A California law, AB 957, known as the Buyer’s Choice Act amends Civil Code Section 1103.20 through 1103.23 regarding title insurance and escrow service providers.

Federal RESPA law prohibits the seller from requiring the buyer to purchase title insurance from an insurer designated by the seller. RESPA applies to the sale of 1 to 4 unit residential properties where the buyer acquires using a federally related loan. That is broadly construed to include any loan issued or insured by a government agency, a loan issued by a federally chartered lender and any loan sold to a federally related agency in the secondary market. That would cover almost all loans except where the buyer pays cash or gets a loan from a private lender.

The penalty for a RESPA violation of this requirement is that the buyer can recover from the seller a penalty of three times the amount paid by the buyer for the title insurance.

The California Legislature has now determined it is appropriate to expand these protections in the case of REO sales. CA now applies those provisions to all sales where the seller was a mortgagee or beneficiary on a loan and purchased the property securing the loan at a foreclosure sale. The CA law applies to escrow services as well as title insurance.

The CA law does not entirely prohibit negotiations between the buyer and seller that results in the buyer purchasing from a company suggested by the seller but requires that the seller must first provide the buyer with a written notice of the right to make an independent selection.

Violation of this law differs from the RESPA law in that in addition to the three times the buyer’s cost penalty it also states that any licensee violating the provision may be subject to disciplinary action by the licensing agency.

It is likely most REO sellers will quickly incorporate the notice to buyer into their counter so that the law will have limited, if any, effect. The law expires January 1, 2015.

Leave a Reply