Can the bank force a buyer to use their title company?

Question

I have a client that is working with a local New Orleans bank to purchase a piece of land. The seller's agent instructed us that a particular title company (that is reputable) would be able to give the buyer a good deal because they had already begun title work on a previous sale for this property that fell through. So. we elected to use this title company and sent them the contact to proceed toward the closing. The lender called and said that we must use their title company or they will not close the loan. Is this any sort of a RESPA violation? The choosing of the title company is in the (Louisiana) contract between the buyer and seller - not the bank. This seems a bit shady to me. If it is kosher, then so be it. But if not, they need to be taken to task. Any thoughts?

Kimberly Jones · Answer

Technically the title company is there to protect the lender. As you probably know, the lender can make the borrower jump through pretty much any hoop they choose. If the borrower doesn't like the lenders requirements, they can choose another lender.  You have to keep in mind, it is the Bank's money. Buyer and seller can write up any agreements they want to, but the money dictates the rules.

Robert Leonard · Answer

Let's see, the seller's title company is offering a break on fees that will probably amount to a few hundred dollars.  Versus, the lender, who is no doubt bringing the lion's share of the funds to the table that allow your client to buy the property?  Without regard to the legality of the matter - it seems like a no-brainer, to me, whose preference matters in this scenario.

How many deals will your client do with this seller?  Are the seller and title company major players in your market or something?  How many deals will your client do with this bank - would they like to do more?  Based on what I know at this point, the expression, "stepping over dollars, to pick up pennies" comes to mind.

Stephen Leonard · Answer

Hi @Greg Jeanfreau First off, if the bank is the seller, they can as most repo property banks will dictate the closing.  But it sounds like your client is just using a bank to finance the purchase and they are controlling the title company.  Many lenders will ask if the purchaser has a choice of title.  But in most scenarios, the title company has to be on the banks approved list.

In my purchases I have dealt with 1 bank due to great terms. But my title company which is owned by a friend is not on the approved list and the bank is not willing at this time to add them to the approve list. So I close with one of the companies on the list to get the great terms.

Now I'm not an attorney, but as an r/e agent to avoid RESPA the title company that you are being directed to has to be competitive in pricing and disclose any interest between the bank/title company.  So I would not see a violation, just a controlling banker/lender that should have had a conversation with your client about the process.

Let me know if I can be of assistance.

My 2 cents.

Stephen

Tami DuBose · Answer

@Greg Jeanfreau, as @Kimberly Jones noted - he who holds the money makes the rules. @Robert Leonard is correct, it's likely only a few hundred dollars. Yes, every dollar is counted when you're the buyer. Still, our Louisiana title companies are regulated by the insurance commission. If you feel there's an injustice, speak out.

Or, call the title company. Talk to the closing agent & see if they can help your client out on the fees. Be specific, letting them know the fees you feel are inflated.

Hope this insight finds you before closing.

On a side note: I was referred to a local bank based on their "great investor loans". Well, they require you to use their title company which they own & the fees are crazy high. I brought attention to it & the LO's response, "It is what it is." Needless to say, I don't work with that bank, but if I wanted their $, I didn't have a choice.

& As a Private Lender, I require closing with my attorney. I don't get a kick back, but I have the assurance everything is done the same way every time & he understands my business.

Russell Brazil · Answer

They can not require you to use a particular, however if a seller is a bank, normal rules just dont apply to them. We call yell and yammer about  banks requiring us to use a certain title company, but the fact is if you want to buy the property, you will do what the bank says.

Greg Jeanfreau · Answer

Hey guys, thanks for your responses. The buyer is not an investor and the property is not an REO or short sale. This is a "normal" retail transaction which is why I am taking a bit of issue with it. The deal will move forward with the current lender and the pricing is comparable to other title company's fees. But, there would have been some savings for the buyer if the bank did not force him to use their title company and that seems a little shady.

Gaylene Rogers lonergan · Answer

If the transaction is a non owner occupied, then there are no restrictions.  I have had the misfortune of running into a relatively new hard money lender in our market who twice now has taken deals that were completely worked and we were only waiting for funding and required that the transaction be moved to their "preferred" title company who they are more "comfortable" with.  The first time that happened my clients went ahead and closed at the preferred company with my assistance but ended up finding another more reasonable lender for future deals. As someone in this thread said, if you don't like the lender's rules, find another lender.

Having said that if the transaction is an owner occupied consumer transaction actions like this lender's would be a clear violation of RESPA.

Jerry Padilla · Answer

@Greg Jeanfreau

We are flexible, but I know there are some lenders that are not as flexible.

Stone Teran · Answer

I agree with all the previous responses.  In my last purchase, the short-sale bank wanted one title company and my hard money lender wanted a different title company.  The seller and I didn't care.  They battled and the big bank was more pushy and the hard money lender relented.

Can the bank force a buyer to use their title company?

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