focus on: Legal Affairs BY KellY ShonBorn, IAr STAFF CoUnSel

APRIL’S MOST POPULAR LEGAL HOTLINE QUESTION

Q The 2010 IAR Purchase Agreement now includes language which states, “Pursuant to Federal and State law, Seller cannot make Seller’s selection of a title insurance provider a condition of this Agreement.” (lines 226-227). What do the actual laws say that require this warning?

A The language of the relevant Indiana and federal statutes is provided below. As you can see, they are very similar; however, RESPA applies only to property which will be purchased with a federally related mortgage whereas the Indiana statute applies to all transactions. INDIANA LAW STATUTE: IC 27-4-1-4 Enumeration of unfair methods of competition, deceptive acts and practices:

Sec. (a) The following are hereby defined as unfair methods of competition and unfair and deceptive acts and practices in the business of insurance: (12) Requiring, as a condition precedent to the sale of real or personal property under any contract of sale, conditional sales contract, or other similar instrument or upon the security of a chattel mortgage, that the buyer of such property negotiate any policy of insurance covering such property through a particular insurance company, insurance producer, or broker or brokers. However, this subdivision shall not prevent the exercise by any seller of such property or the one making a loan thereon of the right to approve or disapprove of the insurance company selected by the buyer to underwrite the insurance.

Real Estate Settlement and Procedures Act: U.S. Code Title 12 Section 2608. Title Companies; liability of seller: (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. Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.

indiana REALTOR® advocate | may 2010

1.800.444.5472

Here is a discussion concerning the most common question we have received on the Legal Hotline during the month of April – “Who gets to choose the title company?” This question does not have a simple answer and, in fact, requires some background information in order to better understand. Hopefully the following will provide our members with a clearer picture of the issue and provide some suggested methods of

handling issues which arise in this regard.Please remember that the Legal Hotline is available to assist principal or managing brokers and their designated agents between the hours of 9 a.m. and 5 p.m., Monday through Friday. The Legal Hotline can be reached at (800) 444-5472. Brokers may also send e-mail questions to legalhotline@indianarealtors.com or fax questions to (317) 842-8494.

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WHO GETS TO CHOOSE THE TITLE COMPANY?

Q When did RESPA and the Indiana laws change to include this language?

A Neither RESPA nor Indiana law have recently changed in this regard. Both laws have been on the books for several years. In fact, it has just been in the last couple years that real estate brokers have taken notice of the law with regard to title insurance and there is much confusion spreading across the state over what it means.

Q Does this mean that if a Seller counters the Buyer’s Offer by saying that the Seller will select the title com-pany the Seller will be in violation of RESPA or Indiana law?

A Not necessarily. As with any law, particularly ones which are ambiguous or not precise, the Court will in-terpret the language and put forth a ruling which clarifies the legislation. However, this particular issue has not been litigated in any Court, state or federal. For some-one to claim that a seller has violated RESPA because they countered an offer by saying the Seller will select the title company would literally require a federal case to be made of it. It’s unlikely any buyer would want to expend the resources required to bring a federal lawsuit in order to determine how far a seller can go in the nego-tiation process before the seller would be in violation of RESPA. While a claim filed under the Indiana law would not be a federal issue, it may still require time consum-ing and costly litigation.

We advise callers on the Legal Hotline that the selection of the title company is a negotiable item for the buyer and seller to hash out, however, there will be a point at which seller will be in violation of either RESPA or Indiana law if they continually send counter offers saying the Seller will select the title company. How many counter offers it will take before a violation occurs is unknown to anyone at this time without court inter-pretation. Therefore, Sellers do need to be careful about insisting on selecting the title company – which is why the warning language was added to the Purchase Agreement.

Q How can we, as real estate brokers and agents help our clients, both buyers and sellers, with the decision they

need to make concerning title insurance companies?

A The key thing to remember is that the selection of a title insurance company is a buyer or seller deci-sion to be made. It is not a decision for the real estate broker or agent to make for their client. These decisions should not be influenced by brokers who are affiliated with or whose brokerages also provide title services.

Q This really seems unfair to Sellers. What can a Seller do if they can’t insist on selecting the title company?

A It seems that the main reason a Seller would feel strongly about selecting a title company is from a cost standpoint. Obviously, if the Seller is paying for the title insurance and they believe they can get it cheaper by using their selected title company they would want to do that. But rather than insisting on the company, the Seller can negotiate a maximum amount they will pay toward the title insurance. Once the deal closes, the Seller is going to be done with everything about the property – including what company provided the title insurance. However, the buyer will continue to own the property and therefore, will have a continuing relationship with the title provider. q