Is Your Title Company Overcharging You for Your Closing?

By Darrin Carey, Dayton Capital Partners LLC

As a hard money lender, I see a lot of closing statements (aka HUDs) from a lot of title companies. I’ve noticed an annoying trend that is also disturbing.

When I’m lending money to a real estate investor, I send the title company my very detailed and specific lender requirements – one of those being a basic Lender’s Title Insurance policy from a well-rated underwriting company. In most cases, I do not require additional Insurance endorsements, and I never require a closing protection letter.

In fact, part of my title order says: “Do not add endorsements unless specifically requested. Do not issue a closing protection letter.” Yet, several title companies still try to include them. Sometimes many of them.

Like this one, from an actual preliminary HUD:

• Closing/Settlement Fee to [xxxxxxx]  Title & Escrow Co. $295.00
• Courier/Shipping & Handling to [xxxxxxx]  Title & Escrow Co., $25.00
• Search & Exam to [xxxxxxx]  Title & Escrow Co.  $100.00
• Binder Fee to [xxxxxxx]  Title & Escrow Co.  $50.00
• Wire Fee to [xxxxxxx] Title & Escrow Co.  $50.00
• Lender’s Title Insurance (REISSUE RATE) to [xxxxxxx]  Title & Escrow Co.  $125.00
• OH ALTA Endorsement (Survey) to [xxxxxxx] Title & Escrow Co.  $100.00
• OH ALTA Endorsement (Environmental Protection Lien) [xxxxxxx] Title & Escrow Co.  $50.00
• OH ALTA Endorsement (Restrictions, Mineral) to [xxxxxxx]  Title & Escrow Co.  $150.00
• OH-112: Delete Exception for Mechanics’ Lien to [xxxxxxx]  Title & Escrow Co.  $150.00
• Closing Protection Letter to [xxxxxx] National Title Insurance $40.00

Total preliminary charges to the Borrower: $1,135.  Of the eleven items, the last FIVE total $490, and were requested by no one! (Endorsements do have their place at times, and some lenders DO require them – ask your lender to be sure.)

Of course, I sent it back to them for corrections – took them three times to get it right, geesh.

Final total charges to Borrower: $645. Far less than $1,135.

I’ve asked several title companies, why do these “extras” show up on the HUD? The universal response has been “Our template puts them in there automatically”. Well, guess what, YOUR company built the template, and YOU chose to use that template, despite my instructions being different.

Imagine at a restaurant you order a $20 dinner. Nothing else. But then they bring you unrequested drinks and dessert … followed by a bill for $50. Who would put up with that?

I have all these questions running through my head:

• Does the borrower assume the lender requires it?
• Does the lender notice? If so, do they care enough to have it changed since their borrower is paying for it?
• Does the title company assume the borrower and lender won’t ask one another?
• Is the title company “stuffing” the bill for additional profits? If so, how much does this practice net for them?
• How many people actually catch this?
• Am I just overly sensitive to unnecessary fees?

Ok, the last one is a definite “yes”. Since I’m also an investor, I always watch all sides of the transaction – for me as the lender, AND for the borrower.

When I see these “extras”, I always have them removed. In one day, I saved three different borrowers a total of $1500 worth of unnecessary and unrequested services. It’s worth noting that, of the fees charged for insurance and endorsements, 70% or more is a commission (profit) for the title company, while the much smaller difference goes to the actual underwriting insurance company.

The borrowers will probably never know that I saved them a lot of money, but I’m starting to think maybe I should tell them. Not to pat myself on the back, but so they know their chosen title company has a business practice of padding the bill. (Personally, I refuse to use any title company who does this.)

Offering additional services is great but let me choose. Don’t just tack them onto the bill and hope I don’t catch it.