Picking a Closing Company & other "Partners"

By
Real Estate Broker/Owner with Northern Virginia Homes - FRANKLY REAL ESTATE Inc

I have written before about the "slim shady" shadiness of ABAs or "affiliated business arrangements." See blog: Beware: "Affiliated Business" or Illegal Kickbacks?

The latest and most profitable ABA is when real estate companies funnel deals to title companies and share the profits. The first major case trying to stop this is against Coldwell Banker (Post Article). 

But now I'd like to take what might initially seem like the flip side to that blog.

PARNTERSHIPS CAN BE GREAT, AND GOOD FOR THE CLIENT.

Just recently a client got a loan through a credit union. They had a "partnership" with a closing company and they worked hard to steer the client back to their closing company that I had never heard of. Somehow they had some "package" that drastically reduced the closing costs. I was skeptical, but the savings was so large that the client went with them.

As with anything, saving money is great. But as with everything, "saving" now can hurt you later (not saying it WILL, but it CAN).

I don't mind a great company that also might discount (like Costco). But a discount company that makes their money on volume and sacrifices service, is a SCARY proposition when dealing with your home.

I love Monarch Title, specifically in Old Town Alexandria. Why? Well let me tell you about today's closing at the above listed credit union:

  1. The preliminary HUD1 is usually sent a day or two before so that it can be reviewed for errors and hidden fees.
    This did not occur. Closing was set for 1pm and at 9:30am, we had nothing. An email was sent. At noon I called and went through a mesmerizing phone tree maze. Finally on my 3rd call I was told that the voicemail for the main contact was FULL!! WHAT? First she didn't reply to the 9:30am request for a HUD1 (that should have been done the day before) and then her VOICEMAIL WAS FULL! I then asked to speak with her boss. That went to another voicemail saying that he would get back to me within 24 hours. Even though the closing was within the hour.
  2. I finally got the Preliminary HUD1. Initially they wanted to fax it. As if email is too difficult (no big deal but  come on)
  3. The Prelim HUD1 had one of the closing company tricks that I despise. They bundled the Lender's and Owner's coverage into one line. And they put in as a default the "premium" policy (other terms for premium include: Eagle, Alta, extended, steroids, better, not standard, "higher") which is more profitable to the closing company.  (I'm not saying they are bad, I just don't like them snuck in). Don't miss my blog on Owner's Title Insurance.95% Buy It, 10% Know Why! And this was even after he requested NOT to have the premium policy.

Ok, these things aren't tragic issues, but it has to make you wonder. If they mess up on something this obvious and easy, imagine the level of sloppiness in searching for your clear title, and proper recording of your property. Don't think those things can't be messed up. I know of one closing company that messed up and the property was recorded in the wrong county! 

I came to Monarch after working exclusively with another closing company. The first company was great. But then they decided to push profits and offer discounts and drive a larger volume with the same staff. Employees were disgruntled and quiting and the service tanked. You might not have a problem today (like we did), but in 10 years when you go and sell your place, don't be surprised when you hear: "Houston, we have a problem," especially if your name isn't Houston!

Sidenote: Recently another closing company didn't have the means to wire some funds and . Again a simple task like this makes me wonder what is going on behind the scenes.

 

This blog isn't just for Title Companies. We have combed through different service providers and seen the bad and dumped them. Also our "partners" know that if they mess up, they will be replaced. Your fly-by-night company (or even a big company that might stink) doesn't give a rat's ass if they don't do future business with our firm.

So this goes for every company that I would consider a "partner" in the home buying process. From a home inspector, to a painter, to a lender to a moving company.

 

  1. LOANS: Don't complain when you went with an internet company that quoted a .125% better rate than one of our recommended lenders, just to find out that some hidden fees cropped up, or you can't get through their phone tree a day or two before closing, or worse yet, they have a snag and the closing is delayed. Or more commonly the company without any loyalty to the Realtor uses funny math to convince the client that they are a better deal (when they really aren't when you compare apples to apples.)
  2. HOME INSPECTION: So you found somebody that would do it for $50 less! Great. Don't complain when they missed the cracked pipe going into the kitchen. Our guy might also miss that, but after a few misses, we will find a better inspector.
  3. PAINTERS: Great, you called somebody with a number on the side of a truck and you saved $100. Before you do this, please let me give you a number of a client that hired somebody from a cheap quote and then had to fire them and re-hire our recommended painter to get the job done. She wasted money trying to save a few bucks and said "I wish I would have just used your recommended painters." To which I replied, "no problem, as long as you let me give out your number to future clients looking to save a buck with somebody else." She replied "Gladly!"

Just like all Realtors aren't the same and some are cheaper than others (see blog:discount Realtors) the focus should be on the best end result, while balancing price.

Just make sure not to sign the ABA form that many agencies try to sneak in front of you that says that they are making a profit from the partners they are referring you to. 

Happy closings and please let me know of any typos, and I love your comments, both pro and con!

Frank Borges LL0SA- The Real Estate Gadfly - Virginia Broker/ Owner FranklyRealty.com

Blog.FranklyRealty.com Featured in BusinessWeek, CNBC, WSJ etc.

                    

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Rainmaker
138,124
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

Diane,

As always, thanks for your input.

I agree that there is no reason for the agent to do MORE work with a partner. That isn't your job, and you shouldn't be paid to be the title company's assistant. Maybe the other companies that charge more, do so because... they are better? And they don't need to hire agents for $40 to input data.

And like Diane said, is it worth being named in a lawsuit? Sure you might "win" but you might win after spending thousands in legal fees. Sure CB will hire THEIR lawyer and tell you not to hire a lawyer, but do you really want to be on their side? No?

Bag the $40 admin fee, and send them to another Title company that does good work. Maybe they will match the price, and if not, remember that cost isn't the only priority. Otherwise, your clients would have used Redfin! 

 

May 31, 2007 01:58 AM #17
Rainer
6,789
Diane Cipa
The Closing Specialists® - Ligonier, PA

Absolutely.

The real concerns though are FIDUCIARY DUTY and CONFLICTS OF INTEREST.

Just suppose - and in our real world stuff does happen - there is a post closing problem - some kind of title claim.

Do you really want to be vulnerable and open to the argument that you steered the consumer to a company for YOUR benefit rather than THEIRS?  Even if you believe the company provides superior service, you leave yourself open to the charge of placing your own interest above that of the consumer you serve.

It's a choice.  Make your decision with eyes open.

May 31, 2007 02:23 AM #18
Rainer
10,839
Katherine Anderson
Coldwell Banker Hobin Realty, LLC - Hampton & Rye, NH, USA - Exeter, NH
Managing Broker

Lots of good food for thought here. I must admit that I hadn't given the liability of this issue much thought before. Wondering what you think about the fact that our Buyer Agency Agreements contain the following wording:

  • "Agency's Role. Buyer acknowledges that Agency is being retained solely as a real estate agent and not as an attorney, tax advisor, lender, appraiser, surveyor, structural engineer, home inspector, or other professional service provider. Buyer has been advised to seek professional advice concerning the condition of the property and legal and tax matters.  It is understood and agreed by Buyer that Agency may provide names of service providers or products as one of a number of choices available to Buyer. Agency shall not be liable for any action, inaction, failure, negligence, error or omission of a service provider or product. "

I realize that people can and will sue regardless of what they sign, but do you not agree that this puts them on notice?

By the way, this wording is was provided by the NH Association of REALTOR and is a standard form for use in our state.

May 31, 2007 03:24 AM #19
Rainer
6,789
Diane Cipa
The Closing Specialists® - Ligonier, PA

What's really interesting about the current climate is that everything is back on the table.  In the wake of media spotlight on predatory lending abuses, sham ABA and kickback suits, and the subprime collapse, the notion of how to disclose and what kinds of actions can be appropriately dismissed with disclosure are all being revisited.

I expect FIDUCIARY DUTY to reign supreme in future guidance from NAR, lawmakers, and regulators.

Hanging our hats on RESPA and other types of disclosures doesn't embrace the spirit of a fiduciary.  That's what the "new" way of doing business in our real property world is all about.

It's new and it's good.  It's a collective new vision.

May 31, 2007 03:37 AM #20
Rainmaker
138,124
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

I hope that others will chime in, but my initial thought is the following:

1) I don't see anywhere in there the allowance for the Realtor or brokerage firm to receive any money from services outside of real estate services.

2) I'm not a lawyer, but there are certain things that you just can't wave. By putting "I'm not liable" that means nothing. In Virginia you have 3 days to review HOA docs. It is NOT legally enforceable to say "we hereby remove our right to review HOA docs." 

3) I am certain that the CB that is being investigated had the exact same disclosure statement.

Also this statement might HURT you since you are saying that you are a real estate agent and nothing else. Meanwhile you are performing administrative tasks for the closing company! You just told them you are not doing anything, yet you are.

Frank 

May 31, 2007 03:38 AM #21
Rainmaker
128,073
Tchaka Owen
Galleria International Realty - Hollywood, FL

Katherine, I'm curious if an attorney could poke holes in this by pointing out that "provide names of services providers or products...." implies more than one and by only going with the ABA, the brokerage is steering.

Just a thought.

- Tchaka 

May 31, 2007 05:37 AM #22
Anonymous
Anonymous

Tchaka: 

Yeah, I know what you mean.  I am sure a good attorney could poke holes in just about anything.  You bring up another good point... how do we prove that we recommended more than one provider unless we have them sign, yet another, disclosure?   This discussion reminds me of a risk management course I took not long ago.  The instructor suggested that we remove all brochures for any service providers from our offices and that if we have a buyer looking for recommendations to just hand them a phone book.  I think that's taking it too far.  People look to us as professionals and experts in various aspects of real estate transactions.  They expect us to know: good lenders, title companies, contractors, schools, neighborhoods, etc.  If we are too paranoid to give them the advise that they seek ... who benefits from that?  I believe the key is to educate our clients and let them make an informed decsion.  Further to that, if you think that the person you plan to work with is the litigious type, then maybe don't contract with them.  Some business just isn't worth having.

May 31, 2007 06:33 AM #23
Rainer
119,269
Rob Robinson- Lehigh Valley PA
Bertrum Settlements (Title & Abstract) - Allentown, PA

I think many would be hard pressed to not know THREE Title companies that meet the your personal expectations, let alone the client's. Worst case, you would just rotate them if the client truly will not choose.

(Unless of course you are in a town of 500 people.... but you get my point)

May 31, 2007 06:40 AM #24
Rainer
119,269
Rob Robinson- Lehigh Valley PA
Bertrum Settlements (Title & Abstract) - Allentown, PA

Tchaka,

I also immediatly saw the PLURAL part of the statement:

"It is understood and agreed by Buyer that Agency may provide names of service providers or products as one of a number of choices available to Buyer."

I really don't understand how someone can deal with just one Title Company for multiple transactions throughout the year....and KNOW if they (the Title Company) are STILL competitive... are still leading edge... are still THE BEST out there.... etc.'

I love competition, ot keeps me on my toes...and do not fret one bit when 'my clients' (Realtors/Mortgage Brokers) use multiple companies (if the consumer cannot or will not choose themselves without a recommendation.)

May 31, 2007 08:09 AM #25
Rainmaker
128,073
Tchaka Owen
Galleria International Realty - Hollywood, FL

I agree with you Rob.  I have a settlement company here that I strongly recommend (no ABA) but I do have backups and I tell clients that I have choices for them.  Same with appraisers.  I also encourage them to call all and select after interviewing.  They often don't, but that decision is theirs to make, not mine.

I love competition too.  My idea of competition is Angelina Jolie and Halle Berry fighting over me...all the while knowing that my GF's the only one I'm going to.  Hey wait, isn't that kinda like the whole ABA thing that Frank is  against in this blog???!!!! 

She's my ABA. :-) 

- Tchaka 

May 31, 2007 08:25 AM #26
Rainer
119,269
Rob Robinson- Lehigh Valley PA
Bertrum Settlements (Title & Abstract) - Allentown, PA
lol - I guess my wifey's my ABA and my girlfriend is simply to make sure wifey is still the BEST :^)
May 31, 2007 08:35 AM #27
Rainmaker
128,073
Tchaka Owen
Galleria International Realty - Hollywood, FL

Rob, I cannot top that one!  I believe you have solved the whole ABA and competition issue with one sentence.  Nice work.  Now to find out if we're allowed back in our respective homes tonight. 

- Tchaka 

May 31, 2007 08:48 AM #28
Rainmaker
138,124
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

I don't recommend multiple Title companies! Wow, imagine that! I said it!

There is nothing that says that we can't have reliable partners. I can't FORCE them to use people that I trust, but I can recommend the ones that I know are good.

If they try and go elsewhere to save $100, yes I discourage them and tell them to call other clients that went with a discount place and they can hear the horror stories first hand.

I get my taste of the other title companies when I am the seller and the buyer picks a closing company. I have yet to find a sharper crew.

Also guess what? My listings say "Monarch Title Preferred" and about 50% of the buyer's agents agree to this.

The myth of giving 3 companies was created by an ABA in order to appear to be on the up and up.

Frank 

May 31, 2007 08:56 AM #29
Rainmaker
128,073
Tchaka Owen
Galleria International Realty - Hollywood, FL

For clarification Frank, I have a #1 title company that I recommend.  In VA it's Monarch and in FL it's TLC Title.  I've used those companies and they've both earned my business therefore they're my go-to settlement companies.  But I do let clients know that I have other honest options that I can recommend if they'd like.  And I don't make a dime from any of my 'affiliates'.

- Tchaka 

May 31, 2007 10:12 AM #30
Rainer
119,269
Rob Robinson- Lehigh Valley PA
Bertrum Settlements (Title & Abstract) - Allentown, PA

Frank, why would you really suggest an ABA  tends to or does 'offer' 3 companies.... wouldn't a Realtor NOT GETTING RESPA approved ABA kickbacks be MORE LIKELY to offer alternatives right up front?

The differences in Title companies can be language, location, fees, hours, etc...  in addition to 'service'. MY experience is that the 'independent Realtors' DO spread some options out to the client (no, not like a list of 100)... and the ABA tied in Realtors only offer/recommend/present....their 'OWN'. 

Greedy bastards just scaming the client.

 

May 31, 2007 10:20 AM #31
Rainer
119,269
Rob Robinson- Lehigh Valley PA
Bertrum Settlements (Title & Abstract) - Allentown, PA

Tchaka - This is all many of us want.

"But I do let clients know that I have other honest options that I can recommend if they'd like."

Kudos to you. 

May 31, 2007 10:22 AM #32
Rainer
27,666
Tom Giansante
The Title Company of Jersey - Wildwood, NJ

Wow!

This thread is like a Title Agent's (Non ABA) dream.   I am so impressed to see all of you involved in some serious dialogue about the "DARK SIDE" of our industry. 

We are fighting this battle every day in my area (South Jersey). There is an amazingly large amount of Real Estate Agents who absolutely refuse to go against the grain of their Broker & Broker/Owners directives to feed the in house or affiliated Title Partner.   The most disturbing of these situations is when a former Realtor Client goes to one of these Agencies and no longer refers business your way. 

The buyer ends up paying more than they have to, and the Realtor turns a blind eye to the entire process so they won't have to answer to the management about not using the "preferred Title agency".

My first ever blog entry covered this exact subject.  I'd link to that if I knew how,.....any recommendations?

 

 

Jun 05, 2007 02:54 PM #33
Rainer
119,269
Rob Robinson- Lehigh Valley PA
Bertrum Settlements (Title & Abstract) - Allentown, PA

TOM - I think this is the link of YOURS you are referring.

http://activerain.com/blogsview/49307/Does-the-bundling-of

 

Jun 06, 2007 12:26 AM #34
Rainmaker
304,760
ARDELL DellaLoggia
Better Properties Seattle - Kirkland, WA

I LOVE this!  Where did you get it Can I use it?

Jun 17, 2007 08:23 PM #35
Rainmaker
451,422
Paul Guenther
Empire West Title Agency - Chandler, AZ
Empire West Title- Chandler, AZ

Frank,

 I know this is old..But I was doing a search and came across it.  Know I have to direct someone from the outside world to read this and all the comments

AWESOME!!

PG

Nov 04, 2009 10:01 PM #36
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FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com

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