1. You’re Paying For It!
When you read your contract, you will notice that you are responsible for most (if not all) of the closing costs in a new construction closing. This includes the cost of both the Title Search and the Owners’ Title Insurance Policy. If you’re paying for it, it would make sense to shop for a title company that is looking out for you, and not the builder that owns the title company or referred them the business.2. Look Closely — Is It Really The Best Deal?
Often, Builder contracts will tie incentives to the use of their “Preferred Lender” or “Preferred Title Company”. Setting aside the fact that tying incentives to the use of a particular title company is illegal (more on that later), take time to consider why the Builder is offering the incentive to begin with. In some cases, the Builder’s preferred title company will know exactly what types of protections the Builder wants, and not you, the Buyer. For example, is the builder’s title agent going to order a municipal lien search? Or are there exceptions to coverage that would affect the buyer’s ability to sell the property down the road? In the case of financing, what are the charges that the lender will be charging at closing? What if there are loan extensions if the construction is delayed? These are all questions to consider when buying new construction.3. Who’s the client – You or the Builder?
Think about it. If the builder has a “Preferred” Title agent, that agent can expect the business to come from the builder, not from the buyer. Accordingly, the Buyer may not find the customer service to be everything that they had hoped for. If the builder refers you to their “Preferred “ partner, give that partner a call prior to signing any agreement. Ask for any information that you would need for closing (i.e. a fee sheet, contact information for the staff assigned to the file). If they don’t answer, leave a message. See how long it takes to get a response (if you get one)4. It Is Not Legal Under Florida Law
Per the FLORIDA DEPARTMENT OF FINANCIAL SERVICES, a Buyer of real estate has “the right to choose [their] title agent or attorney. [They] are not obligated to use the services of any title agency suggested by [their} real estate agent, mortgage lender or attorney, though you may certainly choose to do so.” In many Builder purchase contracts, you will find language stating that the Buyers are responsible for all of the costs related to closing. As such, any Incentive offered by a builder may only be applied as a credit to costs that the Buyers are already paying. Direct your attention to the language of Florida Statutes 626.9521, Florida Statutes 626.9541 , and Rule 69B -186.010(4) of the Florida Administrative Code regarding “Unlawful Rebates and Inducements Related to Title Insurance Transactions”. Pursuant to the Rule, a Builder, as a “referrer of settlement service business” may not condition any discount or incentive on the placement of Title Services with a particular agency. (emphasis added) Accordingly, tying the Incentive to the selection of a particular title agent is in direct violation of the Rule. On a Federal Level, Buyers of new construction should be aware of Section 9 of the Real Estate Settlement Procedures Act (RESPA) which states:(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.
(b) Any seller who violates the provisions of subsection (a) shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.
Section 9 also prohibits a Builder from “directly or indirectly” conditioning the sale on buyer’s purchase of title insurance from a specific company. Builders frequently try to work around the rule by claiming to pay for the insurance but then charging the buyer later in the transaction. However, the Builder can “directly or Indirectly” recover the cost for the title insurance through some otherwise seemingly unrelated fee or charge risk violating the requirements of Section 9 which states that :“the offering of a package (or combination of settlement services) or the offering of discounts or rebates to consumers for the purchase of multiple settlement services does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process.”
In other words, the Builder’s preferred partner has to offer you the best price available and not make up those costs somewhere else in the closing fees. Finally, per RESPA Section 8 , a Builder’s cannot require a Buyer to use a particular title company unless that Builder is NOT in “ a controlled business relationship” with the Title Company and that the Seller is actually PAYING FOR THE POLICY. Put another way, If the Builder is in an “Affiliated Business Relationship” with the title company, OR if the Buyer is paying for the Title Policy, the Buyer is free to close wherever they choose, without any fear of losing the promised builder incentive. 5. Be Aware of “TWISTING” Frequently, Builder’s sales agents are incentivized to direct Buyers to use the Builder’s Title agent. This incentive can result in pressure from the Sales Agent. As a representative of the Builder, this type of pressure can be severe and in some cases – threatening. It is well-known that some agents will threaten the Buyer that they will lose their entire incentive for closing with another title agent. Per Florida Statutes 626.9521, Florida Statutes 626.9541 Florida Statutes 626.9541 this type of behavior is called “TWISTING”. If you advise your Builder that you wish to close your purchase with a title company of your choice, it is a direct violation of Florida Law for that Builder to pressure or “twist” the Buyer into closing with their preferred title agency.
