Title services: Charging the sellers?

Over the past several months, we have seen an increase in number of calls to the legal hotline asking about title insurance agencies (“agencies”) charging sellers fees at closing.

The fees cover things like obtaining mortgage payoffs from lenders, obtaining tax certification, lien letters and preparing deeds. A recent caller shared that her sellers were charged a document preparation/document download fee, a fee for collecting and paying invoices, and a home warranty at settlement and a fee for obtaining a seller’s affidavit (which is a document required by the title insurance company.) The sellers complied to the fees; the first time they saw these fees was at the settlement table and they felt that they had no choice.

When asked to justify how and why the agency charged the sellers these fees, the title agent referred to the Title Insurance Rating Bureau of Pennsylvania (“TIRBOP”). TIRBOP is the organization that is recognized, under the law, to establish what fees title insurance companies, and their related agencies, can charge to their customers.

Pennsylvania is one of the few states considered to be an all-inclusive rate state. This means that the “fee” the buyer pays for title insurance at settlement includes the title insurance premium, the cost of the title search, title examination, any escrows and title-related settlement services, and the insurance risk assumed by the title insurance company.

Title insurance agents (“agents”) are permitted to charge some additional fees, BUT… and there is always a ‘but.’

When the settlement involves residential real estate and includes a mortgage, then RESPA likely applies. RESPA prohibits settlement service providers, including agencies, from charging fees for services that it did not perform or for charging prices that commensurate to the true value of the services provided. The Dodd-Frank Act also introduced the Unfair, Deceptive and Abusive Practices Act (“UDAAP”). UDAAP authorizes regulators to both determine what practices might be unfair, deceptive or abusive, and prosecute these practices. Sanctions flowing from UDAAP violations can be significant enough to put an agency out of business, and the most egregious circumstances may lead to jail time.

Agencies must be very cognizant of what additional fees and mark-ups they will charge. Some fees, like tax certifications, water and sewer lien certifications, domestic relations lien searches, certificates of good standing and homeowner association resale certificates, are pass-through expenses. The agency is not permitted to add any additional fees or mark-up for providing those services.

When read together, the TIRBOP Rating Manual and the title insurance company law specifically permits agencies to charge buyers for performing tasks and preparing documents that are not included in the “fee.” In other words, title agents are permitted to charge buyers for services that are not part of the all-inclusive rate without having the buyers sign a separate agreement. Agencies are also permitted to charge sellers for performing certain tasks. However, the statutory right to charge fees is limited to the relationship between buyer and title insurance company.

The responsibilities of agents are many. These responsibilities have only increased since the TRID rules have been implemented. It is reasonable, even warranted, for agents who are being asked to do more work on behalf of sellers to charge reasonable fees for those services. However, with the threat of UDAAP sanctions and penalties, should agents assess fees to the seller if the seller did not agree to pay the agent? Ask yourself, would regulators consider “surprising” a seller with fees at settlement to be unfair or deceptive?

Do sellers have the right to refuse to pay fees that they did not authorize? Perhaps. Does an agency have the right to refuse to close a transaction if a seller refuses to pay for unauthorized fees? Probably not.

How can agents avoid this problem? Simple! Provide a fee sheet to the seller in advance, disclosing the services to be performed and the fees to be charged, and get their agreement to pay the fees. After all, how many of you would be willing to pay someone for work done on your behalf that you did not authorize and did not agree to pay?