How the Buyers Choice Act Affects Homebuyers

Banks are no longer allowed to require buyers to use the bank’s choice of escrow and title services on REO’s.

It’s Happy Dance time again! Gone are the days when buyers of bank-owned (or REO) properties are forced to deal with the seller’s (bank’s) choice of escrow and title services.

The newly-signed Buyer’s Choice Act (AB 957) prohibits a seller who acquired property at a foreclosure sale from requiring a buyer to purchase title and escrow services from a company chosen by the seller as a condition to receiving offers or selling the property. The bank/seller can still suggest title escrow and title companies for the buyer to use, but they can no longer mandate which escrow and title companies are used. 

These new rules do not apply to all investors purchasing foreclosures at auction and then reselling them. Per the new rules: a seller is defined as a mortgagee or beneficiary under a deed of trust who acquired title to the property at a foreclosure sale, including a trustee, agent, officer or other employee of any mortgagee or beneficiary. Or, in other words, the new rules are limited to homes that are taken back by the bank or other lender who originally had an interest in the property, or REO’s. If Joe Investor buys a home at auction on the courthouse steps, he is not affected by this new rule unless he had a previous interest in this property as a mortgagee (lender).

This is a HUGE change, since previously buyers were forced to suffer with out of area (and often out of county) escrow companies who took 2+ weeks just to get the intial escrow order processed and escrow opened.  Some of these companies had created virtual sweat shops where each office only handled a single task, so the file was passed around… and around… and around before finally reaching a desk where someone actually had some control over the file. This meant delays in closings, errors on escrow docs and other frustrations that could have easily been avoided. Buyers who wanted to close earlier than originally planned were often prohibited from doing so, since the bank’s escrow companies were operating on schedules based on the originally scheduled close date and couldn’t seem to manage to alter their paper flow to allow for any changes to this.

So what’s to stop a bank from requiring that the buyer use the bank’s choice of services anyways? The new rules state that a seller who violates the new law is liable to the buyer for three times all charges made for the title insurance or escrow service. In addition, a seller who violates the law is also considered to have violated their licensing law. That’s not to say that they won’t incentivize the buyer to use their services anyways, since by virtue of sheer volume the banks have negotiated discounted rates with escrow and title companies that they could theoretically pass on to the buyers in order to retain control. But… since this ruling was just signed on October 12, it’s too soon to tell on this.

The Buyer’s Choice Act (AB 957) was signed and immediately effective on October 12, 2009 and expires on January 1, 2015 unless extended by the Legislature.

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.