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Who picks the title company?

By Lorie Garland, OAR Assistant Vice President of Legal Services

Who picks the title company?  The seller, buyer, listing agent or selling agent? Who picks the closing agent? Are there any laws addressing these issues?

Federal law addresses the issue of title insurance. Section 9 of the Real Estate Settlement Procedures Act (“RESPA”) prohibits a seller from requiring a buyer to purchase title insurance from any particular title company. The first thing to note is that this prohibition only applies if the buyer is paying for title insurance. If the seller agrees to pay for the title insurance (owner and lender’s policy), this provision would not apply. However, if the buyer is paying for title insurance (lender and/or owner’s policy), the seller cannot require the buyer to purchase the insurance from a particular title company.

Under some purchase contracts, the seller provides and pays for the owner’s policy but the buyer pays for the lender’s policy. In this situation, because the buyer is paying for the lender’s policy, under RESPA, the seller is prohibited from requiring the buyer to purchase that lender’s policy from a particular title company. Although, to reduce costs, the buyer may choose to purchase the lender’s policy from the same company from which the seller is purchasing the owner’s policy. However, there is no requirement that the lender’s policy and owner’s policy be purchased from the same title company, although, economic considerations usually make that cost effective.

Another item to note is that Section 9 of RESPA deals with the purchase of title insurance, not where the transaction will be closed. So even if the buyer is paying for title insurance and RESPA prohibits the seller from requiring the buyer to purchase the insurance from a particular company, the seller could require a particular closing agent. (It should be noted that RESPA prohibits the required use of an affiliated settlement service provider. Therefore, if the seller is a lender, it could not require, in the purchase contract, that a closing agent in which the lender has an ownership interest be used to close the transaction.)

Tags: legal