Aimed at preventing banks from dictating the escrow and title services used in bank-owned (REO) property transactions, California’s Assembly Bill 957 was approved and immediately implemented last month.

However, some real estate agents and brokers question the effectiveness of the bill, dubbed the Buyer’s Choice Act.

"I don’t know if it’s going to make a difference," said Ralph Gorgoglione, a real estate agent with John Aaroe Group Inc. of Sherman Oaks.

Kris Berg, broker-owner of San Diego Castles Realty and an Inman News columnist, said the intention of the bill is good, but the reality is it will change nothing in terms of escrow and title provider selection when dealing with REO properties.

Under the bill, sellers of one- to four-family homes are barred from requiring a buyer to purchase a particular title insurer or escrow provider as a condition of selling the property, which is already prohibited under the federal Real Estate Settlement Procedures Act (RESPA).

According to the Escrow Institute of California, the bill was necessary because buyers who have not used a seller’s providers may have been unable to file purchase offers, or have seen their purchase offers denied because of this when reviewed by a lender.

Agents and brokers think such activity may continue despite the bill, citing property owners’ ability to be selective due to the large number of offers — sometimes 30 to 40 — they receive for REO properties.

"It’s OK to make it a policy that the buyer has a choice, but when it gets down to it the banks have their choice of offers to choose from," Gorgoglione said. "If someone (a buyer) writes in their own escrow and title, that’s going to be unattractive to the banks."

Because of this, a significant amount of buyers agree to use the "seller’s choice" when it comes to escrow and title services.

"There is no law that says the seller has to accept the highest price. Some sellers will take what’s not the best offer but what’s the most solid package," Berg said.

A buyer selecting a "seller’s choice" is something that will not change due to AB 957, as the bill allows a buyer to accept the servicers recommended by the seller if written notice of the right to make an independent selection is first provided. …CONTINUED

"With multiple offers, deferring to a seller’s recommendations is the protocol," said Mark Marquez, vice president of Weichert Realtors Elite, and president-elect of the San Diego Association of Realtors.

"Most agents realize in this competitive situation selecting services isn’t the main negotiating point. Getting a deal accepted is the focus."

Agreeing to use the escrow and title recommended by the seller is also seen as a courtesy, as banks usually have an open title file and have begun certain title work prior to accepting offers, Marquez added.

"If I write an offer I’m still going to write seller’s choice," Berg said.

Seller’s choice vs. buyer’s choice

With buyers now able to choose their own title and escrow under state law, or go with the seller’s choice, some agents and brokers may have concerns regarding the particular escrow and title providers selected by buyers.

At the same time, other agents see the buyer-selected servicers as a preferred option to the seller’s choice.

John Occhi, an agent with Allison James Estates and Homes in the Hemet-San Jacinto, Calif., area, said he is afraid that because of AB 957 some buyers will select escrow and title companies that have little or no experience dealing with REO properties.

"Everything is going to be delayed. It’s (the bill) a futile attempt to level the playing field" (among escrow and title service providers)," he said, adding that buyers should stick with the escrow companies that have several years of REO property experience.

Bruce Slaton, broker-owner of Bruce Slaton & Co. at Keller Williams in Elk Grove, said from a cost perspective the seller’s choice is often the better choice, which is something some buyers aren’t aware of.

"Sometimes the consumer is pushed by their buyer agent," Slaton said. "Sometimes the agents push a certain escrow or title (company) on a consumer who is unaware that (he or she) will have to pay for everything if this company is not what the bank suggests." …CONTINUED

He explained that banks typically pay for 50 percent of the escrow and 100 percent of title. If consumers select their own company they must pay for two title policies and an escrow fee, he said.

Despite this, brokers like Berg see the positives in working with the same title and escrow companies that are local and not a bank’s choice.

"It makes my life easier to know I trust the person that will help with the transaction," she said. "When you get their (the banks’) title and escrow, they’re often out of state, which doesn’t make for a smooth transaction."

While the bank-recommended escrow and title companies can sometimes be cheaper than a buyer’s choice, the reverse could also be true.

"By giving up the ability to choose the service providers, you’re writing a blank check," Berg said.

Marquez concurred that the escrow and title companies used by banks are often very busy and/or out of town.

"I’m all for banks going to locally run or more improved escrow companies. If the banks, as listing agents, gave us a chance to look elsewhere, we (buyer agents) would," he said.

"We want to see (the file) go to the most competent escrow company. Our concern is to have the best people handle the file, not necessarily the cheapest."

Looking ahead, Marquez said he sees AB 957 having more of an impact "as we head into a more balanced environment with more inventory … if that ever happens."

Any seller who violates AB 957 shall be liable to a buyer in an amount equal to three times all charges made for the title insurance or escrow service. In addition, any person who violates this section shall be deemed to have violated his or her license law, and shall be subject to discipline by his or her licensing entity.

The law is written to extend until Jan. 1, 2015.

Erik Pisor is a freelance writer in California.


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