You choose: Questions to ask when selecting a title services company
The Federal Real Estate Settlement Procedures Act (RESPA) allows homebuyers to choose their own title company, yet the title and closing process is bewildering to the average consumer. Even though homebuyers spend 2 to 7 percent of the cost of their home on closing costs, most are not clear about what closing costs include, who they are hiring, how much they are spending, or even why. On a $150,000 home, that’s between $3,000 and $10,500 – big money! Don’t just go with a title company that you don’t know.
Real Estate agents often try to help their clients by referring homebuyers to a title company, but consumers are ultimately responsible for selecting a title insurance provider. Keep in mind, also, that there is more to selecting a title insurance provider than price alone. The quality and type of services provided by the title and closing company can make the difference between a smooth transaction and one that never makes it to the closing table.
Homebuyers will want to ask the following questions of any title insurance company before agreeing to use their services:
1. Who is your client? The answer you are looking for is “you”. However, the answer usually depends on who referred the title company to you. If it was your lender, the title company will probably tell you that they represent the lender. If the title company was referred to you by your real estate agent, the answer might be the real estate agency – probably because the title company is OWNED by the real estate agency and therefore has a vested interest in closing your purchase because that’s the only way the agency earns a fee. These arrangements are legal if properly structured and disclosed. The consumer, however, is often best protected when there is no conflict of interest or financial incentive for the referral of title business.
In our experience, title companies who are owned by real estate agencies are less willing to take tougher stands on certain title or closing issues (such as the real estate agencies fees) because they don’t want to derail the closing. You’re paying a lot of money for the home – you should get clear title and a closing that is to your advantage. Welch, Gold, Siegel & Fiffik, P.C. provides title services and can help you successfully close on any purchase of real estate.
2. Do you conduct thorough title searches and disclose the results to the homebuyer? Will you discuss them with the homebuyer? We can’t over-emphasize the importance of this question. It’s huge. 1 out of 4 transactions has a cloud on title at the time of the commitment. It’s imperative that homebuyers work with title companies who take the necessary steps to identify, disclose, and resolve all issues prior to closing.
The American Land Title Association (ALTA), leading industry group, has identified best practices in the industry. They stressed the importance of an accurate search and solid title product (the commitment and policy). And they also spoke harshly about the growing practice by some title companies of providing “garbage exceptions,” overly broad exceptions without reference to the public records that are voiding coverage.
The problem is that whether a title search has been done and the specific results of the examination of the results of that title search is not customarily disclosed to homebuyers. Most homebuyers do not understand title issues and therefore do not think to ask about it. They simply assume these are being done and unless they hear something to the contrary, the title must be “ok”. If you were about to purchase a property with a 30-foot easement along one side of your property, would you expect to know about it prior to closing? Some title companies are in fact providing commitments that do not specifically disclose encumbrances like these.
As attorneys looking out for our clients’ best interests, we routinely discuss the results of our examination of the title to the property. We DO NOT accept title commitments that simply list “any and all documents of record” and “any and all easements of record” on the exceptions page. Don’t work with a title company that does not meet those best-practice standards. Some title companies exist only to capture the referral fee from the transaction; others hope to sell policies and pocket the premiums from the transaction rather than perform a thorough search and examination of the property.
3. Is my money safe? The way a title company handles its escrow funds is of utmost importance. The news stories you read are true: People do lose money as a result of incompetent, insolvent, or dishonest title and escrow companies. What internal controls, procedures, and segregation of duties do the title companies have in place to safeguard buyers’ and sellers’ funds? What procedures do they use to balance escrows? Do you know enough about this company to wire $150,000 of your own money to this company? A reputable title company will be happy to talk about their controls for protecting clients’ funds—after all, it’s their business. Welch, Gold, Siegel & Fiffik’s escrow funds are governed and protected by the Pennsylvania Lawyers Fund for Client Security.
4. Are your rates approved by the PA Department of Insurance? And, in addition to the premium you quoted me, what are your other fees and charges? Title insurance companies by law are required to file rates with the Department of Insurance and cannot discount or deviate from those rates. Buyers may be inclined to find and follow the lowest rate, but if a title insurance premium is notably lower than the market rate, this should be a red flag to look more closely at whether the company is providing customary core title and closing services.
Additionally, cut-rate premiums may indicate a lack of experience, a lack of financial and accounting controls, inferior title searches and examinations, or a substandard source for property data.
Shopping for the lowest premium alone can also backfire, since many title companies more than make up the difference by charging additional fees. Electronic delivery fee, overnight courier fees, cashier’s check fees, release tracking fees, wire fees, and other title company charges often add up to more than the difference between the lower premium and the market rate charged by reputable title companies.
Our real estate services group can be reached at 412.391.1014.