[Warning: rant ahead].
Recently I’ve closed a couple of REO transactions lately where I’ve been dismayed at what the escrow companies are charging the buyers. They claim it’s is warranted because of the extra work that goes into processing a bank owned property…I could almost buy this EXCEPT it’s not the buyer who has created any additional work.
Adding to my frustration is that this exorbitantly higher escrow fee tends to not be split equally between the buyer and seller (the bank or lender). I’ve heard of builders receiving discounted escrow fees, however the buyer pays what would have been the normal half. With the REO’s I’ve seen lately, the fees have been almost double what I would consider “normal”. Some of the fees have been so high, it can jeopardize a smaller transaction becoming a “high cost loan”.
On a recent closing, on a $70,000 condo in West Seattle, I called to obtain a quote from an escrow company where Freddie Mac was the seller. The quote I received was for $848. I asked the assistant if this was the full fee or the buyers half, since the quote I was using from my preferred provider was $438. She replied “full” (meaning the $848 would be split 50/50 between seller and buyer). When we received our estimated HUD, the buyer’s escrow fee was jacked back up to $848 and to make matters worse, the escrow company was trying to not honor their written quote to me. After dealing with several managers, the escrow company agreed to meet my quote of $438…it’s not half of $848 but it’s definitely closer to what would be a fair escrow fee for the buyer in this price range.
To add insult to injury, it seems the service from these escrow companies is lack-luster to say the least. It’s as if the company “won” a big bid and therefore service to the buyer, the consumer, just isn’t important since there will be plenty of gravy business to continue.
Home buyers can shop for their escrow provider, however when it’s an REO situation, 9 times out of 10 (if not all of the time), the escrow company has already been dictated.
I understanding charging more when there is more work that is actually being done with a transaction – as long as it’s fair and reflects the actual level of work that’s being done on that transaction.
It really frustrates me.
SIDE NOTE: I’ve only had excellent service from Legacy Escrow – my rant has NOTHING to do with them.
Rant over…for now! 🙂
Rhonda, its the nature of an REO transaction: buyer gets some sort of discount on the price, in exchange the buyer has to play by the — sometimes draconian — rules set by the bank. For what its worth, our experience, except for the jacked up escrow fee to the buyer, is pretty much identical to what you describe above.
Buyers are hopefully getting a bargain on the price of the home, but they shouldn’t be gauged and receive poor service by the escrow company… the first time this happened, I was surprised – what bothers me is that I’m noticing a trend with all types of escrow companies (independent, legal firms, title, etc) who have the big REO contracts.
Kary Krismer brought up that REOs, some REO sales, will ask the buyer to pay the excise tax.
My response to him, and you, is that REOs can be money pits, and that a buyer should expect to bring cash at closing, and there after.
A bank can ask anything that they want. They can hold up a transaction any way that they want. I would think any escrow company working with a bank took on more work for less pay.
Hopefully the REO properties will clear up in the next couple of years and we can get back to some normalcy in the housing market.
I read Findwell’s post on buyers possibly having to pay excise tax on an REO… I would seriously consider walking if a bank pulled this on me.
A bank can ask for what ever they want and a buyer can do the same.
Classic example… we requested Fidelity’s “service” link to confirm their escrow and title fees before we send out our loan docs… and we’re still waiting… we are in line… this is something that takes 2 minutes…not 2 days.
Hi Rhonda, That is very frustrating! I am very surprised that the fees that can be charged by the escrow companies are not regulated. I operate a property investment company in Czech Republic and the public notaries, which are the preferred choice for an escrow, have their fees determined by law. The escrow can also be held by a bank or attorney. Are these not options in the US? Nathan
It’s very regional – typically dictated by state laws – as far as how escrow may be handled in the US. In WA State, I believe that LPO’s (limited practice officers), attorneys and title companies can perform the escrow duties for residential real estate. Depending on the type of employer will dictate WHO regulates the escrow company too – for example, attorneys may not have the same regulations as a title company. On one transaction I recently closed with an attorneys firm, they did not have any rate forms published on their website – I believe that title companies must post their escrow fees on their websites.
I have had some success with builders, bank-owned and short sales with splitting the escrow so that the seller can have their choice of escrow at their cost, and the buyer can have their choice of escrow at their cost. That also removes any cloudiness as to whether the buyer’s escrow charge is higher to compensate for the fact that the seller’s is lower, because they are two different companies.
Not always doable, but works well if you can arrange it that way, IMO.
I think most escrow companies dread “split escrows” – however almost anything would be better with the service I’ve seen from most companies… waiting for an estimated HUD right now that was promised today from a large title company’s REO department that’s located in California…they really don’t care about this transaction – we are a number in a long line.
The escrow firm should be able to produce a replicate of the publicized fees. These are necessary to get them in imprinted format on record constantly. I can say that that we now have title insurance costs, notarial charges, sub-escrow expenses, mortgage tie-in fees, and so on. These kinds of expenses are normally defined with your company’s good faith estimation since they handle lots of the closing costs for any purchaser. Evaluate the loan company’s good faith calculation to a copy of the escrow firm’s projected closing declaration to point out what the variances are. Be wise to check your statement before closing. The real estate broker ought to assist you to detect whether anything at all appears beyond normal.
Hi Rhonda,
“SIDE NOTE: I’ve only had excellent service from Legacy Escrow – my rant has NOTHING to do with them.” I’ll keep that in mind. Thanks!
Hi Patricia, since Tim and Lynlee Kane are an RCG contributors and owners of Legacy Escrow, I felt it was important to make it clear that I was not writing about them when it comes to the pathetic service I’m receiving from escrow companies with REO contracts.
I also prefer Michael Santuci at First American (formerly at Talon). I know FATCO has an REO department too and I’ll bet I’d be dissatisfied as well – haven’t had the pleasure of trying their REO department yet.
On my current REO transaction, it took 2 days to receive my estimated HUD – it’s just a huge processing line and service is not a part of it. There seems to be no regard for closing date. I’m sure the escrow personnel who are used in the REO departments are not revenue attached – meaning they do not have their own relationships established to where they draw business.
From what the escrow companies who have REO contracts charge for their fees to the buyer (about 1.5 to 2x the “norm”) it’s BIG business.
It is sad and unfair for home buyers that escrow companies can charged them fees without following any regulations law. There should have at least a concrete or a uniform guidelines on computations of the escrow fees so home buyers will clearly have an idea where their money is going.
Being an ordinary homebuyer, I say ‘aye’ to what you said Eden! It’s my first time to buy a home and I don’t want to face the frustration of bearing delayed processes I commonly hear from friends about escrow companies.
in California, we have experienced the same thing with REO sales…
Good to know about this type of stuff.
That extra cost has to come from somewhere and as a potential REO buyer, I’ll need to take some pre-emptive action. Maybe decide on an offer then subtract an extra 5k because of these types of things.
I would like to see more accountability on the escrow companies with these contracts. The REO I”m working on now has had the closing delayed due to the escrow companies inability to perform. They will still be paid the same exorbitant amount (almost 2x the normal rate) although they have cost the buyers time delaying the closing…and they don’t care because they have so much (bought) REO business to bog them down for days.
These Escrow companies make the home buying/selling transactions all the more slow. Sometimes getting all excited with buying a home leads to frustration when red tape and all that get in the way.
Have one now (not REO) where we were “required” to use Seller’s Choice of Escrow because there was a “discount” for Seller (and buyer) using Escrow in the same place as Title.
Got the cost estimates and their $50 LESS is $200 MORE than the escrow I requested for the buyer. I even suggest a “split” escrow so seller could use theirs and buyer could use a different one. I do this a lot so everyone can be “happy”, though I firmly believe that Seller should choose Title and buyer should choose Escrow.
Working on having the Escrow Service bring down their cost to at least match the one that wasn’t “discounted” due to the tie in with Title.
Watch those “discounts”. $50 off a price that is $200 more? I don’t think so….
Good luck with that, Ardell! I hope it works 🙂 We finally closed my REO where FNF Service Link was the escrow company… they not only charged beyond the norm, THEY caused our transaction to close a full week later. They were so cheap (all about profit – skip the service) they did not order a rush when UPSing our funding package back that we needed by 9am Dec 23 to fund. They waited to send the package back to us and then on the busiest day of the year for UPS, sent it standard delivery. We received it hours past our funding and their early recording cut off time (they claim they cannot release recording past 11:00 in King County).
FNF Service Link (I believe Fidelity/Chicago Title are related to them) is handling the transaction out of California.
It seems when these escrow companies have “bought” business, there is little incentive to provide good service or to pull a quality closer away from their desk when they attract their own clients.
I agree, this can be very frustrating. It always pays to have something like this put out in the open particularly the problem with how REO escrow fees are imposed. Good thing you pointed this out – ” I’ve only had excellent service from Legacy Escrow.” It should be a good head start when it comes to filtering in companies to deal with in the housing market. If anything should be further emphasized it ought to be on regulation laws.
Good to know that your REO transactions is already closed from these escrow companies. I am not a real estate agent expert and I’m just starting to know more about these staffs your blog posts can really help us to understand this kind of deal.