by Dan Krell © 2009
One of the most important pieces of legislation that home buyers need to be aware of is The Real Estate Settlement Procedures Act (a.k.a. RESPA). Although RESPA has been around since 1974, it’s a wonder that the professionals whom consumers depend on have had trouble understanding the law. And in some cases it’s more of a problem of following the law.
To protect the consumer, RESPA clearly spells out some of the many do’s and don’ts for those in the real industry. According to HUD (HUD.gov), RESPA is a “ …consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD…”
Of all the sections of RESPA, Section 9 appears to be the area that gets the least attention. Section 9 prohibits home sellers from requiring home buyers to use a specific title insurance company as a condition of sale. Seems simple enough, right? In an owner occupied resale transaction, a buyer may not encounter such pressure from the seller. However the number of Section 9 complaints from buyers may have increased in the last two years corresponding to the explosion of foreclosures and short sale transactions. Many MLS entries of such sales have remarks such as: “must use ABC title” or “settle with XYZ title,” which are direct or indirect statements that fly in the face of Section 9.
The first thought of a seller who directs the buyer to use a particular title agent may be one of kickbacks and affiliated businesses (which is regulated by RESPA Section 8). However, even if the seller may have a reasonable case to require the use of their title agent as a condition of the sale, the fact is that it is prohibited by Section 9 (caveat notwithstanding).
The reasons for a buyer to choose their own title agent include price and service. If a buyer has the ability to select their own title agent, they can compare prices for title insurance and affiliated services. Additionally, the buyer may also be able to compare title agents on their professional and service reputations. Having the title agent be responsive, file the correct documents, and distribute escrow funds in a timely manner should be taken seriously; title problems may plague you in the future if releases and mortgages are not filed correctly with the County.
Become your best advocate and get acquainted with RESPA. You can visit HUD’s consumer website to get further explanation on Section 9 and other sections of RESPA as well as the complaint process.
If you feel that the seller violated Section 9 and you were forced to use a seller’s title agent as a condition of the sale, consult with an attorney- you may be able to seek damages up to three times the amount you paid for the title insurance.
To enforce RESPA, HUD wants to know about your RESPA complaints by sending an outline of the violation and the violators name, address and phone number (along with your contact information) to the Director, Office of RESPA and Interstate Land Sales, US Department of Housing and Urban Development, Room 9154, 451 7th Street, SW, Washington, DC 20410.
This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 7, 2009. Copyright © 2009 Dan Krell