Customers must use lenders' title companies at higher cost.
In a way, the real estate market is burning as hot as it was three years ago.
Five hundred and forty-four homes were sold last month, according to figures by real estate analyst DataQuick. In March 2005, 589 homes were sold, the beginning of that autumn's crest.
Today's market, nonetheless, is dramatically different. Homes sold are almost always foreclosures. The median price has fallen to $105,000, almost a fourth of what it was during the market's peak.
And local title companies, despite a busy market, are starved for business.
"We're all feeling it," TransCounty Title Co. president Peg Lawler said Wednesday. "We've been taken over by these REO (real estate-owned) banks. They're taking our money away from us."
Major banks selling foreclosed homes sign contracts with industry giants, such as Fidelity National Title Insurance Co. and First American. They force buyers to use their services, often at a higher cost that local ones, Lawler explained.
TransCounty's fees for a transaction usually fall between $800 and $1,000, she said. She's seen statements charging twice or three times that much.
TransCounty, with branches in Merced, Los Banos and Atwater, has shrunk from a staff of 56 at its busiest to 26. Smaller firms have gone out of business.
The practice of forcing buyers to use certain title insurance companies is illegal under the federal government's Real Estate Settlement Procedures Act, though there's been little enforcement.
State lawmakers are looking to crack down on it because it puts a lock on buyers' options.
It also hurts small businesses that don't have contracts with banks.
At the urging of local real estate leaders, Assemblywoman Cathleen Galgiani, D-Stockton, introduced "The Buyers Choice Act," a bill that will let homebuyers choose what escrow office is used during a foreclosure sale.
The bill was unveiled in late February. It cleared the Assembly's Banking and Finance committee Monday with an 8-1 vote. The Judiciary Committee will likely take it up May 5, and it could be on the Assembly floor soon after.
Assemblyman Joel Anderson. R-El Cajon, cast the dissenting vote because he said he believes the bill needs to spell out good cause.
It invites frivolous lawsuits without that section, he explained.
"I wanted to vote for it, but I couldn't vote for an uncooked bill," he said. "In legislation, the devil's in the details."
The bill met some resistance from the California Association of Realtors, which worried that the bill would put the power in the hands of the buyer, making the choice of an escrow firm non-negotiable.
The association agreed to support the bill after Galgiani agreed to add a sunset date to the bill, according to its newsletter.
The act is sponsored by the Escrow Institute of California, which has seen some of its members overwhelmed by the number of titles it must process under the bank contracts, institute president Tim Egen said.
"Buyers are being forced into a situation. The evidence is very clear," he said.
Egen praised the bill because it would impose civil penalties that buyers must pursue.
It doesn't create another layer of bureaucracy.
There has been no formal opposition to the bill.
"It's hard to stand in front of a public committee and defend an illegal practice," he said.
