If a title insurance company is no longer being used by a borrower can that title insurance keep a portion of the deposit as lost profits?

Answer 1

Unless there is some specific verbiage in the Sales contract or any documents you have signed, giving the right to the Title Company/Agent to keep a portion or all of the deposit,(and I'm assuming you mean Earnest Money for the purchase), then they have no rights to any monies whatsoever. You may be required to pay for the survey or pest inspeciton if they ordered it on your behalf..but even then if you didn't authorize the orders, you may not have to pay.

AnswerIf a deposit was put down consider it what it truly is - a deposit. Typically you will not be able to get this back . The title co. has put in manhours and paid whatever parties were involved to get the title work started. These parties could involve local muni's, tax authorities, courier fees, etc.... This is lost money and productivity for the title co., so depending on the title co.'s policy and the reason why they are no longer being used would probably dictate the refund. Normally in my experince if it not the fault of the buyer that the title co. is not being used they would refund the deposit. However, most reputiable title co.'s would not charge you for title insurance until the closing. Title co.'s are most often assigned either by a real estate agency, the lending bank, or mortgage broker. These title co.'s therefore want to keep this business relationship and would not risk upsetting the relationship between the real estate agent, lender, etc. by keeping the deposit, this could result in a loss of future /repeat business for all paries involved. Hope that helps. AnswerIf you contracted with a title agency to provide title services, gave a deposit to the title agency for their services and then cancelled the order, the answer is "Yes" they may be able to keep all or a portion of the deposit.

It is illegal for a title agency to provide services for "Free" as it is construed as an "inducement" to do business and that violates RESPA laws.

All title agencies are required by law to bill out for their services and costs even if the transaction did not close.

Plus, a title agency has hard money costs upfront from when they start your order: search costs (county, local, state records), administrative costs for managing the file, etc. These are legitimate costs and at the very least, you should be willing to pay to cover their costs since you ordered the title with them.

I am sure you don't work for free, so why should a title agency just because you pulled the transaction from them for whatever reason.

You can ask for an invoice (if they have not already sent one to you) to see what actual charges they incurred by starting your title order. You may be surprised that it actually EXCEEDS what you gave them for a deposit. It is less than your deposit, you can request the difference back.

I never understood why people think that it is OK for a title agency to absorb the costs of cancelled orders. A borrower pays for their loan application and appraisal upfront before closing.

The status of the property's title is pretty high up on the list as an important piece of information and the loan could not close without the title commiment (title opinion, report on title, etc.) and at the very least, a Loan Policy.

AnswerWhile every title company or title agent wants to get paid for their work, it just not always the way it happens. Unless a person has actually contracted in writing with a title provider agreeing to pay their fees and hiring them specifically, the person who is legally responsible for paying for the title insurance can decide whom to hire for the title insurance and title services. The fact that someone you didn't specifically hire starts working on your title needs, does not mean that you have to pay them and they absolutely cannot touch the money you are holding in trust as a deposit.

Realtors or mortgage brokers often take it upon themselves to pass the title work on to someone with whom they are associated. This is not considered "hiring a title company". If you are the person responsible for paying for the title insurance (buyer or seller - depending on your sales/purchase contract), and you did not pick the title company, you have a right to make the change to another title insurance agent if you want to without having to pay the first agent who began the work without you specifically hiring them to do so.

Unfortunately, it is generally considered "a cost of doing business" when a title agent loses a job to another agent because the consumer exercised their "choice" in picking the title company. The title company is not allowed to deduct their fees and expenses from the deposit. Often the second title company will offer the title company that started the work the courtesy of using the survey that they ordered or the estoppel letters that they ordered so that portion of their expense can be covered. However, the customer is not under an obligation to pay a company that they did not hire. For absolute clarification on this issue, feel free to call your state's Department of Insurance and they will be confirm beyond any doubt with regard to your responsibility to pay a title insurance company or agent that you didn't specifically hire.