By Kay Wilson-Bolton
February 6, 2007
Most REALTORS®, including me, have strong relationships with service providers and desire to include them in their transactions. Some agents will go so far as to state in the Multiple Listing Service that “seller requests a particular title and escrow company.” The duty of REALTORS® is to guide, not direct; recommend but not control.
Agents who recommend that sellers counteroffer the name of the title company run the risk of losing the buyer, and they put sellers in a position of violating the law.
Sellers need to be aware of the law regarding this single element of a purchase agreement and need to be properly guided by their agent.
The question is, “Can the seller of a residential one-to-four unit property require the buyer to use the seller’s choice of a title insurer?”
This answer is probably not, according to RESPA and its regulations. For some detail, the Real Estate Settlement procedures Act (RESPA), 12 USC § 2608, contains the following restrictive language:
(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) shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.
The phrase “federally related mortgage loan” is defined as a first deed of trust on residential property containing one to four units (including mobile homes, condominiums, and co-ops) and (1) made by a lending institution which is insured by SAIF (Savings Association Insurance Funds, formerly FSLIC), FDIC, including both banks and savings and loans, or regulated by OTS (Office of Thrift Supervision, formerly FHLBB), or any other agency of the federal government; or (2) the loan is insured or guaranteed by FHA or VA or intended to be sold to FNMA, GNMA or FHLMC; or (3) is a loan made by a private creditor who makes more than $1 million in residential real estate loans in a calendar year.
Therefore, a “federally related mortgage loan” essentially means all transactions for residential one-to-four units except where the buyer is paying cash or dealing with a private lender who doesn’t usually make loans.
This prohibition is for title insurance only and does not refer to any other services provided by the title insurer (i.e., escrow services).
So, to sellers, if your agent suggests that you make a counteroffer changing the provider of title insurance, ask why. There could be a good reason.
Then, ask your agent for assurance that this act will not jeopardize reaching agreement with the buyer or put you in a position of violating the law.
Kay Wilson-Bolton is the owner of CENTURY 21 Buena Vista and CENTURY 21 Ability and brings a regional perspective to local issues. She can be reached at 805.340.5025. Her web address is http://www.readysetkay.com