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Attaboy Arnie! Maybe This New Emergency Law Will Burst A Few REO Sellers’ Balloons

October 15th, 2009 categories: Buying, Foreclosures / Short Sales

Arnie The Governator - Title & EscrowIf you’ve been keeping score, the REO asset managers have been calling most if not all of the shots over the past eight or nine months.

But thanks to Arnie and his band of Sacramento lawmakers, REO departments for the banks doing business here in California may have just lost one of their hammers.

That’s because earlier this week, Gov. Schwarzenegger signed an emergency bill (AB 957 – Galgiani) that immediately prevents lenders who are selling a foreclosed property from requiring the buyer to use a particular title or escrow company.

Even though federal law already prohibits sellers of federally related loans from directing title business, most REO sellers continue to require the buyer to use a title and escrow company of their choosing.

Buyers Really Haven’t Had A Choice Before Now

As a result, many buyers find themselves “forced” to use a title and escrow company located far away from the county they’re buying and with no local offices to serve them.Pull Quote

So when it comes time to sign closing papers, that often means a huge logistical nightmare, with an escrow company in Southern California trying to find a mobile notary who knows little more about the papers the buyer is signing than the buyer himself.

Title and escrow here in Northern California is always handled by one firm — the title company. Yet down in Southern California, they use two separate companies — one for title and the other for escrow.

More Time & More Money Down South

As a result, the process down South is much more complex and requires additional coordination between the two companies and the buyer and seller. And the buyer is usually hit with a variety of additional costs and fees that you don’t see with Northern California title companies.

And then there’s the extra time it takes for documents to be over-nighted back and forth between title and escrow agents up and down the state. That process can put buyers facing an interest rate-lock deadline in a very worrisome situation.

Back before the subprime meltdown, title and escrow was a fairly routine process for buyers, sellers and real estate agents. The buyer would select a title company they or their agent was familiar with and which was conveniently located close to the property and close to where the buyer and seller could easily sign papers when the time came.

Time Never Seems To Be Of The Essence

So if you found yourself in a situation where the loan documents arrived just days before the escrow was supposed to close, the local escrow officer could often make things happen. That’s not possible when you’re dealing with an out-of-area company, due to the time it takes for documents to be shuttled back and forth.

What’s more, most of the out-of-area firms who service these REO lender accounts are tremendously overworked, which usually means spotty communication, low customer service and expected delays.

And, even though these companies are often too busy to handle the business they have, the local title companies that these REOs have sucked business away from continue to struggle to keep their offices open.

Once There Were 11…Now There Are 2

Don’t believe me?

Consider this: before the real estate meltdown, there were five different title companies in Benicia and six in Vallejo. Today, North American Title is the only one left in Benicia and Old Republic is the lone survivor in Vallejo.

That’s right: 11 title companies in Benicia-Vallejo a little more than a year ago and only two still have their doors open today.

What The New Law Does

The new law which went into effect last Sunday, the day the governor signed it, does several things:

  • Prohibits REO sellers from requiring the buyer to use a certain title or escrow company;
  • Allows violators who are licensed to do business in the state to disciplined by their licensing authority; and,
  • Entitles buyers who have been “damaged” to collect three times the cost of those combined title and escrow services from the seller.

In other words, if you’re a buyer and the REO lender, seller’s real estate agent, escrow agent or title insurer all conspire to force you to use a specific title or escrow company, you may want to see an attorney and report the offenders. To see the full text of the new law, click here.

Triple-Damages For Those Who Are Wronged

For, with this new law, which will remain in effect until Jan. 1, 2015, if you spend, say, $2,500 on for title and escrow services, you might suddenly be $7,500 richer if you pursue the matter in court.

And even though the seller pays the damages, real estate agents representing the REO sellers who ignore the new law run the very real risk of having the Dept. Of Real Estate pull their real estate licenses if they’re a party to the crime.

Now, even though the seller can’t require you to use a specific title or escrow company, the new law doesn’t prevent a buyer from agreeing to use companies recommended by the seller as long as the seller provides written notice that the buyer has the right to make an independent selection.

A Workaround For The REOs?

So if the seller subtly indicates that they “really” would prefer you use Company “X” and the buyer decides to do so for fear of losing out on the house to another buyer, the REO lender may be able to effectively side-step the new law — as long as they provide the buyer with a suitable disclosure  indicating that it was the buyer’s choice not theirs.

Whether this new law fixes the problem remains to be seen.

Most of these REO asset managers have been wielding a pretty big hammer of late. So we’ll see if this new law at least bursts a few of their balloons.

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This entry was posted on Thursday, October 15th, 2009 at 9:42 am and is filed under Buying, Foreclosures / Short Sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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