As a private note lender, should the borrower pick the title company?

Question

A private lender writing residential first position notes in the $80k to $250k range, whose loan documents currently give the lender the right to select the settlement agent, is working through a real tension when borrowers start pushing back on that clause. The case for the lender selecting the agent: the collateral is only as good as the policy behind it. A lender's policy from a known underwriter, closing instructions followed as written, and an escrow holder who returns calls when a payoff figure is wrong all matter more than convenience. A closing agent recording documents in the wrong order can turn a lien priority question into a months-long problem, and whether priority actually turns on recording order depends on state law, which is exactly the kind of dispute that costs more in legal fees than a small loan earns in a year. The case for letting the borrower choose: borrower selection is standard in owner occupied purchases, and insisting on lender control adds friction that costs deals. A competent title company remains competent regardless of who introduced it, and a lender can protect itself with a closing protection letter and detailed written closing instructions rather than by controlling the vendor directly. The FinCEN reporting rule effective March 2026 adds a wrinkle worth flagging: non-financed transfers are the target, so financed deals generally sit outside it, but a refinance of an entity borrower who originally bought for cash can land inside that scope, which argues for a settlement agent who knows the rule on that specific chain. The current scope is worth confirming with counsel directly, since the definitions carry real weight. The underlying choice comes down to controlling the vendor directly or controlling the instructions and protections around whichever vendor is used.

ehernandez74 · Answer

Before the vote, a question. When you say you select the settlement agent, is that a hard requirement in the loan documents or a right you can waive? The two look identical until a borrower's attorney reads them, and a right you always exercise and a duty you cannot waive are different negotiating positions.

paulgrant17 · Answer

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 @sonia_alvarez explained the priority story from that post, I'd probably shrug and agree.

tylerbrooks9 · Answer

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

carlos_nunez · Answer

Consider the deal where the lender picked the settlement agent and the pick was bad. The agent sat on the seller's payoff question for nine days and the closing moved twice. That happens more often than lenders like to admit. Picking the vendor means you own the choice, and owning the choice is a separate thing from getting competence. @sonia_alvarez, the thing worth changing is neither of your two options. Give the borrower a list of three settlement agents you will accept. All three are already screened and the borrower still gets to choose, so nobody feels handled. It costs you the work of maintaining the list.

marcus_hale41 · Answer

@carlos_nunez'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.

dmitri_248 · Answer

The documents are where the effort belongs. 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 @ehernandez74's question, look as well 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 is a drafting question for a lawyer in the state where you are lending, since what is enforceable varies.

diane_kowalski · Answer

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.

dpatel_re · Answer

The answer sits in your loss history rather than 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 @dmitri248'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 @carlosnunez described is the version that keeps the volume and the control.

As a private note lender, should the borrower pick the title company?

8 replies