gotten things underway with their own, and that goes double for REO sales where a bank has their "usual" company they work with.

However...some institutional sellers will NOT pay for the title insurance (even though in Ohio the seller normally does so), but they still pick the closer. This is the case with HUD and the (former?) Fannie Mae...

Many smaller banks live in their own little worlds, completely unchecked. File a complaint with your state.

I brought this up about a month ago when I first saw it in my area. I also sent off an email to the manager at the title company that I frequently use. He said he thought this could violate RESPA and that he would look into it, but I never heard back from him about it.

Frankly, I'm more than a darned bit tired of the banks moving aside rules without penalty. (The listing I called into question stated quite firmly on the form "NO split closings. Bank will not allow buyers to use a different title company")

If that doesn't violate the spirit of RESPA...

The Buyer can choose to go where they'd like BUT then they do not get the advantage of the simultaneous issue rate and it's an uphill battle. Plus it makes for another difficulty in the closing as the two closers need to coordinate closely.

I know of agents who make that a condition of the offer. You can always go to that extreme. :-) At least it is over and the end result is a happy one. Way to stick with it! :-)

Maryellen, my last closing in Colorado was handled by the listing brokerage's affiliated inhouse title company and was riddled with stupid mistakes like you dealt with. It really was unbelievable! My understanding is that the buyer and seller can actually have different title companies issuing their respective policies. Like a mortgage lender, a good title company is worth their weight in gold!

Maryellen: Sorry to hear about your bad experience. Unfortunately some entities feel entitled and develop a life of their own! Better luck next time!

Paul

OCT

I've never daelt with REO's but from what I gather they seem to play by their own rules. I would contact HUD for and ask them what the real deal is.

BTW - I would love to require people to use the title company that I wanted to use, not because of any kickbacks or RESPA violations but simply because I know they'll get things done. Some how even the title compny mistakes come back to the broker.

Michelle

First, thank you all for your comments. I'm sorry for the delay in getting back to you, but I've got a terrible head cold and am barely functioning.

Steve - "Questionable" is an understatement, but you are right.

Denis & Suzanne - Interesting, I didn't know your state was this way. Do you mean that the seller pays for the Lender's title policy? Or, maybe you don't even have that requirement. I've never seen it, but then again I've never seen gravity, but it exists.

Randall - Thanks for your input, but this wasn't a small bank. You'd be shocked if I told you who it was.

Kris - Sick and tired is putting it mildly. Thanks for your input.

Nancy - You are right. Split closing are a pain. In Idaho, the buyer gets to choose, except in the case I blogged about above.

Sarah - Very good idea!

Janna - Stupid mistakes makes everything more difficult. Mistakes happen, but STUPID mistakes just gets under my skin.

Georg - I have no doubt!

Thanks again to you all!

Michelle,

You are right. It always comes back on the mortgage broker. And, if you (not "you" personally, just "you" as a general term) are a true professional, you try to keep the mud slinging to a minimum and keep your mouth shut. Sometimes, though, you just have to come to your own defense and put all the cards out on the table and say it like it is.

Nice to see you again!

OCT

Let me guess, WASHINGTON MUTUAL? A bank is only as good as the person running it. I'm serious, call the state attorney general. I sure would!

Randall - No, but close!

OCT

Unfortunately the answer is....because they can. This environment has enabled them to walk with a swagger.

OCT

Maryellen - I'm certainly not endorsing the banks' action but I've always looked at this issue (and other similar issues like track homebuilders and their in-house lenders) in a very simplistic way. The use of vendors in the transaction is just like any other term of the contract negotiations. The buyer can either accept the terms (bank's title company, builder's lender, etc.) or the buyer can purchase some other property.

I've never understood why the use of a specific vendor is treated any differently than any other contract term. If the buyer wants a 45 day close and the seller demands a 30 day close is that a violation of some sort? No, it's a negotiable item.

I am assuming that the use of the affiliated company is in a legal and compliant manner. There are no kickbacks to the referring party or additional cost to the buyer for the service or product rendered.

Again, I'm not suggesting these types of affiliated tie-ins are "right," I'm just saying that I think it is the seller's perogative to put whatever terms (legal) into the contract they like. Buyers can either acccept it or walk.

Mike

Michael,

Welcome back! Nice to see you again.

You are right, it should be a matter of negotiations. In this case, the buyers wanted the house so badly that they caved in. Not something I would have done if it were me - I would have taken it to the title company I know and trust, but what can you do?

Thanks again for commenting! Maryellen

OCT

I understand your issue with this problem. Just today I had a realtor in my office complaining because the title company that the bank insisted she use, has no communication skills whatsoever. I would like to obtain a copy, if for nothing else but my own personal knowledge, of the specific rule or statute within RESPA which addresses the fact that the buyer has the right to choose. Do you have that info?

Good Luck!

Becky

Becky,

Sure, it's on the hud.gov website. I have included the link HERE.

As you can read from the above comment from Dennis and Suzanne, things appear to be a bit different in Ohio, but the language of the law seems quite clear to me regardless where the property is located. It says:

TITLE 12--BANKS AND BANKING

CHAPTER 27--REAL ESTATE SETTLEMENT PROCEDURES

Sec. 2608. Title companies; liability of seller

(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
title company.
(b) Any seller who violates the provisions of subsection (a) of this
section shall be liable to the buyer in an amount equal to three times
all charges made for such title insurance.

The language above ("with the assistance of a federally related mortgage loan") concerns me. Does this mean that if a buyer is using a conventional loan, that the seller has ever right to demand a specific title company? Regardless, my buyer used a government program, so the language of the law is CRYSTAL CLEAR! I have sent an e-mail to Hud asking for clarification regarding conventional loans, but am yet to hear back. I will keep you posted.

I want to revise my previous comment after reading the text from HUD - there doesn't seem to be any ambiguity in that!

The federally related mortgage loan concerns me as well but I think that a buyer or their agent could just shoot this text to the listing agent or their broker and I'd be REALLY surprised if they continued to insist that the buyer use the seller's choice.

If conventional loans were not "federally related" before I wonder if they are now that the the Feds took them into receivorship (or whatever it is that is actually happening with those two!).

Thanks for the research

Well, I have received my response back from HUD. It appears that the seller requiring the use of a specific title company, regardless of the buyer's financing, is a violation. If you want to check it out yourself, I sent my e-mail to: HSGRESPA@hud.gov

Here is what they said in response to my question:

Dear Maryellen Garasky,

Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. If you believe that the lender has violated Section 9 of RESPA, please file a complaint with the office, the complaint should outline the violation, and identify the violator(s) by name, address and phone number. You may also wish to provide your name, address and phone number for follow-up questions for HUD.

Send the complaint to:

Director, Office of RESPA and Interstate Land Sales
US Department of Housing and Urban Development
Room 9154
451 7th Street, SW
Washington, DC 20410

For information on RESPA Rules and Regulations, please visit our website at http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm

It looks like I will be contacting my buyer to ask if I can file a complaint on her behalf. According to the rules, they might have to reimburse her THREE TIMES the amount she paid for title insurance!!!

I love it when I'm right!

OCT

Thank you so much for the very useful information. I noticed that there were a couple of comments from folks also in Ohio. From what I understand, in the Cleveland and Columbus areas, they do things different than us here in the more southern part of Ohio. Of course, just moving here about 8 months ago from Florida, I'm also learning something different.

Anyway, thanks again for the info.

Becky

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