By Lydia Blair
The title industry competes for real estate dollars just like mortgage companies, real estate brokers, and insurance agencies. Competition to be the chosen one is just as fierce and the stakes are just as high.
Changes that rippled through the industry in 2015, when the Consumer Financial Protection Bureau (CFPB) went into effect, also addressed the regulation about who has the right to choose the title company in a real estate transaction. This rule has actually been around for a while, but is now being regulated and enforced. Which means fines are also assessed to the rule breakers.
The buyer has the right to choose the title company. If a seller (or their agent) requires a buyer to use their preferred title company (either directly or indirectly), they are violating RESPA (Real Estate Settlement Procedures Act) and could face fines or a lawsuit.
In Texas, it is typical for the seller to pay the title policy and, in years past, the seller felt that they should get to choose the title company. If you’re the one paying that great big title insurance premium, you should get to choose who to use, right? Nope. Why is that you ask?
Because once the sale is completed, the seller is gone and has no future stake in the property. The title insurance policy belongs to the new owner. As a buyer, would you want the seller to choose your homeowners insurance company, home warranty company, or home inspector? The buyer should get to choose these. The CFPB does not care who pays for the title insurance policy. But they care that the buyer has been informed of their right to choose the title insurance company.
Who pays for the title insurance policy is negotiable just like many other aspects of the sales contract. The norm varies by state. In reality, the real estate agents usually choose the title company because they are deemed to be most informed about which are the most dependable and reputable companies. The average Texas home buyer doesn’t shop for a title company since the title insurance rates are regulated and dictated by the state.
Agents who want to stay out of court and avoid those nasty fines should keep abreast of RESPA Section 9: Seller required title insurance. Or you can sift through the CFPB government regulations to section 1024.2 regarding “Required Use”.