This month’s Tales from the Vault looks at another problem encountered by a purchaser who was forced to deal with the bank’s affiliated title company.

When Harry was looking at the house he wanted to buy, his realtor pointed out to him that the house violated neighborhood setback lines, but that the current owner and seller had been able to get title insurance over the violation due to the length of time the house had been constructed.  He told Harry he would get him a copy of the title policy so Harry could tack onto it and get the same coverage.  Harry was given a copy of the title policy, and he took it to his attorney and asked him to tack onto it so he could get the same coverage over the setback violation.  After the closing when Harry received his title policy he noticed it was not only from a different company but that it did not have any coverage over the setback line violation.  When he brought the issue up with his attorney, Harry was told the attorney had to use the bank’s title company or risk being removed from their approved list.

Harry then asked about getting affirmative coverage over the setback violation from this company and his attorney said he had requested affirmative coverage, but that the title company had declined to give it, notwithstanding the fact the previous title company had given the coverage.  He told Harry he was sorry, but there was nothing else he could do.

Was there anything else the attorney could have done?  Did Harry’s attorney have to use the banks title company?

North Carolina General Statutes Section 75-17 states:

Lender may not require borrower to deal with particular insurer.

No person, firm, or corporation engaged in lending money on the security of real   or personal property, and no trustee, director, officer, agent, employee, affiliate, or associate, of any such person, firm, or corporation, shall either directly or indirectly require or impose as a condition precedent

(1)       To financing the purchase of such property, or

(2)       To lending money upon the security of a mortgage, deed of trust or other security instrument, or

(3)       For the renewal or extension of any such loan, mortgage, or deed of trust, or

(4)       For the performance of any other act in connection therewith, that such person, firm or corporation

a.  For whom such purchase is to be financed, or

b.  To whom the money is to be loaned, or

c.  For whom such extension, renewal, or other act is to be granted, negotiate, procure, or otherwise obtain any policy of insurance or renewal, or extension thereof, covering such property, or a security interest therein, by or through a particular insurance company, agent, broker, or other person so specified otherwise designated in any manner by the lenders, or their agents or employees or affiliated or related companies. (1969, c. 1032, s. 1.)

North Carolina law makes it very clear that no bank can require the use of a particular title company.  NCGS Section 75-19 specifies what the penalties are for violation of this statute.

Violators subject to fine and injunction.

The superior court, on complaint by any person that G.S. 75-17 or G.S. 75-18 is being violated, may issue an injunction against such violation and may fine all persons, firms, corporations, and officers, directors, trustees, agents, employees, or affiliates of such up to two thousand dollars ($2,000) per person for such violation. In event of a disregard of such injunction or other court order, the superior court shall hold such parties in contempt and prescribe such further penalties as the court in its discretion shall so determine. The clear proceeds of fines provided for in this section shall be remitted to the Civil Penalty and Forfeiture Fund in accordance with G.S. 115C-457.2. (1969, c. 1032, s. 3; 1998-215, s. 100.)

It is clear from these statutes that banks cannot specify what title company their borrowers must use and yes Harry does have a remedy that he may pursue against this lender.