Monday, February 01, 2010

RESPA 2010 - We have our first closing stopped due to need to redisclose.

On Friday evening we had a dry closing.  It was a REO closing and though we had an approved seller HUD - stamped and signed "approved" by the seller's attorney, we did not have a seller signed HUD and so we had our Dry Closing Disclosure signed and held documents and money pending receipt of seller signed HUD today.

Much to our surprise, the seller noted something their attorney did not.  There was an addendum to the sales agreement in which the buyer agreed to pay BOTH transfer taxes.  This is a $90,000 transaction and so in that area, each transfer tax is $900.  The GFE and our HUD only had the buyer paying one transfer tax, which is typical in that area and is also what was disclosed on the first page of the sales contract.  What we did not know and the mortgage broker did not know was that there was an addendum changing that portion of the sales agreement.

Interestingly, when we contacted the buyer and the agents, THEY knew about the addendum but apparently no one read it because no one seemed to know that the buyer had agreed to pay both transfer taxes.

I will get back to you with comments concerning how this transaction worked out but we are presuming that the lender will deem this a changing circumstance, redisclose, wait, then close.

This raise red flags all around for better procedures.  We know Fannie Mae, Freddie Mac, FHA and VA transactions have the buyer paying both transfer taxes.  We will now adopt a procedure in EVERY REO of confirming whether or not there is an addendum and who is paying transfer tax.  We'll get that in an e-mail from the seller or their attorney.  This way we can check with the lender to handle a potential redisclosure prior to getting to the closing table.

I can tell you right now that the mortgage broker has a knot in his stomach right now pending the lender's decision of whether they will consider this a changing circumstance.  If not, the mortgage broker stands to lose $900 to cure the intolerance.


Diane Cipa said...

Well, we are proceeding with the closing. Here's what happened. The buyer doesn't have the money and even though he signed the addendum, he said he would not have had he understood it included the extra cash requirement.

It is unclear whether the mortgage broker was given a copy of the addendum. We have reviewed it and can say the language concerning the transfer tax is buried and not easily found. It took JC two reads to find it.

The real estate agents admit that they did not know about the clause and they refused to ante any money to help the buyer. They took the position that it was the mortgage broker's fault. Why, I sure don't understand but the poor mortgage broker then decided that he would pay the $900 just to stay in the good graces of the real estate agents.

Before a new HUD was prepared curing the tolerance issue, the seller decided to go ahead and close based upon the HUD which had been approved by their attorney.

This was a real cliff hanger but it worked out and we can all be thankful for a good training opportunity.

Diane Cipa said...

Okay, being the policy wonk that I am, after we disbursed and closed this transaction using the HUD which showed the typical transfer tax split - one to buyer and one to seller, it hit me that the new rules might have required that we redo the HUD to match the contract. That would have meant showing both taxes charged to the buyer and a credit on page one from the seller for their last minute concession back to the original contact.

That's probably overkill and we aren't going back for a redo. Just food for thought.