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Beware of Short Sale / REO Lenders: They Can't Select Title Insurance Company!

By
Real Estate Broker/Owner with MBA Broker Consultants CalBRE Broker #00983670

We've all seen those REO and Short Sale listings with the disclaimer, "Seller to choose escrow/title company."  Is this legal?  Maybe not.  Lenders selling properties, AND SELLER'S AGENTS REPRESENTING THOSE LENDERS, better be cautious not to violate RESPA!  Lender/sellers CAN select the escrow company, but the buyer is FREE to use ANY title company he selects.

From the CA real estate legal update, here is the memo I just received:

"PRACTICE UPDATE: REO LENDER CANNOT REQUIRE BUYER TO PURCHASE TITLE INSURANCE FROM ANY PARTICULAR COMPANY

"No seller can require that the buyer purchase title insurance from any particular title insurance company. This rule pertains to transactions involving a federally-related mortgage loan for one-to-four residential units as defined under the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. section 2608). Although this is a well-established rule under RESPA, it bears repeating given the recent upsurge in REO transactions.

"REO transactions are not exempt from RESPA requirements. If an REO lender chooses the title insurance company, as is often the case, it cannot require directly or indirectly, as a condition to selling the property, that the buyer purchase the title insurance policy. An REO lender that violates this RESPA requirement can be, among other things, held liable to the buyer in the amount equal to three times all charges made for such title insurance. Moreover, anyone who believes that RESPA has been violated may file a complaint (and may request confidentiality) to the U.S. Department of Housing and Urban Development (HUD). For more information about filing a RESPA complaint, go to http://www.hud.gov/offices/hsg/sfh/res/respamor.cfm#HE2."

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Regina P. Brown
Broker, Realtor®, e-Pro
Author of eBook "Stop Foreclosure Fast: Solutions to Save your House"

Text copyright © 2009 R.P. Brown, All Rights Reserved

Posted by

Regina P. Brown
Broker, Realtor®, M.B.A., e-Pro, GREEN
California DRE # 00983670
www.CalCoastCountry.com

                

Text copyright © 2011-2018 R.P. Brown, All Rights Reserved

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Cameron Novak
The Homefinding Center - 1000 Palms, CA
Real Estate Broker since 2008

True.... but I wouldn't bring up that you're going to buck the system until AFTER you have a fully executed contract... and even then, most banks have an exit clause FOR ANY REASON... do you really want to jeopardize your clients' purchase over this?

Cameron

Jan 04, 2009 02:06 PM
Regina P. Brown
MBA Broker Consultants - Carlsbad, CA
M.B.A., Broker, Instructor

Cameron, I agree that the lender/sellers call ALL the shots... it's their game, we're just playing it their way!  As a listing agent, we need to make sure that we adhere to these laws if the buyer selects a different title insurance company.  Otherwise, the buyer can later sue.

Jan 04, 2009 02:11 PM
Toby Boyce
C.G. Boyce Real Estate Co. - Delaware, OH
MBA, Delaware Ohio

The trick I've seen with my buyers is that it takes longer to close the transaction with another title company than the one selected by the REO company.

I find it interesting that according to RESPA the buyer can always choose the title company -- even when it is being paid by the seller. That just seems wrong to me. The person paying, should be able to choose their company.

 

Jan 04, 2009 02:30 PM
Tim Taggett
Temecula - DC Self Inc - Temecula, CA

Regina -

 

Thanks for spreading the word here on AR. I saw that same email come across and hadn't decided to spread it yet.

 

Toby -

 

The buyer is not allowed to pick their own if the seller pays for it. The RESPA act goes on stating this is only for when the buyer pays their own title and escrow fees. If the buyer is asking for closing costs then they do not legally have a foot to stand on.

 

God Bless,

 

Tim

Jan 04, 2009 02:38 PM
Regina P. Brown
MBA Broker Consultants - Carlsbad, CA
M.B.A., Broker, Instructor

Tim, thank you for your clarification.  So much to learn in this business!

Jan 04, 2009 02:56 PM
Tim Taggett
Temecula - DC Self Inc - Temecula, CA

Regina -

 

That is the great thing about ActiveRain we can all gather more from each other.

Jan 04, 2009 03:02 PM
Regina P. Brown
MBA Broker Consultants - Carlsbad, CA
M.B.A., Broker, Instructor

Yes, Tim, and find out about hot topics like this!  We learn so much more from this community.

Jan 05, 2009 04:31 AM
Regina P. Brown
MBA Broker Consultants - Carlsbad, CA
M.B.A., Broker, Instructor

Talking to some agents today... YES the lender/seller is in the driver's seat on these transactions!

Jan 05, 2009 03:32 PM
Gene Allen
Fathom Realty - Cary, NC
Realty Consultant for Cary Real Estate

I guess if the buyer wants his own title company then he needs to not get all his closing costs paid.

Jan 07, 2009 12:30 PM