In our MN market, our service provider list only includes one title company. In a recent audit, we were cited that we should include a title company that is closest to where the collateral/customer is located, even though we may never use that title company. I did a little research on the CFPB site looking at their guidelines, and I don't see that this is a requirement. Am I missing something, or is the auditor wrong? If I did miss it, can someone provide a citation? Thank you!

Proximity isn't mentioned in the Reg.
The provider has to be able to actually do the work.
So if the title company on your list can actually do the title work and/or closing or whatever else they would do on the loan, then it doesn't matter if they're near the subject property or not.

19(e)(1)(vi) Shopping for settlement service providers.
Comment: 4

Similarly, a creditor does not comply with the availability requirement in § 1026.19(e)(1)(vi)(C) if it provides a written list consisting of only settlement service providers that are no longer in business or that do not provide services where the consumer or property is located.

Tell the auditor, "Thanks for your opinion, but the facts don't support it, and we won't be changing our practice." Then show them comment 4 that Randy cited just above.

Actually, I was trying to make the point that geographical location is an issue. While not very well written, the requirement is that the provider must be reasonably available. You cannot list a service provider that is not in the geography of the consumer or the property, just because they are licensed to write title insurance anywhere in the State. All title companies are State wide licensed - that doesn't make a title company in El Paso available for someone living in Houston.

I disagree.
I read that to say that the provider must be able to do the work for the customer and property... period. If I chose a local title company to do the work for an outlying property and they can do it, then I've met the requirements of the Reg. Randy's citation doesn't specify that the company must be geographically located near the customer/property.
The issue would come if I stuck with the title company on my provider list and they couldn't do the work for the outlying property/customer.

Proximity is certainly a factor in whether a listed provider is available, but some providers extend themselves more than others. It may be very true that a vendor won't service all of the Houston metro area -- it is a really vast expanse! You need to take facts like that into account. But if a vendor claims to cover an entire state and the lender has experience using the vendor such that the state-wide reach claim is believed to be reasonable, I don't see a problem. I see this as an experiential issue rather than an absolute proximity issue. Proof in your files that a provider performs the service in the area in question with reasonable promptness would seem to resolve the question.

I might suggest checking the preamble to the regulation before jumping to a conclusion about the geographical location of service providers that you have on your list:

"Accordingly, the Bureau believes that if the creditor permits a consumer to shop for a settlement service, it is appropriate to require creditors to provide consumers with a written list that identifies available providers of that service. The Bureau recognizes that a creditor originating a loan in a geographical area with which it is unfamiliar may have less familiarity with the mortgage market in that area, but the Bureau believes that the creditor nonetheless has better access to information than the consumer about settlement service providers in the geographical area."

Just remember that under the proposal, if your provider list is deemed not to comply with § 1026.19(e)(1)(vi)(B) and (C), your tolerances go to 0%.

I have understood from the get go that it needed to be within a reasonable distance so that 1) the cost of the title exam would be reasonable and not increased or delayed due to distance and 2) that it is reasonable for the client to get there to close a loan.

Around here, we don't have roving title companies...we have attorneys, so we use providers wherever the property is or at least that serves the next county, for instance, and is within reasonable distance [like within a few miles] of the property/client.

I think a lot depends on your unique circumstances and who/how your loans are closed.

My responses have been in regard to the OP's concern that they were cited for not using a title company closer in proximity to the customer/collateral.
Just to play devil's advocate, consider a loan where the borrower is in Wisconsin but the property is say, in Florida. If my local title company can do the work, am I in violation because I'm not showing a Florida company? I've "accessed the information" regarding providers and given the applicant "a written list that identifies available provider of that service."
Sorry, but all things being equal (think ability to do the work and price) proximity has not been something I ever understood had to be considered to override the ability to do the work.

I just don't think it's that cut and dried...and think it has everything to do with 1) is it reasonable and 2) can it be done.

Where I am...a lawyer in my city would fail both tests if my closing was in the same State, but in the Northern part.

I just noticed something. Can you elaborate on what you mean by 'even though WE may never use that title company'? If you require a certain provider, there is no shopping list. If you allow shopping, whether they use the one (or however many) on your list is moot for any purpose other than tolerance calc purposes.

Originally Posted By Truffle Royale

Just to play devil's advocate, consider a loan where the borrower is in Wisconsin but the property is say, in Florida. If my local title company can do the work, am I in violation because I'm not showing a Florida company?


TR - I think the key is the "reasonable" availability of that service provider to your borrower. If the borrower can "reasonably" get to your service provider based on where they are located and that service provider can perform the services regardless of the location of the property, I think you can make the argument that you provided a service provider that was available.

It is going to depend on the circumstances. The example I previously used (El Paso versus Houston) was meant to indicate if I have a borrower in El Paso buying property in El Paso and I am a lender in Houston, giving them a title company that is based in Houston would probably not be reasonably available (It's a 10 1/2 hour drive). So geography could be an issue. If you are in a very large metropolitan area the difference between North Podunk and South Podunk might present similar issues in someone's eyes.

The problem remains that "available" is going to be left to the regulators and since this would be the difference between possibly an unlimited tolerance and 0% tolerance, banks need to be cognizant of this potential issue. Blindly listing one service provider regardless of the unique circumstances of a specific transaction probably needs a gut check.

Yes ^^^

So essentially...this.