Q&A: Signing Documents

Q. Signing Documents

My wife and I purchased a home a month ago and we have not felt good about the whole deal from the time we left the closing. The lender we used had told us that we would have to pay points to get the rate down so we could afford the payment and we agreed to that. The problem is that when we got to the closing, the amount they had on the loan documents was a lot higher than what we had been told earlier by our lender. The title company said there was nothing they could do about it and that we just had to sign the papers? Is that true? We felt trapped, had all our stuff packed and felt we had no choice except to go ahead. Now we are not so sure. Did we make a mistake and if so, what can we do about it now?

A. The answers to your questions, in the order in which you asked them are: No. No. Yes and Probably not much.

Let’s talk about your problem which, unfortunately, happens all the time to folks. I will address first this specific situation and then the general problem of papers which don’t match up to what you had been led to believe would be included.

It is the responsibility of a title company to handle all the details of the closing in accordance with state law and in compliance with the details in the contract signed by the seller and the buyer. In addition, the title company is obligated to accept instructions from the lender for many details associated with the closing. Those details include what forms should be in the closing package what amounts should be inserted in all the documents related to money, etc. SO, when the title company said there was nothing they can do, what they meant was, “There is nothing we can do UNLESS the bank gives us some other instructions.”

When you are closing a real estate transaction the title company is the facilitator for that transaction. For a large percentage of closings, the title company has no relationship with either party and is simply being paid to process the paper work and assure that it is a transaction which was properly and legally handled. But there are times when the title company is, in fact, an agent for a party to the transaction. This is called dual agency. This means they are working for one specific party to the deal. This is most common if you are buying a new construction home and the title company is the company picked by the builder (sometimes owned by the builder) to handle all their transactions.

In addition, if the home you are buying is a bank-owned home, then the title company is, in fact, working for the owner of the foreclosed property (whether that is a lender, servicer or insurer/investor). SO, when the title company said there was nothing they could do, what they meant was “There is nothing we can change UNLESS we get different instructions from our principal (the lender/servicer/insurer).

Did you make a mistake? I have to tell you that you did. It probably doesn’t make you feel a lot better to know that almost everyone makes the same mistake.

THE MISTAKE: Believing that because someone presented you with papers that you must sign them. You DO NOT have to sign them. No, you can not go ahead with the transaction unless you sign them, but that also means that the other people can’t get what they want either. If you insist that the papers have to be changed to what you were told before (especially if you have a good faith estimate which documents the amounts you should be paying) then there is a very strong chance that the lender will change their instructions to the title company, the papers will be changed accordingly and then all of you can re-convene in order to close the deal.

This is almost certainly not going to happen this afternoon. But it can happen. It is worth holding out for. It is worth making everyone else uncomfortable until you get the deal you were told you would be getting.

Is there anything you can do now? I doubt it because you signed all the papers. You used your most prized possession and endorsed yourself into a pickle. You can hold on to the lesson you learned, share it with others and promise yourself to never again sign documents which you don’t clearly understand or which do not correspond to the agreement with the other party.

JUST DON’T DO IT!

© Copyright 2009, Home Ownership Matters, LLC. All rights Reserved. "Answer Book in a Foreclosure Climate" by Mildred Wilkins, available in 2009 from www.DovePublishingHouse.com.

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

Q&A: Flood Insurance

Q. We closed on a house more than two months ago and just received a letter from the lender telling us we have to have flood insurance on the property. Shouldn’t the title company have done a survey and determined whether or not flood insurance was needed BEFORE they allowed us to close? How can they force us to take on this extra expense now?

A. It would be highly unlikely that a title company would close without a survey which stipulated whether or not the property was in a flood zone, therefore requiring flood insurance. The closing also should have included a “flood insurance certification” which would have declared that all parties were aware that no flood insurance was required.

However, mistakes do happen occasionally. It might have been missed or it might reflect a change in the flood map or very likely it means there was a situation where part of the neighborhood is in a flood zone and part of it is not. Your home might have ‘appeared’ to be exempt from the flood insurance requirement when, in fact, it was required.

Commitment to Cooperate

In the event there had been a recent change in the flood zone maps (or they just plain made a mistake) which means the property must be covered with flood insurance you no doubt signed a document at closing which states you would cooperate with all parties (Lender, title company or REALTORS®) if they needed you to help them with correcting forms, etc from closing.

Compliance Disclosure

Almost all closings also include a document which states you specifically agree to add flood coverage IF it becomes a requirement AFTER you have closed. Lenders have the right to have the collateral protected from risks such as floods and therefore the stipulation that flood insurance can be added , when deemed necessary.

I’m afraid you must continue the coverage. Flood insurance is pretty expensive and I know that can cut a good sized hole in your budget when you were not expecting it. But the real beneficiaries—You and Your Family.

Better to have it and not need it, then to need it and not have it.

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: Title Policy

And the WORD for Today is:

Title Policy – common types of title policies are “mortgagee policies,” which protect lenders, and “owner policies,” which protect buyers. Most lending institutions won’t loan you money to buy a house or other property unless you purchase a mortgagee policy. This policy will repay the balance of your mortgage if a claim against your property voids your title. Mortgagee policies remain in effect until the loan is repaid. Most lenders will require you to buy a new mortgagee title policy if you refinance your home. When the new loan pays off the existing loan, the old mortgagee policy expires. You are entitled to a premium discount on a new mortgagee policy if you refinance within seven years. Owner policies insure property owners against the specific kinds of claims listed in the policy. When you buy a house and purchase a mortgagee policy, a title company will automatically issue an owners policy—for a set premium—unless you specifically reject it in writing. An owner policy remains in effect as long as you or your heirs own the property or are liable for any title warranties made when you sell the property. You should keep your owner policy, even if you transfer your title or sell the property.

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.)

Q&A: Promised Perks

Q.  I am not quite sure whether or not I have a legal problem but I think I got shafted and I want to know what to do about it. I recently bought a new house and the real estate agent promised me a cash rebate as well as a bonus from the builder if I purchased. I was supposed to receive these as soon as I closed. The rebate and bonus were not mentioned at the closing and now the agent refuses to talk to me. What should I do and how do I get the money I was promised?

A: Well, let’s see. You were promised a cash rebate and a bonus which appear to be outside the scope of the “official” or legal transaction since you did not receive the money as part of the closing on the home you purchased.

I am very carefully saying here that the promises made to you do not appear to be legal. Kickbacks seldom are. Trying to enforce an illegal promise could get a little dicey.

When you purchase a home (including new construction) the purpose of the lender’s appraisal is to be sure that:

a. The home is at least worth what they are about to loan you to acquire it.

b. That no amount in excess of the value of the home is being financed

For example, that you are not financing a house worth only $400,000 with a loan of, say $425,000 to allow enough money left from the lender’s funds to give you a kickback of $15,000 and a bonus of $10,000 (for furniture or a vacation or anything remotely like that). That is commonly called mortgage fraud.

The title company has a responsibility to be sure that there are no components of the closing which are in violation of the law. The title company can not be responsible for what the parties agreed to if it is not in the contract and not part of the closing instructions sent over from the lender. One of the requirements for a legal closing is that there be no “undisclosed” exchange of funds, such as kickbacks from the seller to entice you to buy.

All funds which are to exchange hands between any of the parties associated with the transaction are to be included on the HUD-1 document. It is against the law in most places for someone to pay you a rebate and a bonus to get you to buy the home they built. (I know the car companies did it, but look at them now. Apparently their guidelines are a bit more lax than real estate transactions and look at where it got them.)  

The HUD-1 is the official record of the transaction and anything which cannot appear on it usually is suspect.  In fact, fairly often during the last several years, what is on the HUD-1 frequently could stand a little more scrutiny.

I’m a grown-up so I know that what you described was not uncommon practice during the past 4-5 years in some of the hottest markets in the country. Wild construction growth, wild deals, wild foreclosures now. I am familiar with parking lot exchanges and promissory notes and gifts, rebates and bonuses which cannot appear on the HUD. Property values are falling in markets like California and Florida where I live like parachutes, in part, because one of the components of speculative building was to build in ‘extras’ such as the two things you asked about. The country is experiencing both a market correction to more realistic value for homes but also a major part of the problem was that the loans covered more than the piece of real estate, if you get my drift.

What should you do?  Enjoy your new home and try to keep up the payments. You got took!

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: Still Mortgages...

The WORDS for Today:

Mortgage Fraud-The intended victim is the LENDER. The transaction involves a group of scam artists. The usual players are: a real estate sales person, a mortgage broker, an appraiser, and a title company closer. A buyer is a necessary component of the scam. Sometimes they will be a part of the scam team and sometimes they will not be aware that they are, in fact, breaking the law. This team operates by:
a. Purchasing a low-income property, usually for cash
b. Secure a grossly inflated appraisal to support a new loan
c. Close the transaction with a buyer (typically called a “straw buyer” by law enforcement)
d. Profit from the difference between the lowest cost of the property, perhaps $15-20K and the new loan which will always be substantially HIGHER than the actual value of the dwelling may be as high as $90K-300K depending on the proximity to more expensive housing an the boldness of the players

Mortgage Modification- The borrower may be able to refinance the debt and/or extend the term of the mortgage loan. This may help them to catch up by reducing the monthly payments to a more affordable level. Borrowers may qualify if they have recovered from a financial problem and can afford the new payment amount.

Mortgage Warehousing-means a mortgage company holds a loan, which would ordinarily be sold. Most often the reason to “warehouse” the loans for a period is in anticipation of selling them later at a lower discount. These mortgages will be used as the security with a bank to borrow new money to loan.

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.)

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.)

FYI: Demand Your Note

Demand Your Note

An option for interrupting the foreclosure process which is gaining widespread attention and use across the country is called “demanding the note”. Demand the note means quite simply that you, the borrower, demand that your lender provide you with the note you signed agreeing to the loan.

You have the right to make such a demand. In fact, many courts across the country (especially where judicial foreclosure is required) REQUIRE that the party who initiates the foreclosure provide a copy of the note at the time of the original filing in order to establish that it is a legitimate debt. Unfortunately, many consumers are not aware that demanding to be provided with a copy of the note which establishes that the person demanding repayment has the legal right to do so is both a reasonable request and within the scope of their legal rights.

Cough it up…OR Compromise

Let’s say, just for the sake of discussion, that your lender or servicer could not find the note. Perhaps because your loan has been bundled with hundreds of thousands of other loans in a mortgage-backed security or perhaps because they do not really own it. Perhaps they are not the real party of interest. In that case, their ability to collect on the default is problematic since they can’t prove you owe them anything.

There are numerous lawsuits across the country where consumers are demanding that their loan be rescinded because the note cannot be produced. That option is certainly one you need to consider. Whether rescission is your goal or you just want a reasonable, affordable workout, you are in a much better position to negotiate IF the lender cannot provide documentation of the ‘supposed’ debt. Let the lender either cough it up...OR...COMPROMISE.

Who’s Gonna Make Em?

Well now, that is an interesting question. Look up information on the Qualified Written Request which clearly states that the consumer has the right to request/demand ANYTHING related to the servicing of their loan by using a qualified written request. It is FEDERAL LAW which establishes the borrower’s right to submit such a request to the lender and the guidelines are very clear that whatever is requested must be provided. We will not go into details in this blog because there are several other places on this site and numerous others (National Consumer Law Center, Center for Responsible Lending among them) which will give you clarity on exactly what a QWR is and what the law has to say about it. E-mail Heather for recommended BEST PRACTICES for using this powerful document (homeownershipmatters@gmail.com).

With adequate research and time you can prepare this request by yourself but without taking a class on how to do so you might not get the best result possible. HOM offers classes as well as webinars on the subject; either would be immensely invaluable to you if you need to submit a request.

Do I need an attorney?

If you are wondering whether you should use an attorney, I strongly recommend a good attorney for this project. It would be a wise investment of money to help you with preparing for the biggest fight you are ever likely to get in.

Call your local bar association for recommendations or try to get references from your local REALTOR or title company.

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: Loan Commitment Letter

And the WORD for Today is:

Loan Commitment Letter—a legally binding mortgage loan commitment. It must be in writing and will not be issued until the lender has completed the underwriting and loan approval process. It is dramatically different from a pre-approval or a pre-qualification letter. Once a lender has verified all the documentation needed to make a loan, they will issue a commitment letter, which is their commitment to make a loan to the borrower. The commitment letter will state specific terms such as the mortgage loan amount, the interest rate, the date the commitment will expire (usually 60 days after it is issued).  Also special terms such as: a) the appraisal on the home must be acceptable; b) the closing must be with a bona-fide title company. It will detail what kind of loan, under what terms, state the interest rate and state the length of time for which the commitment is valid, frequently 60-90 days. Basically it states that the lender will make the loan once you find your house as long as you do not change you job or any other important details related to your finances.   

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.)

WORD: Loan Package

And the WORD for Today is:

Loan Package—refers to the file of all the items necessary for the lender to decide to grant or not grant the loan. These items would include the information on prospective borrower such as loan application, credit report, financial statements, and supporting documentation, employment verification and any other personal information to verify the credit worthiness of the applicant. In addition, the file would also include information related to the acceptability of the proposed property such as an appraisal to substantiate value and a survey. There is usually a charge for “packaging” the loan.

Loan package also commonly refers to the bundle of papers sent from the lender to the title company in order to finalize a real estate transaction. The /loan package/ usually contains all the necessary paperwork to “close the loan.” The mortgage or deed of trust, note and all required disclosures, from anybody to anybody, would be included. A loan closing package might include as many as 60-80 pages of material.

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.)

Use of HOM Copyright Material

Articles and forms which have been provided by HOM may be used for your personal use without concern about a complaint. You MAY NOT, however:

1. Remove the copyright notation
2. Change ANYTHING — title, headers, etc
3. Remove the name, company name or other identifier of the author
4. Reproduce for the purpose of selling or otherwise gaining benefit from the use of copyright material

IF you violate standard copyright guidelines, relative to HOM materials, you should expect:

1. An Ethics complaint, at the least
2. A lawsuit if you have sought to gain financially from the use of HOM material
3. Public identification of your improper use of HOM materials

You SHOULD:

Contact Heather (HomeOwnershipMatters@gmail.com) or myself for permission to use HOM materials on your website or marketing we will gladly provide you with a release which will clearly identify the restrictions on use so there is no misunderstanding. It is NOT complicated to avoid copyright infringement

We are happy to partner with real estate boards, other organizations and brokerage firms to provide foreclosure related articles and materials. The goal of the company is to be a partner with other real estate professionals in spreading information which will be helpful to the general public. The use of HOM material, whether it is a portion or an article in its entirety, with proper credits will never create a problem.

We will, however, not allow blatant misuse of HOM materials without addressing the issue when it comes to our attention.

Common courtesy, adherence to ethical guidelines and use of good judgment will avoid any problem.

Sincerely,

Mildred

Mildred Wilkins, President and Founder

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