I have heard throughout my years in the industry, that 'most' states do not allow split closings, and that Utah is one of the few that do allow them. I have always wondered how 'no split closings' is in accordance with RESPA Section 9, wherein a seller can be sued by the buyer for up to 3 times the amount of the buyer's closing costs if the seller 'forces' the buyer to use a specific title company? I found, upon further research, that this is being violated if there is ANY type of financing (other than a construction loan), including seller-financing. Since I don't know the other side of the fence, it baffles me that someone who is paying for title insurance (for the lender) can't always choose who issues the policy. Can anyone shed some light on this for me, please?
Hi Amy,
I think you are referring to Section 8 of RESPA, and splitting fees. The prohibition against split fees is meant to protect the buyer of title insurance, or other third party settlement service, from overcharges stemming from captive business relationships. By 'captive business', I am refering to the title underwriter, for instance, approving a mortgage broker as a title agent. The title underwriter will perform most of the agent's functions and the broker-owned title agent will collect most of the fees normally due the title agent. Many see this type of arrangement as a sort of kickback to the broker for referral of business.
Affilliated business arrangements take many forms and will vary by state. That is because different states have their own laws, and also because the different states have their own interpretation of RESPA. It is up to the states to interpret and enforce RESPA. But no state is able to ignore RESPA, and Utah is no exception.
A split closing is another animal altogether. A split closing occurs when the interested parties needed to sign closing documents are not available to sign at the same time in the same location. Some of the parties will sign in one location and the documents will be shipped to a second location where the remainder of the parties will sign.
I don't think a split closing is illegal anywhere, at least not that I know of. But I think you are referring in your post to fee splitting, which is the law of the land in all of the United States - fee splitting being the payment of unearned fees in relation to the settlement of a loan as RESPA applies.
It occurs to me that I may just be totally confused as you may be using terms that mean one thing to you in your state and another to me in mine. If that's the case, disregard any part of my reply that you don't find useful. But to answer your real question, yes. People do have the rigtht to purchase the settlement service of their choice. But the lender, being the proposed insured, also hase the right to approve the insurance provider. In other words, they can't force you to use a certain provider, but they may decline to make the loan. That's my layman's understanding anyway.
Just today, a great budding legal mind posted a blog on the subject, as a court in Ohio recently decided. Here is the link, in case you are interested:
http://www.sourceoftitle.com/blog_node.aspx?uniq=444
Thanks for posting, Patrick. I am referring to Section 9 of RESPA, though, and not any sort of unfair marketing practice or fee splitting. A split closing, by my definition is where one title company closes the seller's side of the transaction, and a different title company closes the buyer's side, wherein either one or both companies issue a policy. Below is the verbiage on HUD's website:
Section 9: Seller required title insurance
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. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.
and here is a great link if you'd like more info: http://www.hud.gov/offices/hsg/sfh/res/respamor.cfm#HE2
"But the lender, being the proposed insured, also hase the right to approve the insurance provider." very good point...but I am mainly curious about when the seller dictates in the REPC that a buyer must close with Company X, or the deal is not acceptable. Thanks, again, Patrick!
Amy you are right on track with Section 9 of Respa. Most of the bank owned properties are forcing the buyer to use their escrow and title company. I have had the pleasure of doing a split escrow as I had an agent who stood her ground and refused to let the seller (bank owed) dictate where the escrow was to go. I wonder if the Asset Managers and/or Banks realize Section 9 of Respa?
I was really proud of this agent for standing her ground.
Cindy-We have come across that situation, also, and it prompted me to contact HUD directly. In the meantime, I have come across further, very informative, information regarding this topic, in case it is of any benefit: The link to the FDIC's website(http://www.fdic.gov/regulations/laws/rules/6500-2530.html) reiterates the Real Estate Settlement and Procedures Act of 1974, and I have also spoken directly with the Department of Housing and Urban Development regarding 'choices' in title insurance providers. I was told, "State rules may be stricter, but the lender has no say in who provides insurance unless they are paying for it." This also applies to sellers, according to RESPA Section 9.
Comments(4)