REO Lender May Not Require Purchase of Title Insurance from Any Particular Provider

Sale of foreclosed properties, often referred to as “Real Estate Owned” or REO transactions, are NOT exempt from RESPA requirements. The lender that has foreclosed, acting as the seller, is still subject to the law stating:“No seller can require that the buyer purchase title insurance from any particular title insurance company. This rule pertains to transactions involving a federally-related mortgage loan for one-to-four residential units” as defined under the Real Estate Settlement Procedures Act (12 U.S.C. section 2608). Although this is a well-established rule, it is worth a reminder, given the upsurge in foreclosure sales.
An REO lender that violates this requirement can be held liable to the buyer in the amount equal to three times all charges made for title insurance. Anyone who believes that RESPA has been violated may file a complaint with HUD. For more in depth information about RESPA complaints, go to this HUD Link