The current local practice of the seller choosing title insurance appears to be at odds with HUD reform that attempts to put the buyer back in the drivers seat. HUD makes no bones about it's intentions for empowering buyers to shop for the best deal possible when choosing title and settlement services. Also going into effect January 2010, lenders will face strict guidelines and tight tolerances when listing these services on the new Good Faith Estimate. In fact, the new GFE even provides the buyer/borrower a "shopping cart" on the third page to compare these fees!
A little history on how title is chosen in the Puget Sound Area:
Back when I started in the title business (once upon a time), escrow officers and attorneys directed which title company would insure most real estate transactions. Builders and developers took control of the remaining deals.
It was about the mid 1980's when local Puget Sound area title companies convinced real estate agents to run a search on their listings in effort to flush out potential title issues before an offer was made. Title companies handed out thousands of tiny stickers ("earnest money stickers") for agents to stick on the P&S agreements to name the title insurer. Soon after, the local MLS provided a blank line on the Purchase and Sale Agreement for the buyer/selling agent to list the title company to be used. More often than not, the title company had already been selected by the seller/listing agent and this practice has continued til this day. Now, if the buyer decides on a different title insurance company, the standard NWMLS form stipulates that they will absorb any cancellation work fees.
"If Seller previously received a preliminary commitment from a Title Insurance Company that Buyer declines to use, Buyer shall pay any cancellation fees owing to the original Title Insurance Company."
If HUD is going to achieve its goal and help borrowers save nearly $700 per transaction, it looks like some local practices will need to change. HUD will soon find that neither the lender or buyer/borrower has much control in choosing the title company with the best rates, service and discounts. Cancellation fees alone could wipe out all potential savings from the consumer's shopping efforts!
It should also become clear to HUD that for purchases, escrow and title fees will not be subject to the "guaranteed" pricing model that was designed into the new Good Faith Estimate. The escrow and title decision will be made via the Purchase and Sale agreement, prior to lenders issuing the GFE.
Some helpful hints when shopping for a title and escrow company:
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Ask if the title company chosen by the seller/listing agent charges a cancellation fee and if so, how much? All title companies in Washington State will soon have to charge these types of fees per the Washington State Insurance Commissioner's Office.
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Is the title company financially affiliated with a real estate company involved with the transaction? If so, the selection of the title company may have more to do with the financial benefit to the broker rather than the consumer.
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Are discounts available for combining title and escrow services or electronic placement of ordering the services?
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Are there convenient locations for signing your real estate documents?
Finally, check the internet and friends and family for personal experiences in dealing with these types of services. Happy shopping!
