What will happen to seller paid home warranties under RESPA 2010?

This subject was raised by an attorney conducting a RESPA training session for the Pennsylvania Land Title Institute.  I attended the session a few months ago.

He took the position that the home warranty was a buyer cost that should be placed on the buyer side of the HUD with a credit on page one from the seller.

I have done two prelim HUDs using this method.  Neither transaction has closed and I am still waiting to get a reaction from the mortgage lenders.  One transaction is an uninsured conventional loan with a regional bank and the other is a VA mortgage with a national bank.  The VA transaction has a seller assist.  I did a full credit for the assist plus a separate credit for the home warranty.

Though the sales contract typically includes a clause in which the seller does agree to pay for a home warranty, I believe home warranties have been off the radar of lenders.

If the methodology for RESPA 2010 does cause the home warranty to show as a seller paid buyer expense, how will mortgage underwriters react if at all?

using an itemization of line #1101 for HUD prep

If you are not already using your own form, consider creating one.  It has made the process so much easier and maybe that is why I am enjoying prepping these new HUDs.

Here's how I do it.  As you know, we are doing our first PRELIM at the time we issue the title commitment, so at that time I have in hand the GFE with the provider list.

First I post all the GFE data in the system.  When I post the title services figure, I check the list to see if our company is on there.  Our software has a box that is checked if yes.  So, I either leave a check mark in there if our name is on the list or I remove the check mark if it is not.

After posting the GFE data, I go into the HUD form.  At this stage I know alot about the transaction and so I build as much of the HUD as possible .  I want the lender to get as much of a picture as possible as early as possible so they can think through issues.

When I get to the title services section, I pull our itemization form and work through the premiums and services we are providing.

Since PA is a simultaneous issue state, first I write down the owner coverage and the loan coverage.  If the owner coverage is higher, I calculate the two premiums, figure the difference and that figure goes on line 1103.

Our form has all of our standard fee/service categories on it, so I just go down the line and fill in what we need to charge for the transaction.  This would include things such as doc prep, wire, courier, out of office settlement, tax certifications/lien letters, premium, endorsements, etc.  I then run a total on the list.

Next I add the title premium to the endorsements and calculate the underwriter portion.  That figure goes on the HUD.

If a payee is other than my company, I like to separate it out on the HUD so I'll put those items on the extra lines in the 1100 section.

The loan policy part of the premium is added to the endorsements and placed in its spot on the HUD.

Our software has a calculator for the premiums which used to work on the old HUD but seems too goofy to me on the new HUD so I do the premium calculations manually and insert the figures myself.  It's faster than monkeying around and I am sure they are right.

Finally, any other charges payable to my company including reimbursement for lien letters, if applicable, get lumped together into a settlement fee.

After that I add together 1101 and 1103 and compare it to my itemization sheet total.  If it doesn't match then I recheck all the figures.  The itemization sheet should match the total of those two HUD lines.

We have found that lenders really appreciate getting this itemization form.

When we do the final HUD for closing, we include a final itemization for the borrower and lender as part of the closing package.  The borrower initials that form for our records and since we operate under TIRBOP rules in PA, we have a record that we disclosed our fees and services according to TIRBOP.  I feel this is important because the RESPA 2010 HUD  doesn't conform to TIRBOP guidelines.

comments on Title Insurance Talk

Just a note to readers who wish to comment.  I love to hear from you because we all learn from each other and all the unique situations we face in real estate transactions.  It's better to NOT insert a link in your comment because I will likely reject the comment.  The only links I'll post through to comments are links that in my judgment add to the conversation.

query: RESPA 2010 who pays the mortgage broker

The mortgage broker fees are part of the origination charge.  Lender and broker origination charges are lumped together.  The lender instructions to the title agent or attorney should spell out how much of that is to be remitted to the mortgage broker.

tax service fee for FHA and VA transactions

Our take is that you place the tax service fee on the buyer side of the HUD and put a credit on the first page from the seller.  Depending on the lender, they may allow the credit to be lumped in with a seller assist or they may want the tax service fee credit on a separate line. Either way works.

query: RESPA 2010 can you stop a closing due to a 10% tolerance issue

I'd sure be surprised if a lender permitted a HUD to go to closing without a cure, however they do have the option of closing and curing the tolerance violation within 30 days after closing.  In my non-attorney opinion a consumer must make a decision to close or not.  If it were me and I felt strongly that there was a tolerance violation, I would not close unless I had in hand a signed letter from the mortgage lender agreeing to the tolerance cure post closing.

You won't believe it, but....

I had to do an old HUD today and I hated it!  It's SO not 2010.  LOL

I'm not kidding.  We're in a groove now and I'm grooving the new HUD!

Signatures on the HUD-1 form? Keith raises a good point.

Hi Diane,

I came across your blog while doing some research.  I was thinking that a good topic for an upcoming entry would be regarding signature requirements for the HUD-1 settlement statement.  In my case, my copy of the HUD-1 has the signature of the Settlement Agent (I'm assuming that was someone at the title company I closed at), but not the signature of the sellers.  A call to someone at my title insurance company said that they don't require signatures on HUD-1s they process.

I mention this because the IRS is wanting signed copies of this form for filers claiming the homebuyers' tax credit.  There are comments on other blogs from people who say their tax credit request was delayed or rejected because the HUD-1 they submitted didn't have signatures on it.  I know you're not a tax expert, but I'd be interested to hear your take on the matter.  For instance, what other documents could be used basically as proof of purchase on a real estate transaction?

Thanks,
Keith


Keith:  Thanks for suggesting this timely topic.  The title agent is correct that signatures are not required on the HUD-1 Settlement Statement but most title agents do have the HUD-1 signed just because it creates a fully documented record for all parties and most mortgage lenders want a signed copy.

Moving forward I would suggest that homebuyers participating in the tax program make a call ahead of time and make certain the title agent will provide a fully executed HUD-1 so they don't find themselves in your position.

For your concerns, I would try to get a fully executed HUD-1.  From what I have heard that's what the government is looking for and I don't know that they will accept other forms of documentation.  I would contact the seller directly or your mortgage lender to see if they will provide a seller signed copy.


Good luck!


 Diane

 

query: where do you put the FHA 203k escrow on the 2010 HUD-1?

Good question.  I haven't closed a renovation on the new HUD form yet, but have a few files pending.  My guess at this point is that the renovation escrow would be in the same section as the appraisal fee and FHA MIP.  What are your thoughts?

tax service fee - consumer shops for???

How exactly would consumers shop for this service?  Do tax service companies give individual quotes to consumers?  Just curious.  ;)

query: where can I get a copy of my HUD-1 statement

Hopefully it is in your filing cabinet because that's where it should be.  Every consumer should make certain they get a copy of their HUD-1 at closing.  Depending on some other party to maintain a copy and provide a back up when you need it is risky.

Okay, so maybe you lost your copy or you never got one, what do you do now?  Call everybody else in the transaction.  Hope they are still in business, that they have a copy and are willing to share it with you.  Start with your title agent, then your real estate agent and finally your mortgage lender.  If you strike out there, you could try the seller or the seller's attorney.

If you are one of my customers, I will ask for a written request and upon receipt, I will e-mail or fax the HUD-1 to you within one business day.

Can a loan officer casually give the borrower a name of a provider...

without including that provider on the "list"?  I say no.  What do YOU think?  I am not certain that folks have their compliance arms all around this issue.  I believe we have lenders with lists that contain names of providers and an expectation that loan officers will not give the consumer any other names.

Be safe.  If you mention a provider's name to your consumer, write the provider on your list.

dare I say it....

I LOVE THE NEW HUD-1 !!

query: what does a HUD-1 look like?

Here's the new HUD-1 form.

Here's the new Good Faith Estimate form.

introducing GFE SOS for loan officers in our service market

Check it out.  The form is also linked from our web site just under the title insurance rate calculator.

had our first closing today with the new HUD-1

All in all, I'd call it uneventful. We were prepared, the lender was prepared, the consumer didn't notice.  ;)

POC origination fee on new HUD?

We had a request from a mortgage lender today to do a small portion of the origination fee as POC. We weren't sure, so we checked.  No can do.  See the RESPA FAQ, page 41. 

Interestingly this lender has already closed at least one other transaction in which the title agent complied and did the POC.

We're all in this together and we're all on a learning curve.  Every day is interesting and every day it gets easier.  Give us two months and the whole thing will be old hat.  I'm telling ya, it's the truth!  It won't be too long before we have young people in the business who'll think the old system was insane.  LOL

query: new respa requirements if a portion of the fees will be paid by the seller do tolerance levels still apply

Yes.  Costs that are typically buyer costs must be disclosed on the GFE even if the seller has agreed to pay a portion of the buyer costs.  The credit from the seller will be placed on page one of the HUD and will not be included as part of the tolerance calculations.  That means costs that DO fall within the tolerance rules must be accurate even if the seller is paying a portion. 

still curious about this RESPRO model indemnification agreement

Here's another blurb on it:

"HUD's new RESPA disclosures will, for the first time, subject mortgage originators to liability if certain final closing costs exceed those estimated on the Good Faith Estimate (GFE), which is provided three days after the loan application.  When a loan originator permits a borrower to shop for third-party settlement services, HUD requires the loan originator to provide the borrower with a written list of settlement service providers along with the GFE.  If the borrower uses a settlement service provider on this list, the final cost for that service cannot exceed 10% of the estimated cost on the GFE.

RESPRO's Model GFE Cost Indemnification Agreement identifies the responsibilities of both the loan originator and the third-party settlement service provider if the final cost of a settlement service subject to HUD's new 10% tolerance requirement exceeds the new limit.  Its Model Services Agreement is an alternative form that can be used in states with laws and/or regulations that restrict indemnifications"  Read more here. 

First, if you don't know RESPRO is an organization that supports and lobbies for real estate broker owned affiliated mortgage and title companies.  They firmly believe that consumers are better served by one stop shopping.  Their business plan depends upon capturing the consumer at the point of sale in the real estate brokerage office.

To date the rules have allowed them to steer so long as they have the consumer sign a disclosure which says the consumer is not required to use their affiliated business. 

Under new GFE rules, the real estate agent can give a name to a consumer but if the mortgage broker/lender gives a name to a consumer, the final costs must be within the 10% tolerance.  HUD clearly says the responsibility for compliance with the tolerance and potential cure falls on the lender, so what do you think this indemnification agreement is all about?

haven't talked about title for awhile..let's chat about getting a survey

Back in 2005 I insured a conveyance for a couple who purchased a lot that abutted a vacated alley.  The alley is the borderline between a township and a borough.  For tax assessment purposes the alley was deemed to be in the borough.  The neighboring lot sitting across the alley is in the township.  To keep things clear we'll call them BOROUGH  LOT and TOWNSHIP LOT.  These two lots are in two entirely different development plans.

The alley was unopened which is why it was vacated.  The ordinance vacating the alley was a borough ordinance and it gave the ownership of the entire section of the alley abutting the lots to the BOROUGH LOT.  The ordinance was passed prior to 1998 and all deeds in the chain of title since that time included an updated metes and bounds description which included the alley area.

When we processed the transaction back in 2005 we didn't pay any attention to the TOWNSHIP LOT.  We searched and insured the BOROUGH LOT.  As is our usual practice, we recommended in writing that the couple purchasing the land get a survey prior to closing.  They opted not to and we had them sign our usual hold harmless disclosure.

In 2007 the couple decided to have the property surveyed.  They chose a competent surveyor who correctly researched the deeds for adjoining parcels. [I make this distinction because in Pennsylvania we have no survey standards and there are surveyors out there who charge just as much but don't really do the work.]  The surveyor discovered a deed in the chain for the TOWNSHIP LOT which included a release signed by a former owner of the BOROUGH LOT giving up rights to one half of the alley.

The couple ignored the lot line defined by the surveyor and decided that they would rely upon the description in their deed which said they owned the entire alley.  They built a shed.  They built the shed not on the disputed land but near the disputed line - near enough to be in violation of the rear setback line if the local zoning official should choose to recognize the lot line defined by the surveyor.  Well, the folks are all nice.  Nobody wants to make a fuss.   TOWNSHIP LOT folks are okay so long as BOROUGH LOT folks don't use their half of the alley.  They don't mind the shed near the line so long as everyone agrees to the line.

All of this, BTW, was occurring without my knowledge until 2009 when I got a visit from our insured couple, survey in hand asking me to explain it all and figure out who was right and where the line really was.

Thankfully that surveyor made note of the source document and I was able to pull it online.  Viola!  There's the problem.

Let's back track.  In 1998 the BOROUGH LOT was acquired by a couple we'll call GREEN.  GREEN purchased  the BOROUGH LOT from the estate of an elderly lady.  At that time the TOWNSHIP LOT was owned by a couple we'll call RED.  RED heard the GREEN was buying the lot and since RED had been using the alley land for some time and hadn't been able to resolve the issue with the elderly lady, RED contacted GREEN and they worked out a deal because GREEN really didn't care about the back end of the lot.

RED hired an attorney.  I cannot tell if RED's attorney ever talked with GREEN's attorney.  This is where the whole thing got screwed up.  The executor of the estate of the elderly signed a deed conveying the BOROUGH LOT to GREEN.  Two days later RED signed a deed conveying the TOWNSHIP LOT to themselves and added GREEN as a grantor for the purpose of releasing any rights they had in a portion of the alley.

Nowhere in the RED deed was our lot described, referenced or recited.  I just don't get what RED's attorney was thinking.  How in the world would a title searcher connect this deed for a parcel in the township to the one in the borough.  They are on different streets and different tax maps.  The ONLY way this would have been discoverable is with a search of adjoining lots which is what you get when you buy a survey from a competent surveyor.

It would have been helpful if GREEN had remembered the release when they sold the BOROUGH LOT to the next couple who likely didn't get a survey and may never have measured out the length of the land or didn't care and therefore did not mention it to the couple who bought the land in 2005.

A survey seems like too much money or trouble prior to closing but it always amazes me how many people will eventually spend the dime.  You already own the land but at least now you know WHAT you bought, right?  Well, some folks don't mind paying hundreds of thousands of dollars for a pig in a poke.  Not me, man.  I want a survey.

cash needed to close....how do you estimate using the new Good Faith Estimate?

Well, the good news is that you, the consumer, will get a more reliable disclosure of costs from all the lenders you shop - PLUS the disclosure will be on a uniform piece of paper.  That's great news for consumers.

There's one little tip you really need to think about and that's CASH TO CLOSE.

First, because lenders are on the hook for the estimates you can be assured the estimates will be a bit higher than they used to be.  Is that bad?  Not in my mind.  I'd far rather you prepare for a higher number and have some cash left over for all those unexpected costs that all homeowners face.

Will that make homebuying less affordable for some?  Yes, BUT the some who can't show enough money maybe aren't really ready to buy.  Afterall, we're trying to recapture responsible homeownership, not cliffhanger overbuying hoping to get bailed out by a market boom, eh?

Now, the other thing you need to know is that the Good Faith Estimate form does NOT have a place that discloses CASH TO CLOSE.  So, that means you should ask your mortgage lender for a summary which includes the total costs as disclosed on the GFE and your down payment less other credits like a seller assist and mortgage.

Most lenders have not yet created this kind of document.  They are using the "Details of Purchase" section of the mortgage application also known as the 1003 form.  You'll find this on page three.

Real estate agents on the other hand might want to SEE your CASH TO CLOSE figure but if the only place it appears is on the 1003 form, then you'd be sharing your personal data with your agent.  For this reason, I highly recommend that lenders create a separate CASH TO CLOSE summary.  Keep it simple but make it easy to find and a form that the consumer can feel comfortable reviewing with a relative, friend or real estate agent.

new GFE - interesting questions out the door....

It's January 5th and already I have had THREE circumstances cross my path that make me wonder.

1. A GFE shows the TAX SERVICE FEE and FLOOD LIFE OF LOAN FEE in the category designated for consumers to shop for services.  The "provider list" has providers for these two fees.  I know from prior transactions that this lender directs the business to their affiliated companies and hey - just how would a consumer shop for these services?
2. Provider lists do not contain my company name, yet the title is being directed to my office by the loan officer.  Lots of consumers shop for our services and come to us directly but these transactions fit the "lender referred" MO.  I'm not trying to look a gift horse in the mouth.  I'm happy for the business but I don't want folks to get into trouble if they are directing the business and not putting our name on the list.
3. A loan origination office manager sent word that he wants to chat with me about WHO PAYS if his staff misquotes my fees and they go out of tolerance.  Yoi.  It ain't gonna be me, baby.
   

The Wilkersons take action, pronto!

Read this article:

OWINGS MILLS, Md. -- A local family who refinanced their home said they found out their original mortgage was never paid, and before they could get the problem resolved, the title company that did the leg work went out of business.According to state records, Maple Leaf Title Company had been in business since March 1999. But after August 2009, the company could not legally operate in Maryland because it did not renew its license."We get closer and closer to foreclosure, so it's stressful for us, because in a month we may have our house going up for auction," said Owings Mills resident Jim Wilkerson.  Read more....

I tried to comment on the site but their system didn't work, so....

Mr. & Mrs. Wilkerson:  Take a look at the HUD-1 Settlement Statement to see who the title insurance underwriter for your transaction was.  You would have paid for a title insurance policy to protect your new lender.  Send a certified letter to this title insurance underwriter demanding that they back their licensed agent.  I would hope that the state has requirements in place for bonding.  Find out through the underwriter who bonded the title agency.  Contact your state attorney general and see if they can take action on your behalf against the title underwriter whose responsibility it was to monitor their agent.

Also, contact your new mortgage lender and make certain that they know their lien position in in jeopardy.  They may wish to contact the title underwriter for a fix before it is too late.

I do hope you are consulting with an attorney.  The underwriter may or may not be Fidelity.  You need to confirm who overwrote the actions of the agent.  Your new mortgage lender has a loan policy in their file which identifies the title underwriter if the HUD-1 does not.

Good luck.