RESPA: SECTION 9 WHY WAS I REQUIRED TO BUY TITLE INSURANCE FROM SPECIFIC TITLE COMPANY BY SELLER?
The Real Estate Settlement Procedures Act's (RESPA) Section 9 (12 U.S.C. §2608) and Regulation X (§ 3500.16) prohibits, either directly or indirectly, a seller from requiring a purchaser to buy title insurance from a specific title company in any transaction as a condition of the sale.
Section 9 of RESPA (12 U.S.C. §2608) states that:
1. 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.
2. Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.
The only way a Seller can mandate that purchaser use a particular title company is if the seller paid 100% of all title insurance and related title costs. HUD's RESPA Division has stated on numerous occasions that unless the seller pays 100% of the title related costs then the seller has violated RESPA. REO companies need to pay particular attention to Section 9 because required use practices by REO companies are on the HUD's radar right now.
Additionally there are several local real estate purchase agreements that are in use in parts of the United States where the language in the purchase contract states that Seller picks the title company but purchaser pays for title costs. It should be clearly noted that you can not contract out of a RESPA Section 9 violation. Just because the purchase agreement is signed by the borrower doesn't prohibit the borrower from coming back and suing the seller for required use if the borrower is stuck with any of the title related fees.
Lastly another clever technique that is in use is where the seller says they will pay for the owner's title insurance policy but that purchaser has to pay for the lender's title insurance policy and all other costs. This does not pass the smell test nor does it pass HUD's smell test. The practice while novel in its approach is still considered a Section 9 violation. If you are a borrower has been a victim of this technique within the last year please give our firm a call.
If you are a victim of a Section 9 violation within the last year please give the Sterbcow Law Group LLC a call or if your transaction was more than a year but less than three years please contact HUD's RESPA Division so you can file an official complaint.
Comments
Does this apply at all on cash?
Posted by: Jeremy | August 11, 2009 3:28 PM
No. As stated above, RESPA only applies to closings where the buyer obtains federally related mortgage loan, e.g. FHA, Fannie, Freddie, USDA.
Posted by: Adam | August 27, 2009 7:55 PM
Would an example of a related title service be the fee for conducting the closing?
Posted by: Anonymous | October 25, 2009 9:54 AM
This is GREAT NEWS for our industry saving Agents from being 'forced' to use in-house title companies by their Brokers. It is all about competition in which the best shall prevail. Thank You for the update!
Keith Stonehouse
Posted by: Keith Stonehouse | February 17, 2010 2:23 PM
I just don't get this and would like some further clarification. The Mortagee Policy in our state is about $30 and the Seller is generally the one that pays AA the rest if the title fees. So you are telling me that the Seller has NO say, when it is mostly their money being spent on who they would like to close with? So, if a seller counters back with "Buyer can close with their title company of choice as long as they pay all title fees or closing will take place with XYZ company and seller will pay the title fees as selected in the contract" this is RESPA violation?
Posted by: Barbara Gregus | March 8, 2010 5:31 PM