WORD: Escrow Account

And the WORD for Today is...

Escrow Account – is an account established by the lender at the time of the closing on your home so they will have the funds needed to pay your insurance and taxes when they come due. You can see this as a “forced” savings account with an amount in each of your mortgage payments added for insurance and taxes. This is common practice and many people (including me) see it as a good thing since it avoids the likelihood that you will not have saved enough money when these expenses come due if they were not included in escrow.

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Earnest Money

Q.  I recently encountered a problem while trying to purchase a house and I am not sure how to proceed at this point. I did not CHANGE my mind about the purchase; instead my bank refused to make the loan at the last minute after providing me with a pre-approval earlier. Now the seller is refusing to release my earnest money deposit of $2,500. I cannot afford to walk away from that much money. Can he legally do this? What are my next steps in trying to get my money back?

A: The release of a deposit from escrow can be a little dicey, but let’s talk about it. Your question specifically asks whether it is legal for the seller to refuse to release your earnest money deposit.

Technically, when money is held in escrow the holder of the escrow (Broker of the Listing firm, an attorney who is managing the escrow account or occasionally a title company) is who would release the money. They are prohibited from doing so until either:

• There is a closing and the funds are distributed as part of the closing
  
• There is a mutual release signed by both the buyer and the seller agreeing to all conditions of the release, or
  
• A court which has jurisdiction over this matter determines who is entitled to funds

Ordinarily, a purchase agreement would have outlined the terms and conditions under which you would be entitled to receive your deposit. Most often, if you are denied financing, you would be allowed to receive the deposit in full from the escrow company. However, in order to be sure that both parties are in agreement and that no one is going to sue anyone else about the release of the money, both buyer and seller would need to sign a mutual release. Usually this is a one page document which basically says, things didn’t work out for whatever the specific reason happens to be and everyone agrees to go home and nobody’s going to sue anybody. The release also allows for negotiating how the earnest money will be split. It may be:

• Returned to the buyer (for some reason beyond their control, like lack of funding)
  
• Retained by the seller as liquidated damages (because you caused them some expense)
  
• Shared in some manner (say 50% to buyer and 50% to seller)

I would recommend that you approach (or that your agent approach) the listing Broker to discuss the merits of your request to have the funds returned to you. Be prepared to demonstrate the failure to get funding by providing a letter from your lender which states as much. Remain civil and approach them in the spirit of goodwill. If you believe that it would be fair to do so, then compromise and offer to split the earnest money as I suggested above sometimes happens.

As a last resort, consider the possibility of filing a claim in small claims court where you would be allowed to present your evidence as to why you should receive the funds back. In that case, the judge would decide who gets the money. 

If it is any comfort to you, neither you nor the seller can get it until there is either a mutual release or a court disposition. Something’s gotta give!

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Reserve

And the WORD for Today is:

Reserve—refers to an additional sum of money which a lender may require to be paid into an escrow account to protect them against increases in the costs of escrowed items.  

The word also refers to the practice of requiring a borrower to have money in their personal account (usually a saving account) equal to 2-3 months' payments as a cushion against unexpected expenses which might impact their ability to make mortgage payments and therefore keep their home. This type of reserve was common practice prior to the laxity in lending ushered in during the 90’s.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Did You Know: Loan Screw-ups

FYI—Loan Screw-ups

It is important that you know some of the ways the servicer of your loan frequently fails in their responsibility to handle their job as they should. Their failure could give you the reason you need to block a pending foreclosure. There are many things they do wrong or fail to do at all but the more common items include:

• Failing to make timely payments from your escrow account
• Failure to aggressively work at a loss mitigation attempt when requested to do so
• Sending you inconsistent letters demanding payment
• Failing to honor forbearance agreement (not you—them)
• Failing to give you proper notice of a servicing transfer and your rights related to that transfer
• Failing to properly apply payments during the transfer period, possibly creating a default
• Failing to provide a timely or complete response to a qualified written request
• Choosing to apply force-placed insurance when you, in fact, already had coverage in place
• Returning mortgage payments
• Improperly placing your payment in a suspense account
• Posting your payment late and/or misapplying your payment
• Threatening foreclosure when, in fact, you are not delinquent
• Charging excessive fees for the use of attorneys, inspections, etc
• Charging fees for services which have not YET been performed
• Creating a default by misapplication of the payments you have sent in

This is just a partial list of things which servicers do on a regular basis which can wreck havoc with your loan. At the least, it can be an inconvenience. At the worst, it can actually cause you to be in default and in foreclosure through no real fault of your own. It happens. Even when you have actually missed mortgage payments and are struggling to keep your home, the loan servicer is still required to handle the account with certain fairly standard and reasonable guidelines. Too often, they fail to do so and you end up getting the short end of the stick. Unless consumers demand they stop the unfair practices and produce documentation of how they have handled your file (via a qualified written request) they will continue to operate like they all got training in the wild, wild west where anything was okay.

What should you do if you suspect your servicer is not dealing with you fairly?

Step One: File a qualified written request following guidelines discussed elsewhere on this blog. (Do additional research on the web; see this entry on Buying TIME from our blog).
Step Two: Try to find an attorney who will represent you in challenging their right to foreclosure.

You must move quickly and with a firm action plan so that you don’t become another foreclosure because the consumer didn’t know that they could fight back.

The “Buying TIME” Foreclosure First Aid Kit, available at www.DovePublishingHouse.com would be of great benefit to you as well.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Losing Home to Tax Sale

Q. I am behind on my property taxes and wonder can someone just pay my taxes and take my house? Surely that is not possible, but a friend has warned me that it is something I should be worried about.

A. The short answer is YES, you can lose your home because you did not pay the property taxes. However, it is not something which could happen without you receiving notice and having ample time to resolve the problem. Let me explain.

While it is true that a person can lose their home because they failed to pay the property taxes, that usually will not become an issue unless you are at least 2 or more years past due with the taxes. Property taxes are mandated under state or local municipal law and are collected by an office which has the authority to do so. The name of the office may be tax assessor or tax collector or similar. In addition to collecting taxes when due, this same office has the authority to:

1. Place a lien against any property owner who has not paid the appropriate taxes for an extended period of time (and the amount of time will vary from municipality to municipality, set by local law)
2. Notify the owner that the property will be made available for sale due to unpaid taxes, if the problem is not corrected within a specified period of time
3. Proceed to offer the property for sale at an auction specifically for the purpose of collecting unpaid taxes
4. Advertise the availability of the property for past due taxes and complete the sale at the designated time

*Some folks have gotten wealthy by acquiring property in this manner because the prior owner was not aware of their redemption rights.

Many states have a redemption period during which you can reclaim your property by re-paying the amount of the tax bill, court costs and any other applicable costs. This redemption period may be as short as 6 months or as long as 2 years. You will need to check the statutes in your city/state. It is important that you keep abreast of your tax situation, even if you are not able to make the regular mortgage payment.

My experience has taught me that the individual most likely to be unaware that their taxes have not been paid is someone who had a mortgage with taxes included as an escrow item and then refinanced.

When they processed the refinancing, no escrow account was set up for the payment of the taxes so the individual who has not been in the habit of paying taxes simply ignores the tax BILLS they have been receiving believing that they are the tax NOTICES/RECEIPTS which they are accustomed to getting. Their taxes fall further and further behind until the appropriate authority utilizes the process outlined above to collect the taxes.

Please take the time immediately to verify your actual tax situation; you may even be able to make partial payments to the taxing authority to avoid losing your home in this manner. Yes, you may have the right to get it back, but better to keep it in the first place.

Good luck!

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Earnest Money

And the WORD for Today is:

Earnest Money—a deposit of fund by the buyer as a show of “good faith.” The earnest money is usually an amount established by local practice and will vary depending on the price of the property and area of the county where the property is located. Earnest money is usually deposited in the escrow account of the listing realtor’s brokerage firm. The earnest money is usually credited to the buyer at closing as part of their down payment.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)