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Preselecting a title company: Not in Realtors®’ best interest

by Brett Woodburn, Esq. on

Not long ago, I read an article published on that discussed the pitfalls of pre-printing the name of a title company on an agreement of sale. The article was well-written, and by and large, I agree with the author’s conclusions. The message is important, so much so that it bears repeating, albeit with a slightly different focus.

Real estate brokerages have been fostering business relationships with other settlement service providers in an effort to provide the full panoply of real estate services under one roof – real estate broker, mortgage lender, title company. When the Realtor®, lender and title agent are all on the same team – the buyers’ team – the whole process of buying a home is bound to be easier and less expensive.

Bundling services and joint marketing and advertising are a great way for a buyers’ agent to provide buyers with the services they will need in one place. In some offices, the buyers’ broker has an affiliation or is part of a joint venture with one or more of these service providers. Since the broker (agent) has a vested interest in the company, it only stands to reason that the agent will strive to ensure that the transaction goes off without a hitch. What better way to “recommend” a service provider than to pre-fill the name of the lender, inspector and/or title company in the Agreement of Sale. Of course, we all know that the buyers have the ultimate say, but isn’t part of the agent’s job to make the transaction smooth and painless; efficient? But efficiency can come with a cost.

The Real Estate Settlement and Procedures Act (RESPA) is the most important federal law governing residential real estate transactions. Its main purposes are two-fold: (i) provide advance disclosure of closing costs to the buyers; and (ii) prohibit kick-backs and unlawful fee splitting. RESPA makes it illegal to pay someone, or to get paid for referring someone to a settlement service provider; e.g., mortgage broker or title company. RESPA does offer a safe harbor for referrals made to an affiliated business. In order to take advantage of the safe harbor, the referring party (i) must make a written disclosure at the time of the referral; and (ii) must not require the buyers to use the affiliated business. RESPA includes the language required to be part of the disclosure, which should eliminate much of the confusion about how the disclosure form should be drafted. Seems pretty straight forward, right?

RealtySouth, one of the largest real estate brokerages in Alabama, had an affiliated business relationship (AfBA) with TitleSouth, a title insurance and closing company. RealtySouth “strongly encouraged” its agents to refer buyers to use TitleSouth. To facilitate the process, from March 2011 through May 2012, RealtySouth pre-printed TitleSouth on the agreement of sale, identifying it as the title insurance and closing company for buyers. In 2012, RealtySouth moved away from that practice to instead include two check boxes, offering buyers the option of selecting either TitleSouth or “other” to provide title insurance and closing services. RealtySouth did provide a disclosure to its buyers, and it was based on the proscribed form found in RESPA. However, RealtySouth added language like, “We at RealtySouth believe our affiliates provide superior service, value and convenience…” and “We believe that our affiliates’ charges are reasonable and are competitive with the amounts charged by others for the same services…” While these statements may have been accurate, they were certainly not in the form proscribed in RESPA.

The Consumer Financial Protection Bureau (CFPB) is charged with the responsibility of enforcing RESPA violations. The CFPB learned about the practice of pre-identifying the title company, and it received a copy of the disclosure that RealtySouth was using. Following the investigation, the CFPB ordered RealtySouth to use the proscribed disclosure form without any additional marketing language, and to pay a $500,000.00 fine. The CFPB concluded that RealtySouth violated RESPA’s prohibition against kickbacks and fee-splitting because RealtySouth did not qualify for the safe harbor protection.

In an effort to be “efficient,” RealtySouth pre-selected the title company for its buyers. (Offering a choice between TitleSouth and “other” wasn’t much of a choice, either.) By doing this, RealtySouth interfered with the buyers’ rights to choose their own title company, and by inserting marketing statements into the disclosure, RealtySouth watered-down the effectiveness of what was being disclosed. Having the alleged violations in print made for a very efficient prosecution…


Disclosure RESPA Legal issues Agreement of sale Realtor Real estate Mortgage lender Title services Title companies AfBA Title company
Comments (6)


  • Linda Walters, Esq.    March 12, 2015 | 7:59 am

    I cannot agree that a “bundled” approach will always be less expensive and better for the buyer. I always shop rates and service for my buyers and they do vary (title attorneys do not have to charge the “filed rate” necessarily). A company that wants to earn my referrals will try to solve problems and give coverages that a company-affiliated provider may not do. Just my 2 cents.

    Reply to Linda Walters, Esq.
    • Brett Woodburn    March 12, 2015 | 9:21 am

      Linda, I don’t know that a bundled approach is always less expensive, or even if it is less expensive, if such packages benefit a buyer. One of the key points of the article was to highlight the fact that pre-selecting services is potentially problematic, both because each and every real estate transaction is unique and also because such decision-making could violate several federal (and state) laws.

      Reply to Brett Woodburn
  • Tony Dahm    March 12, 2015 | 8:04 am

    So then why can builders essentially extort buyers to use the builder’s title and mortgage companies by offering “free” finished basements and the like?

    Reply to Tony Dahm
    • Brett Woodburn    March 12, 2015 | 9:27 am

      Tony, to fully answer your question involves a number of different components that would take us well beyond what can be accomplished in the comment section to an article. There are a couple of short responses that I can offer that, while perhaps not satisfying, will provide you with some basic responses. RESPA permits settlement service providers to offer incentives to encourage consumers to use certain services. However, RESPA also prohibits a settlement service provider from penalizing a consumer who elects to go a different direction. Thus, a builder can offer to ‘finish a basement’ if the consumer uses the builder’s title company of choice; but the builder cannot add ‘$X-thousand dollars’ to the purchase price if the consumer uses a title company of their own choosing. Keep in mind that builders are not settlement service providers (in many instances), so RESPA does not always directly apply to them.

      Reply to Brett Woodburn
      • Tony Dahm    March 12, 2015 | 9:32 am

        Thanks, Brett! I understand that it is a complicated issue, but somehow I believe what the builders do violates the spirit, if not the letter of RESPA. Thanks again!

        Reply to Tony Dahm
  • Melissa Sieg    March 12, 2015 | 11:18 am

    Great information, Brett! Thanks for the article – I would have thought it to be common sense to not pre-print that kind of info, but I guess not all of us are known for having that “common sense”.

    Reply to Melissa Sieg

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