As the lender on a small note, do I let the borrower pick the title company?

Before the vote, a question. When you say you select the settlement agent, is that a hard requirement in the note or a right you can waive? Because those look identical until a borrower's attorney reads it, and a right you always exercise and a duty you can't waive are different negotiating positions.

When I'm the borrower, being told which title company to use would make me wonder what the relationship was. Not accusing anyone, it's just how it reads when you're new. If @tender explained the priority story from that post, I'd probably shrug and agree.

Control the instructions. Written, specific, acknowledged in writing before funds move. That's portable across every title company you'll ever use, and controlling the vendor only works until the day you're in a market where your preferred one has no office.

I'm in the middle of a deal right now where the lender picked and the pick was bad. Slow, wouldn't answer the seller's payoff question for nine days, and the closing moved twice. Picking the vendor doesn't guarantee competence, it guarantees you own the choice.

@tender, the thing I'd actually change is neither of your two options. Give the borrower a list of three you'll accept. You've screened all three, borrower gets to choose, nobody feels handled. Costs you the work of maintaining the list.

@quarry's approved list is what institutional lenders do and it works for a reason. I'd add that the screening criterion I care about most isn't the underwriter's name, it's whether they'll execute your closing instructions without redlining them and whether they carry a closing protection letter from the underwriter for your benefit. Ask for a sample of both before a file exists. Two of the four shops I asked last time couldn't produce a clean answer on the second one, which told me plenty.

The documents are where I'd spend the effort. A right of approval reads very differently from a right of selection, and the version you want is probably approval, since it gives you the veto without making you the party who chose.

On @anchor's question, I'd also look at what your note says happens if the closing instructions are breached. If the remedy language is thin, controlling the vendor is your only real protection and you should keep doing it. If the remedy is specific and the closing protection letter is in place, you can afford to be flexible. That's a drafting question for a lawyer in the state where you're lending, since what's enforceable varies.

Approval rather than selection, yes. Small point, in some counties the practical set of closers is one or two, so an approved list of three may not exist. Worth knowing your markets before you write the clause.

The answer sits in your loss history, not your preference. Two borrowers pushed back, one walked. Call that one lost origination out of however many you wrote, and price the lost interest against the cost of the one bad recording file, which you said exceeded a year's earnings on the loan.

If that's the ratio, insisting is cheap and you should keep insisting. If your bad file was a genuine outlier and everything else has closed clean, you're paying real origination volume for a low frequency risk that the closing protection letter and @warrant's remedy language already cover.

All of that rests on the priority mess being representative. You'd know. If you've seen sloppy recording twice in twenty files, it's representative, and then the approved list @quarry described is the version that keeps the volume and the control.