Sunday, July 27, 2008

query: what happens if you pay part of your mortgage early

This is a great query. First, let's set aside prepayment penalties because they are rare and also because they are unique. If you have a Note that includes a pre-payment penalty, read those terms carefully for any impact on partial pre-payments. Okay, now for your query.

Fixed Rate Mortgages: These mortgages have a level mortgage payment going towards principal and interest. The total remains the same every month, BUT the amount going towards principal versus interest changes as the principal balance is reduced. Here's an example for comparison:

Let's take a $100,000.00 mortgage at 6% for 30 years - $599.55 is the P & I total monthly payment.

You calculate the amount of the payment going to interest by taking the unpaid principal balance times the interest rate and divide that figure by twelve. So, your very first monthly payment will work out like this:

100,000.00 multiplied by .06 divided by 12 = 500.00, so 99.55 is going to principal, see?

So, the next month, if you don't make an extra payment, the new unpaid principal balance is 99,900.45, so let's do the math again.

99,900.45 multiplied by .06 divided by 12 = 499.50, so how do you know how much is going to principal? Take the total P & I payment of $599.55 and subtract $499.50 which leaves $100.05 going to principal. This is how the lender's computer will recalculate your balance every month.

Now, what happens when you add an extra payment towards principal? Let's say you decide to send in an extra $100 in the third month. So, we know the principal balance going into the third month is 99,900.45 less 100.05 = 99,800.40, right?

So, you send in a total monthly payment of $699.55 which includes your normal P & I payment of $599.55 and the extra principal payment of $100.00. Let's figure out how much is owing for interest.

99,800.40 multiplied by .06 divided by 12 = 499.00

$699.55 less $499.00 = $200.55 With this pre-payment you will reduce the principal balance to $99599.85. Are you with me?

Now let's calculate the interest for the next month by taking 99,599.85 multiplied by .06 divided by 12 = 497.99 - that's not a super reduction by this type of reduction builds over time and before you know it, you're really chopping down that principal. If you paid an extra $100 towards principal on this mortgage every month, you'd reduce the remaining number of required payments from 357 to 250. Compare that:

357 multiplied by 599.95 = 214,182.15 versus

250 multiplied by 699.95 = 174,987.50

That's a savings of 39,194.65 and a much earlier mortgage payoff. Anything extra you pay in towards principal will impact the monthly interest cost and create a synergistic savings and early mortgage payoff. I say paying extra towards the principal is money well spent and the eventuality of NOT having a mortgage - or any debt, if possible, is REAL freedom. Yeah, I know that lots of financial analysts will disagree. I'm not about financial analysis. I'm about personal freedom and less butterflies in the belly and sleeping well at night and all that good stuff.

Adjustable Rate Mortgages do work differently with partial prepayments. You will still have the same type of calculations of interest, however, because an ARM readjusts the payment periodically, the payment will not stay level. The payment will reduce and adjust to the original maturity date, so with an ARM, you should still work to pre-pay and pay as much as you can extra, just realize that since the payments are not level, you'll have to re-work figures each time the payment recalculates to make certain you are on track with your planned payoff.

Whether you are planning for retirement or simply craving personal freedom, I highly recommend reducing all debt as quickly as you can. That doesn't mean you should never borrow. It really means that you should use borrowed money or any money, frankly, as a tool but don't let the tool enslave you. Get it?

Thursday, July 24, 2008

query: must escrow accounts of title companies be interest bearing in PA

The answer is no. If you have funds that will be held after closing, you can request that it be placed in a separate interest bearing account. Keep in mind that this is extra work for the title agent and there may be a service charge. Any escrow set-up in PA does carry a mandatory $25 escrow set-up fee - even non-interest bearing escrow.

Monday, July 21, 2008

yes, I hear your query, title insurance companies collapse.

While I can admit that a year ago I might have taken some cruel delight in the collapse of you know who, I can't say that anymore.

Why does power corrupt? Why do those who get drunk on it feel invincible and harm others? I don't know but I believe in the power of hope and the power of atonement. In that light I am hopeful that lessons learned change the horizon.

There are lessons here for all of us and there is always another chance. Put one foot ahead of the other and take your time. You'll figure it out. Collapse may be a good thing. We don't know, really. Sometimes forced change puts us in a place where we ultimately find good.

Take care and best wishes.

Sunday, July 20, 2008

OK...gotcha...query: what if title company didn't close a line on your property

I'm presuming you mean an open end line of credit, right?

When a title insurer is paying off an open end mortgage which is a line of credit, they should request that the mortgage lender freeze the line. With evidence of a frozen line, the payoff letter is reliable. If the mortgage lender refuses to freeze the line, even with a written request of the borrower, the payoff is kinda risky. We handle it by re-checking the payoff verbally before remitting.

In either case, we always write or type directly on the payoff letter "Please close and satisfy." and have the mortgagor/borrower sign it. Some mortgage lenders will provide a statement of that sort on their payoff letter and place for the mortgagor/borrower signature.

The title insurer has a duty to be careful in their examination of title and look at the mortgage document to see if it is open end and then follow the steps I have just outlined. Why? Well, if the line isn't closed and the underlying mortgage satisfied, the interest of the insured buyer or lender is at risk.

Notice I said buyer or lender and I also said insured. A title insurer is performing this function to protect those they insure.

If you are the mortgagor/borrower under the line of credit that stayed open, well it's unlikely that the title insurer has liability because you have personal knowledge of your line of credit and you have an obligation to make certain it is closed and you also have an obligation to not use it again.

If you are the purchaser of property and you find that a line of credit for a prior owner is still open and unsatisfied, contact your title insurer. If you have an owner policy, they have a duty to protect you and rectify the situation.

Hope that helps.

Thursday, July 17, 2008

We have a consumer in process who is applying for a mortgage.....

.....for an investment property. It has come to our attention that he intends to demolish the structure. He lives next door and really just wants the land to expand his yard.

This is a classic case of mortgage fraud though I'm not certain that the consumer fully appreciates that that is what he is doing.

The issue arose when we attempted to get results of a mandatory municipal sewage test. The letter from the municipality said that they were waiving the test and capping the sewer access because the building is to be demolished. HUH?

We contacted the lender and asked if it was a loan for vacant ground. No. It's for investment property. We talk with the consumer who says he intends to demolish the building after he pays off the mortgage. Hmmmm.....

Our job as title agents is to make certain that these two parties both have full knowledge of intentions and have agreed to proceed with the transaction. We have pointed out to the borrower that the mortgage documents includes an agreement to preserve and maintain the collateral. That means that he cannot demolish the building while he has the mortgage in place. It also means that he must preserve and maintain the building. He says he agrees and understands, however, he doesn't want to have the sewer system tested. He wants it capped.

We are asking the lender underwriter to specifically address this issue and advise whether or not we may proceed without the sewer testing.

This is not a title insurance issue but it falls under our fiduciary duties. Title insurers are the eyes and ears of the mortgage lender in a closing. We must protect their interest and if we suspect fraud, we have a duty to speak up.

Tuesday, July 15, 2008

query: title insurance for PA tax lien sales

A normal title insurance policy will cover valid PA sales tax liens that are due and payable on or before the date of the issuance of the policy. A competent title insurer will carefully check for filed liens and also examine whether or not there is a risk of lien under the bulk sales act. It's the bulk sales issue where coverage may or may not be in place.

When you have an entity subject to corporate taxes in PA, you've got to now whether or not the real property is 51% or more of the asset. If that is the case, the entity is going to have to file for a bulk sales certificate. This certificate takes a long time to get because the state will pass the application through all tax offices, including sales tax and payroll tax, to make certain that there are no outstanding balances owing to the state at all before they allow the parties to dissolve the entity.

A couple of years ago we were asked to insure a commercial property, a dental office, being sold by a retiring dentist who was incorporated. His CPA was ill and had overlooked all of the normal forms needed to dissolve the corporation. This was a cash transaction and we ended up holding the seller's proceeds in an interest bearing account for several months while they filed all the paperwork and got a bulk sales certificate.

Buyers should beware when buying from a corporation of limited liability company who is not a lender in title following a foreclosure. Make certain that the title agent is asking all the right questions and is aware of the risk.

query: deed correction by title company/title company made mistake but buyer refuse to

If there is a mistake and you have a buyer who is refusing to cooperate, here are a few tactics that can be employed.

If we make a mistake - and everyone does, being human - we try to make the solution as easy as possible. That means that we will send one of our closers to the consumer's home or some other convenient place to have the corrected document signed. If a party refuses to sign a corrective document and won't meet with our closer, I'll send a friendly but explicit letter outlining the harm being caused to whomever and whatever legal forms and affidavits the buyer signed at closing in which they agreed to cooperate. These two methods have always worked for me and I haven't ever had to go further.

I know one law firm whose back office was run by a women who used a small sum of money as a lure. If she had a party who was probably not going to cooperate, she's call them and say she found an error and they were owed $5 or $10 and that they had to come into the office to pick up the check and sign for it. She's make certain that they signed the corrective document as part of releasing the check. She always refused to mail the check because they had to sign for it. She insisted that it always worked even though the sum wasn't large. Maybe with gas prices you'd have to make it $20 today.

Sunday, July 13, 2008

FDIC message for Indymac customers

query: PA title insurance calculator commercial properties

In PA the title insurance premium is the same for residential and commercial properties. You can use the INSTANT TITLE INSURANCE QUOTE you see linked there on the right. The title insurer is always permitted to charge for extra work. Some complex commercial transactions involve extra work.

Saturday, July 12, 2008

query: what if the title company doesn't close a lien on property

I don't understand the query. Could you be more specific? What kind of lien? Was it a lien that was to have been paid in full and was not or perhaps it was a mortgage lien that wasn't satisfied?

query: what happens to Indymac customers on Monday

You'll be dealing with a bank with a new name, Indymac Federal Bank. It should be business as usual. If your accounts are within the federally insured limit of $100,000.00 they will be transferred to the new bank entity automatically and will be available on Monday. If your accounts exceed the federal limit, call the FDIC call center for assistance.

You have nothing to fear. Our banking system is set up to handle this type of situation, even a big bank like Indymac. This is why the federal government stepped in. They did so to protect you.

If you have any questions over the weekend, you can call the FDIC call center at 866-806-5919.

query: what do I do about my construction loan with Indymac

Wait until Monday, then call your Indymac contact. The FDIC will set up orderly guidelines for employees in lending. Your loan may stay with the new entity Indymac Federal Bank. Expect the phone lines to be busy and you may have to wait a few days to get a specific answer, but don't panic. Our banking system is wonderful and you may even find that your loan experience doesn't skip a beat.

This comment presumes that your loan has already closed. If you have a loan in process, you may need to move the application to a different mortgage lender. For now, I would just chill until Monday and then try to reach a contact in lending. Again, be patient.

Friday, July 11, 2008

Indymac customers

FDIC Bank Closing Information for IndyMac

The IndyMac websites are expected to be available Monday, July 14, 2008.

If the balance in your account(s) (this includes any accounts in which you have an ownership) is less than $100,000, no action is required on your part at this time. Your entire insured account(s) will be transferred to IndyMac Federal Bank and will be available for business as usual during regular business hours.


Friday, 7/11/08, 3:00 p.m. - 9:00 p.m. Pacific
Saturday, 7/12/08, 8:00 a.m. – 8:00 p.m. Pacific
Sunday, 7/13/08, 8:00 a.m. – 6:00 p.m. Pacific
Monday through Friday, 8:00 a.m. – 8:00 p.m. Pacific

query: who customarily pays transfer taxes in Westmoreland County, PA

The custom is to split the transfer taxes between buyer and seller.

Thursday, July 10, 2008

query: what if someone in title doesn't want to sell

It's a free country and unless you can find some legal way to forcibly remove the rights of another individual, forget it.

Tuesday, July 08, 2008

query via e-mail: How do I find out information if or if not a title company is on the, up-and-up?

I have come to like your title insurance talk web and radical title talk web as well. I read it a lot and learn a bit as well. How do I post a question to it? How do I find out information if or if not a title company is on the, up-and-up? Not just the BBB or state government web sites.


Hi, John. Thanks. You did it. E-mail's the way to ask if you don't want to rely on my normal query approach which is to take search engine queries that hit the site. ;)

To answer your question, there is not one good way to check on a title company. You can use BBB or contact the state insurance department or ask friend, but I prefer asking a few direct questions.

Ask the title company if you will receive a copy of your title insurance commitment to review prior to closing. Also ask who will be available to answer your questions and provide more information, if needed.

Ask the title company how long after closing will it take for you to receive your owner title policy.

Ask if they will do a full search - which depending on the area would be 40 to 60 years - or will they only do a short search.

Ask if they use an expert local abstractor or do they use off-shore or automated systems.

These questions will give you clues as to whether or not you are working with a professional, expert and therefore likely competent title insurer or a title chop shop. Listen to the responses. If you are not getting a respectful reply which acknowledges a consumer's right to know, move on. If you are getting a bunch of BS, move on.

It's not a perfect way to vet out bad guys but it will give you enough of a response to get a gut reaction.

Thanks for reading. ;)

Monday, July 07, 2008

Sunday, July 06, 2008

query: corrective deed in PA

A corrective deed in one that replaces a deed which has already been recorded but contains an error. You can handle it in one of two ways.

If you have the original deed in hand, you can strike and correct the error, have the parties initial the correction, add a new additional notary acknowledgment that covers the initialing by the parties, and type across the top of the front page the words, CORRECTIVE DEED. It also helps to include a sentence or two giving the purpose of the corrective deed. For instance you could say, "The purpose of this corrective deed is to correct the spelling of the last name of the Grantee."

If you do not have the original deed in hand you can type a whole new deed and have the parties sign and acknowledge it before a notary public. You'll still want to type the words CORRECTIVE DEED across the top of the first page and add a sentence or two explaining the correction. You'll also want to recite back to the deed that was previously recorded that you intend to replace.

In both circumstances, in Pennsylvania, you need to attach duplicate statement of account forms to cover the transfer tax exemption.

The Recorder of Deeds may also require that you attach a copy of the recorded document you are correcting.

Friday, July 04, 2008

home inspections and home warranties

Here's a comment I posted in a conversation on the Inman site. They are discussing referral fees.

The very idea of a home inspection company sending a kickback to a real estate broker makes me want to puke.

I can think of no better example of abusing a fiduciary duty and one more great reason for consumers to ignore referrals coming from their real estate agent when selecting inspection companies.

Savvy consumers should hire inspectors who are not suffering from conflicts of interest such as maintaining a referral relationship with the real estate agent. That basic conflict alone is sufficient warning to beware, but add a kickback to the equation and you've got a more serious problem than a RESPA violation.

Thursday, July 03, 2008

abstractor missed a judgment in the final bringdown

I have a transaction on my desk with a title claim. We issued title insurance in May of 2005. We are now doing the next transaction, our insured is selling. We ordered title through redacted.
redacted is reporting a judgment in the amount of $458.69 against the former seller. This judgment was filed at the courthouse on the day of our closing.
The original title work was dated 4/4/05. AP ordered a bringdown on 5/3/05 which came back clear. We closed on 5/6/05, the day the judgment was filed. We disbursed and the seller got over $4000 in proceeds. We sent the deed to redacted for a final bringdown and record which they did on 5/10/05. redacted did not notice the judgment and simply recorded. I have to wonder if they decided not to run a bringdown again since they had just run one a few days earlier.
I spoke with redacted at redacted and she has agreed to pay for the judgment.

This is a perfect example of a title claim resolution which will NOT show up in the official numbers. Interesting, huh?

query: when did title insurance become mandatory

First, you must ask the question, who or what is mandating title insurance? It's probably the mortgage lender who is mandating a loan policy. The lender may be following their own standards or they may be following agency standards. Agency - FNMA, FHLMC & GNMA - standards set a bar for quality. Loans that meet agency standards are more easily sold in the secondary mortgage market, either through securitization or whole loan sales.

I've been engaged in agency standard mortgage lending since 1978. I can tell you we were originating FHA and VA transactions destined for GNMA pools. These transactions all had title insurance loan policies. So, getting back to your question, I don't know when the agencies adopted title insurance as a standard, but I can tell you that GNMA apparently had this standard by 1978.

Tuesday, July 01, 2008

query: what do mortgage underwriters look at

The job of a mortgage underwriter is to assess risk, monitor compliance with standards, and make a lending decision. The mortgage underwriter is the guardian of the regulatory compliance gate and also the keeper of the saleability standards. So, with compliance lenses on their eyes and saleability standards sitting in their heads, they will look at the following items:

COLLATERAL: The mortgage underwriter will carefully review the appraisal. Setting aside, saleability rules, the purpose of reviewing the appraisal is to see if the property - in the worst case scenario of a foreclosure - has sufficient value to recoup the lender's security interest.

CREDIT: The credit report provides two important components of a mortgage credit decision. The borrower's debt service is verified, giving the underwriter real numbers for debt to income ratio calculations, and the repayment history of obligations sets up a credit decision based upon a willingness to repay. Let me repeat that phrase, WILLINGNESS TO REPAY. I don't care if a borrower has the ability to repay if they demonstrate a lack of willingness to repay.

INCOME: Verification of income provides the mortgage underwriter with real figures for debt to income calculations plus the likelihood of the continuance of the income. Capability to repay combined with the stability of the income stream are key.

DEPOSITS: Ability to save demonstrates a responsible attitude and capability to live within one's means. Verification of the source of cash to close - if a borrower has hard earned savings at risk, they are less likely to allow a foreclosure. Are there cash reserves to fall back on in time of need? Deposit review is all about stability.

So, presuming the documentation is compliant and meets saleability standards, the underwriter will decide if the borrower is ABLE to repay, WILLING to repay, and if the worst case scenario happens, foreclosure, whether or not the lender buffered from a loss of market value.