Close It!™ House of the Week: Colonial with an English garden

For the inaugural edition of Close It!™ House of the Week, we chose a property that's right in our own back yard.

This detached single family home is a brick colonial with a fenced-in English garden located on a tree-lined street in Friendship Heights, Washington, D.C. It has 3 bedrooms and 2.5 baths and is listed for $799,999.

Assuming a homebuyer puts down 20 percent on a conventional loan, her cash to close number will be approximately $183,510.61. The monthly payments would then be around $3,657.70 per month. For a complete picture of the cash to close, or for a run-down of the seller's side of the deal, plug the numbers into the Web version of Close It™ or download the free iOS app.

Federal Title targets consumers' best interest with 'Best Practices'

While real estate settlement service providers across the country groan about new government regulations stemming from Dodd-Frank, the largest independently owned title company in the region is capitalizing on the changes in its latest effort to turn the title industry on its head.

A "leader in compliance," Federal Title & Escrow Co. at the beginning of this year became one of the first title companies in the country to implement a series of business procedures with the best interest of their clients – homebuyers and sellers – in mind. The procedures are known as "Best Practices," and financial institutions and real estate agents working with Federal Title can rest easy, too, knowing each settlement is federally compliant and hassle-free. 

"The consumer is our client," said company founder Todd Ewing. "They are the ones paying the bill at settlement, not their agent or lender. Therefore it's our duty to look out for the consumer's best interest." 

Protecting the consumer's best interest

Among other things, Best Practices established procedures for protecting consumers’ identities and something called non-public personal information: social security, driver's license, and credit or debit card numbers for example. It also established procedures for safely storing, emailing and disposing of sensitive documents. 

To further protect consumers, Federal Title took out several insurance policies including a cyber protection policy that's good for up to $1,000,000 per claim with a provision for hacker attacks. Copies of these policies are available upon request. 

"Behind the scenes, we're going above and beyond the minimum requirements according to Dodd-Frank to deliver the highest level of protection to our clients, that they hopefully never have to realize," Ewing said. "Agents and lenders in the area are hearing about our efforts from other real estate professionals as well as their buyers and sellers – we take these compliance requirements seriously."

Turning the title industry on its head

Too often, in today’s environment, title agents depend on the referrals of agents and lenders – often leading to added cost for the consumer.

Real estate brokerages have forged Affiliated Business Arrangements (ABAs) to refer business to title companies for a price, Ewing said, and that expense gets kicked down to the homebuyer or seller. The federal government's Consumer Financial Protection Bureau has paid close attention to ABAs in recent years, resulting in a rise in Marketing Service Agreements (MSAs).

"It's like putting lipstick on a pig," Ewing said. "No matter what they call it, it’s a kickback with the same end result taking more money out of the pockets of consumers and putting it into the pockets of big brokers."

A large swath of Federal Title's business comes from referrals by real estate agents and lenders, but Ewing said he will continue to target homebuyers and sellers directly while appealing to like-minded real estate professionals who have the consumer's best interest at heart. 

"Demonstrating a level of professionalism to our clients – that we take seriously their privacy as well as compliance with the federal regulations – is the latest in a string of efforts to earn the consumer's trust and ultimately their business," Ewing said. 

Leveraging technology to earn clients' trust

The implementation of Best Practices is one way Federal Title has leveraged technology to change the way the title industry interacts with consumers. Last year the company developed a free iOS and Web app known as Close It! that accurately calculates cash to close for home buyers and cash in pocket for sellers. 

They were the first title company in the region to publish their rates online and offer an instant discount on transactions where the order was placed through the company's pioneering online order system. (Coincidentally the discount illustrates how much is kicked back to referral sources through ABAs and MSAs.)

"No other title company invests as heavily as we do in consumer-driven technology," Ewing said. "We have to try to reach the consumer directly before they get steered to their broker's preferred title company partner and pay more for inferior service."

Dodd-Frank Wall Street Reform and Consumer Protection Act and the title industry

Passed in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated new consumer financial laws and created an agency known as the Consumer Financial Protection Bureau to enforce them. 

Among other things, the CFPB is tasked with regulating financial products and services such as home mortgages. They have the authority to supervise financial institutions for compliance with these laws and, by extension, third-party service providers such as title companies.

Banks are under the CFPB microscope, and they in turn are taking a hard look at third-party service providers to ensure business practices and services are on the up-and-up in terms of the new requirements mandated by Dodd-Frank.

To guide settlement service providers through the changing landscape, the American Land Title Association developed a series of industry guidelines dubbed "Best Practices." Implementation is voluntary, but in doing so title companies can demonstrate to the consumers and real estate professionals alike a level of professionalism – and ensure a compliant real estate settlement experience. 

$3,000: personal check limit at closing

The Federal Title & Escrow Company team will make every effort to provide its clients with a precise Cash to Close amount, in advance of the closing date, so our clients can arrange for a wire transfer or obtain a cashier’s check for the exact amount.  

In some instances, due to last-minute changes in financing or sales contract revisions, the Cash to Close amount will change after the client has already wired her funds or obtained a cashier’s check.  

If the change results in an additional Cash to Close amount exceeding $3,000, the law prohibits the client from writing a personal check to Federal Title and the client will be required to wire or obtain a cashier’s check for the additional amount.

DC Code §31-5041.06(d)(3) states, in part, that a title insurance producer may accept a check in an amount not to exceed $3,000 that has not been finally paid before any disbursements.  

This means that Federal Title & Escrow Company is prohibited from accepting a personal check at the time of closing that exceeds $3,000.

CFPB cracks down on real estate brokerage to tune of $500,000

Real estate brokerages need to be aware of the risks of writing into the contract a title company with which they have either an Affiliated Business Agreement (ABA) or a Marketing Service Agreement (MSA).

In the past, we have issued warnings on this blog that the Consumer Financial Protection Bureau (CFPB) is looking closely at Marketing Service Agreements.

Well, last month the CFPB came down hard on a major real estate company in Alabama. I strongly recommend any broker that refers a title company with which it has either an ABA or an MSA to carefully read the details (Bureau Orders Alabama Realty Firm to Pay $500,000).

While having an ABA or an MSA is not per se a violation of RESPA, it does require that the real estate company provide a written disclosure that makes it clear to the client that: (1) use of the referred company is not required and (2) the client has the right to shop for services.  

In this scenario, RealtySouth was writing the title company name in the contract. They did provide a disclosure, but the required language was buried and the CFPB found that it "did not properly highlight consumers’ rights."

The key point here is that the consumer was not given the opportunity to choose. I’m sure that most agents reading this are thinking, "I always let my client choose their title company," and those of you who do this deserve to be commended.

But I assure you that the practice of filling in the title company without properly informing the client of their right to shop and choose occurs daily.

Often buyers call or email us for a quote, only to tell us later that, unbeknownst to them, the title company was already written into the contract by the agent.  

According to last month’s ruling, if said title company has an agreement with the real estate company, they may both be subject to a substantial fine. 

In memory of Bonnie

The Federal Title family is deeply saddened after learning of the loss of our dear friend Bonnie Lewin. All of us wish to extend our heartfelt sympathies to Bonnie’s family and her many friends. We will remember her as someone of great character and a devoted advocate of those she served.

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Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.