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Concerns When a Listing Requires Use of a JV Title Company

Concerns When a Listing Requires Use of a JV Title Company

A recent trend in the real estate market is for the listing agent to dictate the terms of how to make the offer.  A common method of doing this is through the requirements of making an offer.  Essentially, the listing agent tells the buyer agent how to submit an offer and what to contain in that offer.  Buyer agents have recently been bringing to our attention that listing agents are now including the required title company.

Listing agents have long “recommended” or listed a “preferred” title company.  Only recently have they become so bold as to make the title company a requirement of the offer.  This is troublesome on both ethical and enforcement grounds.

Ethical concerns

As a real estate agent, your client is relying on you to guide them through the process.  And as their real estate agent, you agreed to a Code of Ethics.  When you require that an offer be presented a certain way, you run the risk of not representing your client’s best interests.  If you require the closing to take place at your JV title company, that might be counter to the seller’s best interests.  Let me break it down in a simple scenario. Two offers are presented.

Offer #1 is for $610,000, no contingencies, but does not follow your offer requirements and selects ABC Title.

Offer #2 is for $600,000, includes a home inspection contingency, but follows your listing requirements, selecting your JV Title Company.

According to the Code of Ethics, what is your responsibility to your client?  How many agents will not present Offer #1, under the guise that it “didn’t adhere to the offer requirements”?  But the reality is that the agent wants to make money through the JV referral distribution.  Will that prevent the agent from presenting Offer #1?

I believe that every agent will present the seller with both scenarios, because I believe that agents generally are attempting to do right by their client.  However, agents are telling me a different story.  They have repeatedly explained to me that they have been told by the listing agent that they need to accept all the listing terms, including the required title company.  And of course, that title company is owned by the listing agent.

Enforcement Concerns

I am not going to enter into a discussion of RESPA, Joint Ventures and whether or not these referral schemes are in violation of RESPA.  That is a longer discussion for another day.  Here I am focusing solely on the seller forcing the buyer to use the seller’s title company.  This topic has been discussed on our blog before, but RESPA has made it clear that a seller requiring the buyer to use their title company is subject to significant damages.  The only way a Seller can mandate that a purchaser use a particular title company is if the seller pays 100% of the title insurance premiums and all title related costs.  Otherwise, a seller that requires the buyer to use a particular title company is in violation of RESPA and is subject to damages equal to three times all charges made for such title insurance.  Here is the code provision again:

Section 9 of RESPA [12 U.S.C. § 2608] states:

  • 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.
  • 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.

agents, Buying 'n' Selling, choose independent, real estate, RESPA, title company