What You Need to Know
I recently read an article on “split closings” that made several generalizations that could potentially add to the confusion that many buyers (and sellers) often experience when they approach the settlement or closing phase of their transaction.
The term “split closing” is referred to when two title companies are involved in issuing the policies of title insurance. This occurs when the seller wants to use a specific title company and the buyer prefers to use another. Under Section 9 of the The Real Estate Settlement and Procedures Act (RESPA), sellers may not make using a specific title insurance company a condition of the sale. In other words, the buyer may specify the title company of their choosing to issue the policies. However, there are exceptions.
- When the seller agrees to pay for both title insurance policies (owner and lender’s) the seller can stipulate the title company that will issue the policies.
- If the buyer is paying for title insurance (either the lender and/or the owner’s policy), then the buyer can choose the title company of their choice to issue the policy that they will be responsible to pay for.
Confusion arises when the parties are not aware that Section 9 only deals with the purchase of title insurance and that the law does not apply to where the transaction will be closed (in other words, the closing agent).
Even if the buyer will be paying for the title insurance and therefore allowed to use the title insurer of their choosing– the seller can still require a particular unaffiliated closing agent or lawyer be used to close the transaction.
With so many entities involved in a real estate closing, you may wonder why the buyer, or the seller, would choose to add yet another layer to the already muli-faceted process. This is often explained when either party has either a favorite title insurance company–or one they have dealt with in the past– and one known to them to be reliable and efficient.
No Easy Answer
There is no easy answer to the question of whether there is an advantage to using a “split closing” for your transaction. The company (or entity) that handles a real estate closing varies state to state and even county to county. For example, in Florida lawyers are commonly used in conjunction with title and escrow companies. On the other hand, title companies handle closings in Northern California, and escrow companies manage closings in the Southern areas.
In a number of eastern states, a lawyer will probably close the transaction. In South Carolina, North Carolina, Delaware, Connecticut, Maine and Vermont, lawyers are technically required to handle the settlement. In other states, (approximately 16) an attorney is required to prepare the deed, although the lawyer can generally be employed by the title agency or an insured branch office. In many states, including Virginia and Maryland, as well as the District of Columbia, there are attorney-assisted closings, title company closings and closing assisted by real estate agents.
Local custom is generally followed in relation to who pays for which closing costs (escrow fees, doc stamps, title insurance, etc), but those fees are negotiable. Who will pay for what should be decided before the sales agreement is signed.
Over-lapping reports and charges
- In a “split closing” where two title companies are involved, the listing and selling agent often order a title report from their respective title companies.
- The seller’s title company is obligated to provide a copy of their report to the buyer
- If there is a lender, the buyer’s title company must present a copy of the title report to the lender
- Both buyers and sellers execute their separate documents at their respective title companies
- The buyer’s title company receives funding from the mortgage company, and is generally the one that records documents
- Funds are wired from the buyer’s title company to the seller’s title company to cover seller’s costs and proceeds
- Typically, the majority of the functions in a split closing are handled by the buyer’s title company.
- When dual title policies are issued by the same company- such as a buyer’s and a lender’s policy–a discounted, or “simultaneous issue” rate is charged. When two separate policies are produced, there may be an additional charge (up to double the cost)
The only real functions of the seller’s title company will be to order a payoff of an existing loan, potentially prepare the deed, and handle the closing for the seller. If the seller’s title company is not issuing the policy of insurance, it is likely that they will charge an additional escrow fee — and possibly other charges.
If you have a favorite closing agent, by all means, make this preference known to all parties involved. The most expeditious and economical way to handle this would be for the buyer and seller to agree to use one title company for both the title search and issuance of the policies of insurance, and use individual escrow or closing agents (or lawyers) for the escrow portion of the transaction (the holding of and disbursements of funds, etc). These decisions should be made and agreed before signing the purchase contract.
As with any real estate closing, compare costs and fees among inspection companies, appraisers, lenders, lawyers, title companies, escrow companies, and any other third party involved in the sale.
Finding hidden costs on your closing statement