Question: We made an offer to purchase a Mesa home with financing by a Federal Housing Administration (“FHA”) loan. In our offer we requested the title company that our real estate agent recommended. All of the terms of our offer were accepted by the seller, except that the seller wanted another title company. The seller is a real estate investor, and frequently uses this other title company. We are concerned that this other title company will be prejudiced in favor of the seller. Does the seller have the right to demand their own title company?
Answer: First, you are talking about an “escrow company,” not a “title company.” There is a distinction between an “escrow company” and a “title company,” although both terms are often used interchangeably. An “escrow company” oversees compliance by the seller and the buyer with the purchase contract (including distribution of funds), and drafts the deed and other closing documents. A “title insurance company” is an insurance company that insures the title to a buyer’s home. This title insurance company will also insure any mortgage loan. After the closing of the transaction by the escrow company, the buyer and any mortgage lender will receive from the title insurance company a title insurance policy showing all exceptions to title, e.g., CC&Rs, easements, and liens. For example, if the title insurance policy does not list an easement as an exception to title, the title insurance company will have to reimburse the buyer for the loss in value of the home because of this easement. Second, the Real Estate Settlement Procedures Act (“RESPA”) regulates homes purchased with a federally-related mortgage loan such as your FHA loan. RESPA prohibits a seller from requiring that a buyer purchase title insurance from a particular title insurance company. 12 USC §2608(a). RESPA does not, however, regulate the selection by the seller and the buyer of the escrow company for the transaction. Therefore, if you and the seller cannot agree on an escrow company, there will be no purchase contract.
Note: In Arizona there are 40 or 50 escrow companies that are regulated by the Department of Financial Institutions, and 4 or 5 national title insurance companies that are regulated by the Department of Insurance. Both First American Title and Fidelity Title are national title insurance companies that also own Arizona escrow companies.