One of the great things about real estate is that there are a host of consumer protection laws — mainly at the state and federal level — that we have to follow.  However, one of the aspects of my job that bugs me is when it turns out that one of these laws is just superfluous smoke and mirrors.

According to web site of The US Department of Housing and Urban Development, HUD, which enforces the Real Estate Settlement and Procedures Act (RESPA) Section 9 of that law

…prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

Wow, if you’re a buyer, that sounds great, doesn’t it?  You get to pick, period.  Pretty clear cut and straightforward.  Let’s go ahead and re-elect the lawmakers who wrote that, shall we?

So What’s Up in Sacramento County?

In Sacramento County, the tradition is that the seller picks the title company, and the reason given is that they pay for the CLTA (owner’s title policy).  Any buyer getting financing, however, still needs to get — and generally, to pay for — an ALTA policy to protect the lender. 

HUD’s position on this?  According to a letter written by Rebecca Holtz, acting Director of Consumer Affairs for HUD, in a letter written in 2000 (regarding a similar situation, not Sacramento County specifically, but the shoe fits):

In summary, the Department [HUD] will not enforce Section 9 of RESPA against a seller who selects the title insurance policy if the seller is paying for the owner’s title insurance policy, and does not require the buyer to use the title insurance company for the simultaneously issued lender’s policy.

(A huge thank you to Judy Benton at CAR Legal for forwarding this along.)

OK, so far so good, right?  The seller’s paying for CLTA, so no skin off the buyer’s nose there.  The buyer can buy the ALTA policy from a different company, right?

Wrong.  Take the case of Placer Title for the purchase of a $380,000 home.  A CLTA policy costs $1,584.00.  The ALTA Policy costs $585.20, if it’s issued concurrently.  What does an independent ALTA title insurance policy cost?

I spoke to Placer Title:  they don’t have pricing for that, because it wouldn’t make sense to do it.   But to give you a rough idea, the ALTA policy on a refinance loan of $380,000 would be $1,008.00.

So, according to HUD logic, the seller can’t “directly or indirectly” require you to use a certain title company, but “directly or indirectly” doesn’t include requiring that you either use their company or pay significantly more to go elsewhere.

Oh well, at least if there’s a major hurricane you can count on the government to fly water and supplies in and not hang around on vacation.  Right? 

Oh, wait…

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