Real estate mortgage closings, whether purchases or refinances, are stressful for a variety of reasons. For one thing, the amounts of money involved -- relative to home value -- are intimidating to some. In other cases, delays put additional pressures on all parties involved, as when a sale is dovetailed with a subsequent purchase. Many home buyers and borrowers are unnerved by the whole process because they sense they have no control. Sometimes this is aggravated by the participation of vendors and agents about whom they know nothing...other than the fact that the bank approves of them. Such is the case with title companies and agencies.
Is a Title Company the Same as an Agency?
There is some confusion among the general public about a title company versus a title agency. This is understandable since the terms are often used interchangeably. In fact, a title company is an insurance producer, underwriting and issuing title policies to builders, lenders and, sometimes, owners. Banks and finance companies always require title insurance because it protects their collateral from losses arising from defects in the title and chain of ownership. These defects include liens or unresolved judgments that can cloud the issue of actual ownership. Owners can opt for this coverage but are not required to do so.
A title agency is just that -- an agent. Like a life insurance agent, a title agency contracts with the title insurance company to write policies and represent the insurer at settlement. If attorneys act as closing agents, they often use title agencies with whom they have an established relationship. In any event, the agency does the legwork in terms of searching public records concerning the subject property. This protects the title company against future claims as well as the lender against threats to its collateral. Any prior liens, claims or other attachments to the property are listed as exceptions. A title insurer might issue a policy with exceptions but lenders almost always refuse to close with any such encumbrances outstanding.
Can a Buyer or Borrower Choose the Title Agent?
From a strictly legal standpoint, borrowers are not forbidden from picking any title agent that is actively licensed in their state. That, though, is not the whole story. The Real Estate Settlement and Procedures Act (RESPA) gives lenders the discretion of requiring closing agents in whom they have confidence. It only makes sense, since lenders are subject to strict accountability to their investors regarding how a loan is closed.
The short answer to who picks the title agent is that it depends. In many instances, lenders are fine with letting their customers make the decision. However, the bank might retain a "prohibited" list of agents who have demonstrated an inability or unwillingness to close a mortgage according to instructions. Those title agents that routinely inflate their closing costs beyond what the Loan Estimate will allow could also find themselves blackballed by a lender.
About Owner Policies
A home buyer who obtains an owner's policy pays additional closing costs yet may find it worthwhile. This policy insures rightful claim to the property and all equity accrued. The only caveat is remembering to increase coverage when home value rises. This assures protection for full, and not just partial, value of the home.
