Lenders have to be cautious how they steer customers to title insurance companies, as it might be illegal in some states.
Under New York Banking Law, for example, lenders cannot “select” a title insurance company for their customers, but rather, can only approve one, according to attorneys Gina M. Mavica and Kari L. Hockett, partner and associate attorneys for Herrick, a law firm in New York City. Even “overly encourag[ing] a mortgage applicant to use a specific title agent or agency,” could violate “tying” statutes under New York Banking and Insurance laws, the attorneys wrote on a recent post on their website.
For some mortgage lenders, tying isn’t an issue at all. Richard Romano, regional vice president and senior vice president of mortgage lending at Guaranteed Rate, says that most property sellers will choose the title insurance company for the transaction or a customer may already have a title insurance company that they have used before.
It’s common that a mortgage lender may want to choose a title insurance company for their customer because they have worked with them in the past, trust their work history and know their costs, he said. But, all in all, lenders should always give customers the option to choose who their title insurer is, Romano said.