In Oregon, it is customary for the Seller to pay for the Owner's Title Insurance Policy.  In fact, our standard sale agreement explains this in detail and specifically states that this is NOT considered to be a Seller Concession.

The Citi Negotiator is telling me that Freddie Mac is requiring that the Seller payment for the Owner's Title policy MUST be considered part of the 3% max contribution to Buyer's closing costs, and is therefore requiring us to reduce the Buyer Closing Cost Credit by the amount of the title policy (i.e., $455), and they will decline the short sale if we do not do so.

I have never run into this before on any GSE short sale.  Anybody else have this experience lately?