All too frequently our borrowers are convinced to sign a contract with a seller that gives them a discount on closing expenses if they use the seller’s requested title company. One of the biggest issues that we have in getting loans closed is when our customer, the buyer, accepts this option without thinking about it twice. It can be a very tempting option to try and save money, but his can be a big mistake on the buyer’s part that sometimes cannot be undone and will cost them both time and money in the long run. So who should pick the title company in a real estate closing?
Using Seller Title Company May Not be Such a Great Deal After All
Ask Yourself: Why is the Seller Offering their Title Company Services to Me?
Think about why the seller of a property may be offering this discount and the reasons why this is a bad idea should become clear. A seller will offer to shoulder this part of the expense because they know the title company will do everything necessary to protect their own interests – often at your expense. Usually, the seller has an existing agreement with the title company whereby the title company knows exactly what protections the seller wants, without regard to you, the buyer’s, interests. When this happens, the buyer is not as well protected as they should be. It’s not a good idea to have this third party service totally out of your control.
Let’s Look at an Example:
We recently had a loan closing in New York State where the buyer agreed to use the seller’s title company in exchange for a $1,000 discount. Within the document that they signed was an innocuous looking line that said that they agreed that no municipal searches would be done. Without knowing what that meant, they signed the document, which became an unbreakable contract.
What the buyers did not know is that municipal liens should always be done in New York State, particularly when a property is owned by an institutional seller, such as a bank, which this one was. These searches determine if there are any pending municipal issues regarding a property, such as a condemnation or code violations that would not show up on title. These searches are routinely done in New York State by title companies, except where specifically waived by the buyer, as was done in this case. These searches only benefit the buyer, they are of no benefit to the seller.
A few days before the scheduled closing date, it was discovered that the municipal searches were not ordered. The buyers realized that they needed them, so they had to be ordered through the seller’s title company, who charged them $345 for the additional order. They also needed to get an extension on the closing date from the institutional seller, who agreed to extend, but for a fee of $150 per day for the extension.
The seller’s title company said it would take 5-7 days to get the extension, but it took 10 days. Part of the delay, RFG believes, is that the seller was in no rush to get them as each day that passed generated income for them, so did not push the title company to follow up.
In the end, the borrower paid $345 for the search and $1500 for the extension fee, for a total of $1845 in expense as a result of their efforts to save $1000. This analysis does not even take into account the stress caused to the buyer by having to constantly follow up and extend the loan — leaving them at the mercy of the seller’s title company.
Unfortunately, You Have No Reason to Trust the Seller’s Title Company.
Frequently, the title company retained by the seller is offshore, so when trying to deal with them, you may find you are working around significant time zone issues. It has been our experience that in these cases, each person you deal with at the title company deals with only a very small part of the closing process, so you may need to deal with seven or eight people from start to finish.
As it moves from person to person, it gets put at the bottom of the pile and can take a significant amount of time to get to the top where the task is completed and the file then moved to the bottom of the next persons pile. Buried in the language of many of these agreements is a phrase giving the seller a unilateral right to extend the closing date which means that they can take as long as they need to close the transaction but you do not have the right to change or cancel. RFG has been in transactions like this where it has literally gone six weeks past the anticipated closing date to close because no one was willing to move the file through the process at an acceptable pace.
The most frustrating part of dealing with the seller’s title company, especially when they are offshore is that they can be very hard to reach. Conduct an experiment before signing the agreement to use the seller’s title company. Call the contact phone number found in the paperwork. If someone answers the phone, you are already ahead of the game. Ask them to send you an email with all of the information you will need. If you get the email in a timely manner, you might have some success with them, if you dont, that should tell you everything you need to know.
If no one answers the phone, leave a message. If they get back to you in a reasonable amount of time, ask for an email as discussed above and only move forward if you timely get one. If they do not call back dont use them. If you call and get put on hold, give them five minutes to pick up.
If they do not pick up, you need to hang up and find your own title company. It is not unusual to be put on hold for over an hour each time you call. You do not have time for that, and neither does your lender.
You Need Someone Who has Your Best Interests at Heart.
Don’t rush through negotiating a contract. Make sure that whatever you agree to is in writing and that both parties sign the agreement of sale. Make sure you are aware of the seller's closing costs. How will they affect your bottom line? During the house closing process closing costs can add up to a significant amount for both the buyer and the seller when the real estate title is transferred.
Making sure that you are fully protected with the property you buy is extremely important.Hire your own title company to make sure that your interest in the real estate has been as fully investigated as possible. Understand what it means when you sign a contract that gives someone else the opportunity to take a shortcut at your expense. A good deal on its face is often a bad deal if you do not know what you are doing.