By: Kara McGregor
Senior Vice President of Business Development
How do you choose a title company in Texas? Both federal and state laws specifically enforce the consumers’ right to choose their title services provider in a real estate transaction. However, most consumers lack the knowledge to differentiate between title companies, and default to a vendor chosen by their real estate agent or mortgage lender.
New rules adopted by the Consumer Financial Protection Bureau provide fresh emphasis on consumer choice, but again, there are no stated guidelines to help home buyers and sellers make an informed decision on what company should handle their transaction. Most consumers aren’t sure what title companies really do, much less how to judge which one is “best.”
In Texas, title insurance rates are set by the Texas Department of Insurance, so there is no price differentiation to help steer a consumer toward one company over another. All title policies cost the same one-time fee, based on the sales price of the property, and processing fees charged by title companies cluster around a narrow range.
So, how do you know?
What do you ask?
What search criteria do you put in the box?
Here is a brief primer on some factors that can truly affect the experience of your transaction, with some clarifying questions to ask as you talk to your real estate agent or mortgage lender, or as you browse title company websites in search of clues.
Are there convenient locations?
With the parties to your transaction in mind, does the title company have a location that is reasonably accessible? Despite the conveniences of the digital age, many aspects of the transaction are best handled in person, and some documents still need “wet signatures” to be legally binding.
Title companies without many options as to brick and mortar locations will offer mobile notary services, but you sacrifice the benefit of working face-to-face with the escrow officer or “closer” who put the transaction together. The closer is empowered to answer questions, catch discrepancies in the documents, make changes as needed to close the transaction smoothly, and manage the process of completing and funding the transaction. A notary merely affirms the signatures and cannot provide any other service.
Who’s underwriting the transaction?
Like any insurance policy, title policies are underwritten by a financial holding company that would pay the cost of a claim. The underwriter makes the rules that determine whether your transaction is insurable. This is a business decision that turns on many factors that come up in researching the history of the property. Are there gaps in the “chain of title,” or the history of ownership? Are there buildings that don’t conform to property lines? These issues and hundreds more are considered when a title underwriter assumes the risk of insuring the sale of a property from one owner to another.
When choosing a title company, investigate whether the company has multiple options as to underwriters. Some companies are direct operations of national underwriters, with just a single set of underwriting guidelines. An alternative is a title agent, an independent company often with multiple underwriters behind them. This might make a difference on a more complicated transaction, because the title agent can shop among several underwriters to find one with guidelines that offer workarounds.
Where is the title research handled?
Many large title companies have followed national trends and sent behind-the-scenes jobs to other states or other countries, particularly parts of the title research process. On the ground in your town, this can impact the ability of local employees to get timely answers and solutions when there’s a mistake or issue to be cleared up before closing the transaction.
Find out if the company you’re considering has a fully staffed title department at their local headquarters, or at least in your time zone.
Is the company compliant with new federal rules?
The Consumer Financial Protection Bureau has a host of new regulations that will be effective August 1st, 2015, for any residential transaction involving a federally insured loan. The new rules touch on many aspects of title company practices, from enhanced security measures to protect personal information, to new forms and time frames for processing.
As this deadline approaches, it will be vital for the health of your transaction that the title company be compliant with all the new requirements. Most lenders will be vetting title companies for compliance well in advance of the official deadline, and your transaction could be stopped in its tracks if the title company you choose is not prepared.
If you’re hoping to close your transaction any time after June 1st, 2015, it’s a good idea to ask the question: “Is your company ready to comply with new rules from the CFPB?” You’ll sound super savvy, and if the person you speak with has no clue what you’re talking about, it would be best to move on.
What value-added service do I get?
Again, Title companies in Texas can’t compete on price, and those that are serious about standing out from the herd offer a range of resources and services to smooth and enhance the experience of buying or selling a home.
Look for things like reports and guides that help sellers answer questions about their property, and explain the closing process for the lay-person. Some offer both printed and online resources that help buyers learn about local schools, taxing authorities, and communities.
Some have online calculators to help in estimating costs, and mobile applications to connect you with branch locations and other resources.
Are there any relationships I should know about?
This item is a question for your real estate or mortgage professional, as they help guide your choice of title company.
Because Realtors and mortgage lenders are involved in more transactions than the majority of consumers, they tend to have relationships with particular title companies and escrow officers. This is a normal and functional aspect of the way these industries work together.
However, some real estate brokerages, builders or title companies form business agreements to steer transactions to a particular provider. If certain legal requirements are met, this is allowed under existing laws, although some of these rules are under review by federal regulators.
As a savvy consumer, it’s wise to ask whether a title company has been recommended based solely on their stellar service and performance. Any side deal or “affiliated business agreement” is required to be disclosed by law, and you as the consumer have the final say in what title services provider handles the transaction.
Except … it’s negotiable in Texas
That is to say, buyers and sellers must ultimately come together and agree on the choice of title company. In Texas, the agreed upon title company is indicated on the promulgated sales contract.
There are arguments on both sides of the issue as to whether sellers or buyers should have their choice. On the one hand, sellers sometimes need to the assistance of a title company to resolve known issues that would complicate the sale, even before talking to a potential buyer. And in Texas, typically the seller pays for the title policy insuring the buyer (although this is also negotiable). On the other hand, the buyer is ultimately the insured party, and will have the ongoing business relationship with the title company.
The important takeaway is that you as the consumer have a voice and a vote. All title companies are not the same, and a little research can help you make an informed choice.