An REO Lender CANNOT require buyer to purchase title insurance from any particular company
Have you ever seen REO and short sale listings with the disclaimer, “Seller to choose escrow/title company”? This is a violation of RESPA. Lenders selling properties, as well as the agent representing those lenders, should be aware that while the lender/seller can select the escrow company, the buyer is free to use whatever title company he or she chooses.
If speaking out about the legality of the issue will jeopardize an offer, remember: buyers’ agents are responsible for informing their clients of their right to choose a title company. Sellers’ agents representing lenders are responsible for acting in accordance with RESPA.
According to the California Association of Realtors, no seller can require the buyer purchase title insurance from any particular company. This rule pertains to transactions involving a federally-related mortgage loan for one-to-four residential units as defined under the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. section 2608). RESPA requirements apply to REO transactions. If an REO lender chooses the title insurance company, it cannot require (directly or indirectly), as a condition to selling the property, that the buyer purchase the title insurance policy. A lender that violates this requirement can, among other things, be held liable to the buyer in the amount equal to three times the amount of all charges made for such title insurance. Anyone who believes they know of a RESPA violation may file a complaint (and may request confidentiality) to the U.S. Department of Housing and Urban Development (HUD). For more information about filing a RESPA complaint, go to: http://www.hud.gov/offices/hsg/sfh/res/respamor.cfm#HE2
I hope you found the article useful. Give me a call if you have any questions.