The Real Estate Settlement Procedures Act (RESPA) permits homeowners to select their own title company, however, the title and closing procedures are complicated for most people.
Even though closing expenses account for 2 to 7% of the cost of a property, most buyers have no idea what they’re paying for, who they’re employing, how much they’re spending, or why.
Brokers frequently try to assist their clients by introducing them to a title business, however, the Texas Real Estate Commission (TREC) states that consumers must finally choose a title insurance provider.
TREC invites consumers to contact TREC and/or the Texas Department of Insurance to compare prices and services to see whether they are worth it. Keep in mind that choosing a title insurance company is about more than just price. The title and closing company’s quality and variety of services can be the difference between a seamless transaction and one that never gets to the closing table.
Homebuyers should ask their title insurance firm the following questions, and real estate agents who know the answers will be able to better assist their customers in making a decision.
IS MY CASH SECURE?
Why should you inquire: It’s critical that a title business manages its escrow monies properly. People do lose money as a result of incompetent, insolvent, or dishonest title and escrow companies, as reported in the news.
Consumers are being educated about the importance of properly selecting their own title and escrow provider by reputable companies.
What to inquire about: What internal controls, procedures, and segregation of duties do title businesses have in place to protect the funds of purchasers and sellers? What procedures do they take to keep escrows balanced? When was the last time they gave money to the government?
Simply because a title firm is tiny or new does not indicate it lacks the necessary measures to safeguard funds. Make sure, however, that the stability and reputation of the organization you choose are acceptable to you.
Inquire of others, particularly those in the real estate industry, about whoever they would recommend and put their money in. After all, it’s their business. A good title company will be delighted to discuss its controls for safeguarding clients’ assets.
WHAT SAFEGUARDS ARE IN PLACE TO PROTECT MY INVESTMENT?
Why should you inquire: It is critical to safeguard not just the clients’ finances, but also their long-term investments. Inquiring about an underwriter’s financial rating is perfectly acceptable for Realtors and homebuyers, and a trustworthy title business will be grateful you did.
The following is an explanation of the ratings: A+ or A’, A, or B+: A title underwriter’s overall financial health is solid, indicating that it will be able to meet any future claims.
These companies, on average, have strong operating profitability, are well funded, and have sufficient reserves. B: In this category, the ability to meet future claims can vary greatly.
As a result, compare specific companies in this category with great caution. C+: These organizations may have below-average financial parameters, but they are nonetheless rated “investment grade.”
C-rating: May have financial issues in one or more of the following areas: liquidity, asset quality, capital, reserves, or earnings.
IS MY TITLE FIRM A THIRD-PARTY NEUTRAL?
Why should you inquire: Lenders, real estate businesses, and builders now own some title companies. If properly constructed and stated, these agreements are legal. However, when there is no conflict of interest or financial incentive for referring title business, the customer is generally best protected. Consider whether the buyer’s interests would be better served if the escrow money and closing were handled by a neutral third party when contemplating an affiliated title business.
Have you submitted your rates to the Division of Insurance? What other fees and charges do you have in addition to the premium you told me about?
Why Should You Inquire:
By law, title insurance businesses must file rates with the Division of Insurance, and they are unable to discount or deviate from those prices.
Buyers may be tempted to seek out and follow the lowest rate, but if a title insurance premium is significantly cheaper than the market rate, this should raise concerns about whether the company is providing essential title and closing services in accordance with RESPA.
Cut-rate premiums could also suggest a lack of knowledge, a lack of financial and accounting controls, poor title searches and examinations, or a poor source of property data. Shopping for the cheapest premium can backfire since many title agencies charge additional costs to make up for the difference.
Electronic delivery expenses, overnight courier fees, cashier’s check fees, release tracking fees, wire fees, and other title business fees can sometimes exceed the difference between the cheaper premium and the market rate provided by reputable title companies.
DO YOU DO EXTENSIVE TITLE SEARCHES AND MAKE EXCEPTIONS KNOWN?
Why should you inquire: Would you advise your purchasers to accept a title commitment that lists “any and all documents of record” and “any and all easements of record” on the exclusions page, rather than notifying them what those documents are, as a Realtor looking out for their best interests?
That’s like telling people they have to perform their own research to figure out what encumbrances they have on the property!
Would you expect to hear about a 30-foot public service easement along one side of your property before closing if you were going to buy it?
In reality, some title companies provide pledges that do not explicitly identify encumbrances like these. In November 2008, the American Land Title Association (ALTA) convened to discuss industry best practices.
They emphasized the significance of a thorough search and a strong title product (the commitment and policy). They also spoke out against some title companies’ growing practice of issuing “garbage exceptions,” which are overly broad exceptions made without reference to the public records that are voiding the coverage.
Title insurance providers are expected to meet certain standards set forth by federal, state, and industry laws. Given that one out of every four deals has a cloud on the title at the time of commitment, it’s critical that homebuyers engage with title companies that detect, disclose, and resolve all concerns prior to closing.
A skilled Realtor may ensure that the title firm performs a “reasonable inspection” for each transaction, including supplying the buyer with real recorded documentation for each exception as required by the contract.
ARE YOU A FAMILY OR LOCALLY OWNED AND OPERATED BUSINESS?
Why should you inquire when there are a number of reliable national title insurance businesses that provide suitable products and services?
Many title businesses, on the other hand, outsource the creation of title commitments to other countries. A product made locally, by local personnel, has benefits that a product made elsewhere does not.
You’ll be supporting local employees who live and work in your communities by using a local title insurance business, which is familiar with the local real estate industry. When compared to national enterprises, local independent businesses return more money to the local economy, are more invested in its future, and provide 2 to 3 times more support to local non-profit groups.
You’ll also notice faster response times to issues when they arise, as decision-making takes place locally, and their local reputation is built on providing good customer service.
