REO buyers have right to select the closing and title company

Although many REO purchase and sale contracts provided by REO lenders designate a closing and title company, many REO buyers are not aware that the REO lender cannot require, as a condition of sale, that the buyer purchase title insurance from a particular title company.

The buyer of REO property has the absolute right to choose the closing and title company and pay for the buyer’s own title policy. Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.

In fact, a clause in a purchase agreement that has the effect of forcing the buyer to obtain and pay for a title insurance policy from a specific title company is illegal. For example, a seller who gave the buyer a choice of using one of three title agencies, and who charged a higher fee if another agency was used, has violated Section 9 of RESPA.

An REO lender that violates this RESPA requirement can be, among other things, held liable to the buyer in the amount equal to three times all charges made for such title insurance.

The only way a REO lender can ask that a buyer use a particular title company is if the REO lender pays 100% of all title insurance and related title costs. Therefore it is important for REO buyers to stand up for their right to choose the title company if the REO buyer will pay for the title policy.