IBA Compliance Connection

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In our area, the seller for a real estate purchase transaction almost always chooses the title company. Our Loan Estimates do state that the borrower is permitted to shop, and we provide a written list of providers. But because the seller selects the title company, is that estimated charge subject to 10% tolerance?

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First, the Real Estate Settlement Procedures Act (RESPA) prohibits sellers from requiring a buyer to use a particular title company. However, if the seller suggests a particular title company, and the buyer acquiesces to that suggestion, the charge would be subject to a 10% tolerance as a third-party service that the borrower could shop for (provided that the title company is not an affiliate of your bank).

For resources related to our guidance, please see:

  • Real Estate Settlement Procedures Act, 12 USC 2608(a) (“No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.”)
  • Regulation Z, 12 CFR 1026.19(e)(3)(ii) (A 10% tolerance applies to an estimated charge for a third-party service if, among other requirements, “(B) The charge for the third-party service is not paid to the creditor or an affiliate of the creditor; and (C) The creditor permits the consumer to shop for the third-party service, consistent with paragraph (e)(1)(vi) of this section.”)