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July 13, 2020 Real Estate Blog Title Insurance

Should you pay a closing fee when you are not paying for title insurance?

Creative ways of putting food on the table know few bounds in the real estate business. Reference, for instance, the following provision from the General Conditions of the FAR-BAR contract forms:

(ii) CLOSING DOCUMENTS: Seller shall at or prior to Closing, execute and deliver, as applicable, deed, bill of sale, certificate(s) of title or other documents necessary to transfer title to the Property, construction lien affidavit(s), owner’s possession and no lien affidavit(s), and assignment(s) of leases. Seller shall provide Buyer with paid receipts for all work done on the Property pursuant to the Contract. Buyer shall furnish and pay for, as applicable, the survey, flood elevation certification, and documents required by Buyer’s lender.

For years now, buyers’ closing attorneys and title agents in east coast counties like Dade and Broward recite this provision as justification for assessing sellers a document preparation or closing fee when the buyer is paying for title insurance. They explain the contract requires sellers to deliver the referenced documents, so there will be a cost to do so. These closing agents then offer if sellers don’t like what they are charging, they can engage their own attorney to produce the paperwork (and likely incur as much or more of a fee in the process).

News travels fast, and like the spread of a virus, agents have started to see cases of this up north (Hillsborough) and down south (Collier). The fees range from de minimis ($250.00) to exorbitant (upwards of $1,000.00 – talk about bringing home the bacon). Meanwhile, Sarasota and Manatee seemed blissfully immune, at least until a few early adopters saw an opportunity to feather their nests. They say it “helps defray some of the buyers’ increased costs” and is “in line with others in the industry.” What they don’t acknowledge is that buyers’ and sellers’ obligations are fixed entirely by the contract, and nowhere does it allow the buyers’ attorney to assess a separate fee for preparation of the contractually-required conveyance documents.

According to Merriam-Webster, the word “deliver” (a transitive verb) means “to hand over or leave for another.” “Execute” (also a transitive verb) means “to perform what is required to give validity to.” So, under the FAR-BAR contract a Seller shall perform what is required to give validity to the deed and other documents, and hand them over to the closing agent. It is a distortion of an otherwise banal contract term to arrive at the conclusion that this required act of execution and delivery is somehow the basis for an additional fee.

From the listing agent’s perspective, the cure for the illness is as simple as a line in the miscellaneous section of the contract stating “Buyer’s Closing/Title Agent will prepare the Section 18(I)(ii) required conveyance and title documents, and no charge or cost will be assessed to Seller for doing so.” While inconvenient to have to remember to include this language, better to protect sellers from an unwarranted fee, rather than having to endure the argument that ensues when it shows up on a settlement statement with no prior discussion or disclosure.