As featured in The Washington Post
When buying a home, the settlement process can be confusing. Not to mention the trepidation that comes from signing all those forms.
An additional layer has been creeping into the process, most often in Virginia. Some say it provides extra protection and convenience for the seller. Others claim it causes delays and raises costs.
The practice is known as split closing or split settlement where the buyer and the seller each use a title company for a single transaction. This is not the same as when the buyer and seller sign the documents at different times, which happens frequently these days. In a split closing, the seller hires a title company separate from the buyer’s title company to complete the sale.
Every state has different customs or practices when it comes to real estate transactions. While title companies handle closings in the District, Maryland and Virginia as well as the lower eastern half of the country and the Midwest, New England states require the buyer and the seller each have an attorney represent them at settlement. Escrow companies manage closings on the West Coast.
Under Section 9 of the Real Estate Settlement Procedures Act, sellers are prohibited from dictating the title company used at a closing. Buyers select the company that ensures the title to the property is clean and issues title insurance.
“The public needs to realize the buyer chooses the title company,” said Lorraine Arora, managing broker at Weichert Realtors Fair Oaks.
Even though it’s the buyer’s choice, the title company has a responsibility to make sure the buyer’s mortgagee is satisfied above all.
“You’re representing the transaction,” said Timothy Mullin, managing member and co-founder of Counselors Title. “You are beholden to any instructions from the lender in a transaction.”
Because they don’t get to choose which title company is at the table, some sellers may feel their interests aren’t being protected.
“Even though [the seller] might be paying for that title insurance policy, they cannot tell the buyer who they have to use,” said Linda J. H. Aparo, national director of sales and marketing for reQuire Real Estate Solutions. “That’s why sometimes in split closings the seller gets their own title company because they’re like, ‘I want to depend on my own person. I don’t know that guy.’ But they are really performing the same task. You’re just paying for it twice.”
Neither the American Land Title Association, an industry group, nor the Virginia Bureau of Insurance, which enforces the laws and regulations relating to title settlement agents in the state, has taken a position on split closings.
Convenience is one of the reasons sellers opt to use a separate title company. If they are selling a house and buying a house at the same time, they may prefer to use one company to sign the paperwork for both transactions. Or if their buyer is moving from out of the area and is using a relocation company that insists on a title company that isn’t local, they often choose to go with another company.
“The sellers will say, ‘I don’t want to use some settlement company in Richmond. I want to use my local person,’ ” said Derrick Swaak, managing broker of the McLean Office of TTR Sotheby’s International Realty.
Genevieve Concannon, founder and broker of AdvonRE in Falls Church, Va., says sellers who have established a connection with a title company often prefer to remain with the same company. Maybe they refinanced their mortgage with them or used them in the past when buying the home. They have a certain comfort level with the company.
“Relationships really do matter,” she said. The sellers “feel like they are going to get better service and have a more streamlined process.”
Tracy Comstock, principal broker at SilverLine Realty & Investment, works with many international clients who prefer to use companies they know. They will tell her, “I’ve never heard of that [title] company. I’m not going to deal with it.”
Concannon recently had a situation in which she and her seller had a property go under contract. They utilized the title company the buyer chose to complete the sale. But after most of the work had been done, the sale fell through. Now that the property is back under contract, they are continuing to work with the original title company even though the buyer has chosen a different company.
“We are being loyal to the people who have done all this work,” she said.