October 9th, 2023 at 12:57 pm
A. Yes.
B. Yes, if the seller is paying for the homeowner’s title insurance policy.
C. No, if the transaction falls under RESPA, which pertains to sales involving one-to-four residential units with a federally-related mortgage loan.
D. No.
Answer: The correct answer is Answer B, although Answer C is somewhat correct. The Real Estate Settlement Procedures Act (RESPA) pertains to sales transactions involving one-to-four residential units if the buyer will be obtaining a federally-related mortgage loan. Most conventional loans, as well as FHA and VA loans, are considered “federally-related mortgage loans” under RESPA.
As according to RESPA, a seller cannot directly or indirectly require, as a condition of sale, that the buyer purchase title insurance from any particular title insurance company (12 U.S.C. section 2608(a)). But a RESPA sales transaction typically involves 2 types of title insurance policies – a homeowner’s policy and a lender’s policy. In Northern California, the buyer typically pays for the homeowner’s policy, in which case, the seller of a sales transaction that falls under RESPA cannot demand that the buyer use a certain title company.
However, in Southern California, it’s the seller, not buyer, who typically pays for the homeowner’s policy, and the buyer typically pays for the lender’s policy. There is good legal authority supporting the proposition that, under RESPA, a seller can demand that a certain title company be used if the seller pays for the homeowner’s policy, regardless of whether the buyer pays for the lender’s policy.
For more information, take a look at C.A.R.’s Referral Fees & RESPA Q&A (password-protected for C.A.R. members only).
-Thank You to Kalia Rork (Santa Barbara Office) for suggesting this week’s legal tip!
Like what you see here? Sign up for more! Our free e-newsletter informs you of listings in your community, insider real estate tips, the latest in home trends, and more.
