PREPARING FOR A REFINANCE
Refinancing is what you do when you put a mortgage on a piece of real estate you already own.
Mortgage lenders call it a refinance even if you own the real estate free and clear.
Understand the process and avoid common pitfalls. We've had lots of experience closing refinance transactions. We’d like to help you be an educated consumer.
1. ORDER A PAYOFF LETTER
If you have an existing mortgage, the very first step is to ask your mortgage lender for a payoff letter. All of the calculations you and your new lender figure will be based on how much you owe. Do NOT skip this step. There may be a small fee to get the letter, but it’s worth it.
Don’t just check your current principal balance, it’s not the same as a payoff. Why? Well, mortgage interest is paid in arrears. That means that your September payment actually paid the interest for August, so you are always one month behind in interest. When you payoff your mortgage, the lender will play catch up and add the remaining interest to bring you current. AVOID THE MOST COMMON REFINANCE PITFALL by getting a payoff letter up front.
2. THE HIDDEN AFFECT OF PROPERTY TAXES AND HOMEOWNERS INSURANCE
Timing and pre-planning a refinance will help you AVOID THE SECOND MOST COMMON REFINANCE PITFALL – getting caught in a cash crunch because your money is tied up in an escrow account at the time of closing.
If your existing mortgage lender has money set aside in an escrow account, look closely at the payoff letter to determine how they will handle these funds. Some mortgage lenders will give you an immediate credit for the escrow balance and this reduces the amount of the payoff. That’s great, but most lenders will simply mail you a refund check 2 to 3 weeks after the mortgage has been paid off.
If it looks like you’ll be getting a refund check, it is very likely that you will have to bridge the gap and come up with cash at closing to set up your new escrow account for the new mortgage lender. Here’s a tip – most mortgage loan officers don’t really understand this scenario, so YOU really need to plan ahead yourself.
Timing again is the key to AVOIDING THE THIRD MOST COMMON REFINANCE
PITFALL - a cash squeeze related to property taxes. If you are closing your refinance transaction at the same time the property taxes are due, you could get caught in a title guarantee “Catch 22”.
Here’s how it works. Let’s say the county property tax is due at discount on March 31st. You are planning to close on March 20th. The tax collector is reporting the tax as unpaid. Your existing mortgage lender has debited your escrow account to pay for the tax and may or may not have actually mailed the check to the tax collector. Since the tax has NOT been officially paid, the title agent has to collect the tax from you at closing to guarantee payment for your new mortgage lender. It’s a real “Catch 22” and the only way to avoid it is to plan the closing date around the payment of the tax.
Closing would need to either take place before your existing lender debits your account OR closing should be delayed until the tax payment has been posted by the tax collector. This is often easier said than done because you may be up against a rate lock expiration with your new mortgage lender and can’t delay closing.
The good news is that in either case, when you have to ante up cash at closing to cover tax or insurance related payments, you will always eventually be made whole. Refunds are processed as the payments are made and posted. If you have the cash available to ride through the refund process, that’s okay, but if you don’t, this information will help you to plan to avoid this kind of a last minute snag.
3. THINK ABOUT YOUR NEW MORTGAGE PAYMENTS AND WHEN THEY WILL START.
Refinancing often gives you a one or two month break from having to pay a mortgage payment. For instance, let’s say you are closing on February 5th and haven’t yet made a mortgage payment for February. Well, your existing mortgage will be paid off before the end of a typical 15 day grace period and it’s likely that your new mortgage payments won’t start until April 1st. Make a note to discuss this with your new lender and keep any possible cash flow benefit in mind just in case you need to come up with unexpected cash to close due to tax or insurance related payments.
4. WHAT IS THE PURPOSE OF THE REFINANCE?
Your new mortgage lender will want to know. Are you just reducing the rate/term or do you actually need to pull cash equity out of the property? Each mortgage loan program has specific guidelines relating to the length of time you have owned the property, how much cash you can pull out, etc. Be prepared to estimate the value of your property and discuss why you want to refinance. This will help your new mortgage lender find a program that’s right for you. An appraisal ordered by the new mortgage lender will ultimately set the current market value, but you have to consider possible options should the value come in lower or higher than expected, later on you and your lender can adjust the loan amount accordingly.
BOTTOM LINE – DO SOME HOMEWORK TO AVOID EXTRA STRESS, THEN REAP THE
BENEFITS OF REFINANCING.
Monday, February 05, 2007
Thursday, February 01, 2007
COMPARE INTEREST RATES AND "GOOD FAITH ESTIMATES"
There's more to shopping for the best deal than just comparing interest rates. Each lender provides a "Good Faith Estimate" disclosing costs associated with the transaction. Ask for this disclosure before choosing your lender. You need it to make a fair comparison.
The costs disclosed on the "Good Faith Estimate" are basically divided into 3 categories:
Actual lender fees - controlled by the lender - Use this section to carefully compare lender charges.
Fees for required services - Estimated fees for services being performed by third parties. The lender does not control these fees; so consider the quote merely an estimate. (The Closing Specialists® fees fall into this category. Call or e-mail us directly for fee quote plus use our PA Title Rate calculator.)
Interim interest, escrows for taxes and insurance, and proration of taxes. Commonly referred to as "prepaid items," this section of the "Good Faith Estimate" should not be relied upon when comparing costs.
Here's how these figures are determined:
Interim interest - The maximum interest you could be charged at closing is 31 days. The loan officer can make the estimate look high or low by adjusting the number of days quoted. The true amount you will pay at closing is determined by the actual date of closing. If you prepare for 31 days, you're working with a good conservative number.
Escrows for taxes and insurance - If your lender is going to escrow for taxes and/or insurance, the loan officer will give you a rough idea of what to expect. The estimate can be made to look high or low based on the number of months the loan officer uses. Do not rely on these figures when comparing costs. Basically all lenders who escrow will use roughly the same figures at closing. All lenders adjust the final numbers based upon actual tax bills and the date of closing. We suggest you always use at least 10 or 12 months of escrows to keep your expectations conservative.
Proration of taxes - At closing, there will be an adjustment between seller and buyer for taxes already paid or due later in the year. Lenders typically do not include prorations in the "Good Faith Estimate".
Wednesday, January 31, 2007
Last day of the month and we're dealing with a crazy lender from California....
Had a closing scheduled for 8:30 am this morning. Late yesterday afternoon, the lender stopped communicating with us, we had no documents or final HUD, and so we contacted the borrower and asked to re-schedule the appointment for later in the day.
What happened yesterday afternoon? Here's a behind the scenes peek into the world of a title agent:
Having preliminary instructions in hand Tracey, a member of our HUD Team, prepared a draft HUD-1 settlement statement. She noticed that the loan amount was odd, it had cents, and so asked the lender if it was correct. The lender rep. replied that it was not a final loan amount and that she would get final figures to us along with documents.
From 3pm EST on, Tracey attempted to reach this lender rep. We only had one contact, but Tracey also hit zero and attempted to find another person in the lender's office for assistance. No one was available to help, thus the request to delay closing.
I was in the office until roughly 6pm last night and by the time I left, we still had not received documents for the file.
This morning, documents arrived via e-mail around 9:30. The sender hit the send button last night at 7:19pm, 4:pm in California. I can't account for the delay in delivery, but that's one of the ongoing issues with web document delivery. Sometimes it's instantaneous and sometimes it's not. At any rate, this lender could have returned Tracey's call to at least say she was sending documents.
With documents now in hand, Tracey reviewed the package and instructions. She revised the HUD-1 Settlement Statement to reflect the adjusted loan amount, e-mailed and faxed it to the lender. The bottom line showed the borrower owing a little over $200 to close. The lender wanted the cash requirement to zero out so she reduced the loan amount by $200. Tracey respectfully had to argue with her for awhile so that she would understand that the loan amount should be increased to reduce the cash requirement. The lender finally understood, revised the instructions and e-mailed us another set of documents which took over an hour to arrive in our office.
The transaction successfully closed early in the afternoon and Tracey had the opportunity to sit with the borrowers and help them understand the delay.
This peek into the back office is being provided to help you understand some of the give and take that occurs between a title agent and a mortgage lender. Once documents and instructions are received, the final HUD preparation and approval may take 30 minutes or with revisions, 8 hours. It is not unusal to revise HUD-1 Settlement Statements several times before the package is released to the closer.
What happened yesterday afternoon? Here's a behind the scenes peek into the world of a title agent:
Having preliminary instructions in hand Tracey, a member of our HUD Team, prepared a draft HUD-1 settlement statement. She noticed that the loan amount was odd, it had cents, and so asked the lender if it was correct. The lender rep. replied that it was not a final loan amount and that she would get final figures to us along with documents.
From 3pm EST on, Tracey attempted to reach this lender rep. We only had one contact, but Tracey also hit zero and attempted to find another person in the lender's office for assistance. No one was available to help, thus the request to delay closing.
I was in the office until roughly 6pm last night and by the time I left, we still had not received documents for the file.
This morning, documents arrived via e-mail around 9:30. The sender hit the send button last night at 7:19pm, 4:pm in California. I can't account for the delay in delivery, but that's one of the ongoing issues with web document delivery. Sometimes it's instantaneous and sometimes it's not. At any rate, this lender could have returned Tracey's call to at least say she was sending documents.
With documents now in hand, Tracey reviewed the package and instructions. She revised the HUD-1 Settlement Statement to reflect the adjusted loan amount, e-mailed and faxed it to the lender. The bottom line showed the borrower owing a little over $200 to close. The lender wanted the cash requirement to zero out so she reduced the loan amount by $200. Tracey respectfully had to argue with her for awhile so that she would understand that the loan amount should be increased to reduce the cash requirement. The lender finally understood, revised the instructions and e-mailed us another set of documents which took over an hour to arrive in our office.
The transaction successfully closed early in the afternoon and Tracey had the opportunity to sit with the borrowers and help them understand the delay.
This peek into the back office is being provided to help you understand some of the give and take that occurs between a title agent and a mortgage lender. Once documents and instructions are received, the final HUD preparation and approval may take 30 minutes or with revisions, 8 hours. It is not unusal to revise HUD-1 Settlement Statements several times before the package is released to the closer.
Monday, January 22, 2007
RESPA and Seller Liability
Buyers and Realtors should know that RESPA prohibits a seller from requiring that a buyer use a particular title company. That is, if the transaction falls under the purview of RESPA.
Sellers who attempt to intimidate the buyer should read this web page.
Class action attorneys have their eyes you. Corporate sellers, beware!
Sellers who attempt to intimidate the buyer should read this web page.
Class action attorneys have their eyes you. Corporate sellers, beware!
Saturday, January 20, 2007
The property has been in the family for decades.
"The seller has assured me the title is clear."
This homebuyer should be thankful that his mortgage lender ordered title insurance. The transaction should have closed before the end of December and here we are in late January, hoping to close by month end. What happened? An unforseen title issue.
Our seller is the executrix of her father's estate. We'll call her father, Edward Smith. Mr. Smith was married to Mary Doe. The house and land we are attempting to convey and insure was Mary's family home. Her parents, John and Nancy Smith, purchased it when Mary was a little girl. Mary and her two sisters and three brothers grew up in that house. Each one in their own time, got married and moved on, all except Mary. Mary stayed at home, caring for her father after her mother's death.
John, her father, amended his will, giving Mary the right to purchase the family home for $7000 upon his death. If she did not wish to purchase it, the ownership would go to her siblings to share and share alike.
John Smith died. Mary did not follow the instructions in the Last Will and Testament. She did not purchase the property and this is where the critical error takes place. Mary went to the justice of the peace and had a new deed prepared. The justice of the peace was not well trained and prepared a crappy deed.
The Grantor section read: John Smith, deceased, and Mary Smith. The Grantee was Mary Smith. Mary had no right to execute a deed on her deceased father's behalf and there was no accounting for the interests of her siblings.
Mary stayed on in the house and then married Edward. They hired an attorney and deeded the property in both of their names as husband and wife, tenants by entireties. They had one child, a daughter, and raised her in the house. Mary died, then Edward, and now their daughter is selling the property. It's a burden to her and she would like to close as soon as possible.
When we raised the issue of the flawed conveyance from her grandfather to her mother, she was surprised but understood. Her aunts and uncles were now deceased and though it was a job, she thought she could find all of her cousins. Thankfully, this is a family that stayed reasonably in touch. One of her cousins lives in China but was coming home over the holidays and so was able to sign the deed right away. There are about ten grandchildren, all thank goodness are still living, who must sign the deed. All have agreed to simply quit claim their interests over to Edward's estate. We're just in a holding pattern while the deed circulates all over the country for signature. Well, actually two deeds. Her attorney drew up two deeds to make it go a little faster and that was a good idea but it does still take time.
This title story will have a happy ending. We'll be able to insure title for our homeowner and lender and there was no litigation necessary. It could have been a messy situation, but these folks were lucky.
Just because a property has been owned by one family successively over generations does not mean it has a clear title. Be careful and have an expert examine and insure any real estate purchase.
This homebuyer should be thankful that his mortgage lender ordered title insurance. The transaction should have closed before the end of December and here we are in late January, hoping to close by month end. What happened? An unforseen title issue.
Our seller is the executrix of her father's estate. We'll call her father, Edward Smith. Mr. Smith was married to Mary Doe. The house and land we are attempting to convey and insure was Mary's family home. Her parents, John and Nancy Smith, purchased it when Mary was a little girl. Mary and her two sisters and three brothers grew up in that house. Each one in their own time, got married and moved on, all except Mary. Mary stayed at home, caring for her father after her mother's death.
John, her father, amended his will, giving Mary the right to purchase the family home for $7000 upon his death. If she did not wish to purchase it, the ownership would go to her siblings to share and share alike.
John Smith died. Mary did not follow the instructions in the Last Will and Testament. She did not purchase the property and this is where the critical error takes place. Mary went to the justice of the peace and had a new deed prepared. The justice of the peace was not well trained and prepared a crappy deed.
The Grantor section read: John Smith, deceased, and Mary Smith. The Grantee was Mary Smith. Mary had no right to execute a deed on her deceased father's behalf and there was no accounting for the interests of her siblings.
Mary stayed on in the house and then married Edward. They hired an attorney and deeded the property in both of their names as husband and wife, tenants by entireties. They had one child, a daughter, and raised her in the house. Mary died, then Edward, and now their daughter is selling the property. It's a burden to her and she would like to close as soon as possible.
When we raised the issue of the flawed conveyance from her grandfather to her mother, she was surprised but understood. Her aunts and uncles were now deceased and though it was a job, she thought she could find all of her cousins. Thankfully, this is a family that stayed reasonably in touch. One of her cousins lives in China but was coming home over the holidays and so was able to sign the deed right away. There are about ten grandchildren, all thank goodness are still living, who must sign the deed. All have agreed to simply quit claim their interests over to Edward's estate. We're just in a holding pattern while the deed circulates all over the country for signature. Well, actually two deeds. Her attorney drew up two deeds to make it go a little faster and that was a good idea but it does still take time.
This title story will have a happy ending. We'll be able to insure title for our homeowner and lender and there was no litigation necessary. It could have been a messy situation, but these folks were lucky.
Just because a property has been owned by one family successively over generations does not mean it has a clear title. Be careful and have an expert examine and insure any real estate purchase.
Tuesday, January 16, 2007
PA issues new guidelines for first mortgage lenders
Thank you www.compliancesource.com for the fast heads up. Here's the info.
Thursday, January 11, 2007
Transfer Taxes - Updated Deviations
Most municipalities charge 1% of the sale price when ownership transfers. Be sure to check this list of deviations for your municipality.
Buyers and seller customarily split transfer taxes, but the matter is entirely negotiable.
The Commonwealth of Pennsylvania charges 1% of the sale price.
When estimating costs be sure to account for both municipal and state taxes.
Buyers and seller customarily split transfer taxes, but the matter is entirely negotiable.
The Commonwealth of Pennsylvania charges 1% of the sale price.
When estimating costs be sure to account for both municipal and state taxes.
Saturday, January 06, 2007
Title Insurance Overcharges in PA
The article noted in the previous post has a footnote to visit a web site for information on Title Insurance Overcharges in PA. This link takes you to a class action attorney's site who offers free consultations. I'm not crazy about attorneys who do this kind of work. They make a lot of money under the guise of helping folks. I'd like to offer an alternative solution for recovery of title insurance overcharges.
Both this blog and Radical Title Talk include lots of info to help you identify title insurance overcharges. If you believe you have been overcharged, I suggest contacting the actual title insurance company named on your title insurance policy. Don't deal directly with the person who handled your closing, go higher. Management wants to know if an employee makes a mistake and will make full restitution to you. This way you won't have to go through a law suit and pay an attorney.
If you'd rather not contact the title insurance company or believe you are not being treated fairly, then complain to the PA Department of Insurance. You can do this on-line here.
I am always available to help you determine if you have been overcharged. You can call me or send an e-mail. I often get calls from consumers who are not my customers who just want to know if what they are experiencing is normal.
Overcharges are sometimes just innocent mistakes and sometimes willful misconduct. Either way, we need to fix it and if you need help, call me.
Both this blog and Radical Title Talk include lots of info to help you identify title insurance overcharges. If you believe you have been overcharged, I suggest contacting the actual title insurance company named on your title insurance policy. Don't deal directly with the person who handled your closing, go higher. Management wants to know if an employee makes a mistake and will make full restitution to you. This way you won't have to go through a law suit and pay an attorney.
If you'd rather not contact the title insurance company or believe you are not being treated fairly, then complain to the PA Department of Insurance. You can do this on-line here.
I am always available to help you determine if you have been overcharged. You can call me or send an e-mail. I often get calls from consumers who are not my customers who just want to know if what they are experiencing is normal.
Overcharges are sometimes just innocent mistakes and sometimes willful misconduct. Either way, we need to fix it and if you need help, call me.
Capital Ingenuity Corporation has it all wrong.
Read this article.
They say they provide sem services for attorneys and law firms. I must confess my ignorance. I have no idea what sem services are. I hope they are not educational services because Capital Ingenuity Corporation sure doesn’t know anything about title insurance.
I don’t even understand the point they are trying to make in this article so it’s hard to even comment except to say I think they are under the illusion that better land record systems would eliminate all title problems. Have I got it right? Wait a minute; I wonder if sem systems are document storage. I’ll bet that’s the angle. These guys are probably making an argument that they can solve all the world’s title woes if we’d just let them organize the land records system. That’s a laugh.
If you have any idea what sem is and would like to help me understand what these folks are trying to say, I’d be happy to hear from you.
Wednesday, January 03, 2007
Dog fence point of contention with neighbor.
I just heard from one of our customers this morning who wants to install a fence for their dog and is limited by an easement along one side of the lot.
We closed their purchase transaction in November of 2005. As usual we recommended they get a survey before closing. They opted not to. We searched title and disclosed an easement along the border of their lot. We sent them the title commitment for review two weeks before closing.
A survey was ordered a year AFTER closing in anticipation of the installation the dog fence. The surveyor correctly pointed out the easement which is 60 feet in length and 2 feet in width. They don’t want to lose that much space for their dog but hesitate putting the fence over the easement as the neighbor will object. Hmmmmmmm...
I don’t know why it’s so hard to believe but you really should get a survey BEFORE you buy real estate.
We go to great lengths to help consumers understand the importance of a survey. Here’s the survey disclosure we send when we process a title insurance order:
WOULD YOU LIKE TO HAVE THE PROPERTY SURVEYED?
RE: 123 Test Street, Latrobe, PA 15650
The Closing Specialistsâ have been hired to perform the title insurance and closing services for this transaction on behalf of 1st National Bank of Testville, at your expense. As part of the title search review, we will determine whether or not a current updated property survey is required in order to resolve problems with the title and provide a clear title insurance policy. Typically, a current updated property survey is not required, so you may then decide whether or not to have a property survey performed on your behalf.
A current updated survey will confirm the boundaries of the property and show the location of all structures, driveways, etc. which may affect your use and enjoyment of the property. If you are purchasing property, obtaining a current updated survey prior to closing will confirm the actual real property, which you are about to purchase. We highly recommend that you obtain a current updated survey. Please indicate your preference below:
( ) I/We do not wish to have the property surveyed and understand that a property survey will not be performed unless THE CLOSING SPECIALISTSâ, LP requires it for purposes of obtaining a clear title policy. Further, I/We hereby hold THE CLOSING SPECIALISTSâ, LP, the mortgage lender and the real estate agent/broker, if any, harmless from any liability whatsoever as a result of my/our decision to forego a property survey.
( ) I/We do wish to have the property surveyed prior to closing and understand that it is our responsibility to order and pay for the survey.
Acknowledged and agreed to by: (signatures)
NOTE - If a survey is required to issue a title policy, we will contact you prior to closing. An explanation of the title issue will be provided. At that time, you can let us know how you want to handle it.
TCS does not order surveys, but we can help you find a surveyor. Let us know if we can help.
Here’s the language that accompanies the title insurance commitment:
We have processed the title insurance order for the real estate you are purchasing. This is a courtesy copy of our commitment to insure the title. You do not have to respond to this mailing.
As you review the commitment you will note in Schedule B, Section 1 that there are requirements to be met. Our staff here at The Closing Specialistsâ will clear these matters prior to closing. Schedule B, Section 2 contains exceptions to the title insurance coverage. Item 1 will be cleared by The Closing Specialistsâ for your closing. All other exceptions will appear in your title insurance policy. If you have decided to purchase the property without a current updated survey, please note that Item 2 is the standard exception for matters that might be disclosed by an accurate survey of the premises.
This title commitment will remain in effect until your new deed is recorded. At that time we will convert the commitment into an owner title insurance policy. Your policy along with the recorded deed to your new home will be mailed to you as soon as it is available from the courthouse.
We have advanced funds for abstract of title and lien letters on your behalf. There is a commitment cancellation fee for services rendered should you decide to cancel the title commitment before the owner title insurance policy is issued.
Should you want additional information or have any questions, please feel free to contact me at 888-680-5177 x104.
The easement was noted twice in the title insurance commitment as follows:
\Right of way for an easement along the southerly boundary line to Frederick W. Wright, et al., as set forth in Deed Book 503, page 178.
\Right of way for an easement along the rear of line to Frederick W. Wright, et al., as set forth in Deed Book 622, page 186.
I realize this is a lot of boilerplate text but it’s important and shouldn’t be ignored. The moral of the story is that consumers have an obligation to pay attention to what we are telling them and shame on them if they don’t.
Be a smart consumer. Buy title insurance. Buy a survey. Buy a home inspection. And for heavens sake, READ the reports these professionals give you!
Thursday, December 28, 2006
discounts - reissue and substitution rates
I just got off the phone with a mortgage broker called "Ideal something or other", closing a refinance transaction tomorrow, who is working with a title insurance agency who refuses to give his customer the reissue rate or substitution rate unless the customer proves that they bought an owner title insurance policy. I think the name of the title insurance agency is "Independence something or other."
Wow, I feel sorry for all the customers dealing with that "Independence something or other." How much money are they being overcharged? The regulations were revised back in August of 2005 - I'm pretty sure - and that means this "Independence something or other" has been overcharging for over a year now.
If you are a consumer reading this blog, please be advised that title insurers in Pennsylvania MUST give you the discount if they find evidence in your title search (within the applicable discount time-frame) of a deed to a bona fide purchaser for value, or an unsatisfied mortgage to an institutional lender. They have to ASSUME based upon this evidence that a title insurance policy was purchased. You are under no obligation to provide a copy of a policy or a HUD settlement statement as evidence.
Now if the title search does not show either of those instruments and you still feel you are entitled to a discount, then of course the title insurer is permitted to require additional documentation.
This "Independence something or other" also told the mortgage broker and the consumer that they are not entitled to a substitution rate if the loan amount is different or substantially larger than the mortgage they are paying off. That's a bunch of hooey.
Our rates manual clearly states that the consumer is entitled to a reissue rate if we find evidence of a prior policy - as stated above - within the last 10 years. We give 10% off the basic rate automatically, period.
Refinance consumers are given the substitution rate which is either 70% or 80% [70% 1-2 years, 80% 3-4 years] of reissue automatically if we find an unsatisfied mortgage of record during the last 4 years.
The mortgage broker, "Ideal something or other" said we had closed a mortgage transaction for these folks in November of 2004. He didn't give me their loan amount so I can't be specific on the discount but let's just say they are closing a $100,000 mortgage tomorrow. Let's compare costs:
"Independence something or other" will charge a basic rate of $858.75 unless the consumer provides a copy of their title policy or HUD settlement statement. They also said they will only give a reissue rate - not substitution - so at best these folks will get a reissue rate of $772.88.
If they had gone to any legitimate (using PA regulated rates) title insurer, they would only be paying a substitution rate of $618.30.
If they had come back to our office they would also have been able to use their $75 off coupon they got with their title insurance policy on the last transaction.
But alas, they decided to use Mr. "Ideal something or other" mortgage broker who likely referred them to Ms. "Independence something or other" title insurance agent.
Once again we get to say, please shop around before selecting your title insurance agent and YES you do have a choice - even when refinancing.
Wow, I feel sorry for all the customers dealing with that "Independence something or other." How much money are they being overcharged? The regulations were revised back in August of 2005 - I'm pretty sure - and that means this "Independence something or other" has been overcharging for over a year now.
If you are a consumer reading this blog, please be advised that title insurers in Pennsylvania MUST give you the discount if they find evidence in your title search (within the applicable discount time-frame) of a deed to a bona fide purchaser for value, or an unsatisfied mortgage to an institutional lender. They have to ASSUME based upon this evidence that a title insurance policy was purchased. You are under no obligation to provide a copy of a policy or a HUD settlement statement as evidence.
Now if the title search does not show either of those instruments and you still feel you are entitled to a discount, then of course the title insurer is permitted to require additional documentation.
This "Independence something or other" also told the mortgage broker and the consumer that they are not entitled to a substitution rate if the loan amount is different or substantially larger than the mortgage they are paying off. That's a bunch of hooey.
Our rates manual clearly states that the consumer is entitled to a reissue rate if we find evidence of a prior policy - as stated above - within the last 10 years. We give 10% off the basic rate automatically, period.
Refinance consumers are given the substitution rate which is either 70% or 80% [70% 1-2 years, 80% 3-4 years] of reissue automatically if we find an unsatisfied mortgage of record during the last 4 years.
The mortgage broker, "Ideal something or other" said we had closed a mortgage transaction for these folks in November of 2004. He didn't give me their loan amount so I can't be specific on the discount but let's just say they are closing a $100,000 mortgage tomorrow. Let's compare costs:
"Independence something or other" will charge a basic rate of $858.75 unless the consumer provides a copy of their title policy or HUD settlement statement. They also said they will only give a reissue rate - not substitution - so at best these folks will get a reissue rate of $772.88.
If they had gone to any legitimate (using PA regulated rates) title insurer, they would only be paying a substitution rate of $618.30.
If they had come back to our office they would also have been able to use their $75 off coupon they got with their title insurance policy on the last transaction.
But alas, they decided to use Mr. "Ideal something or other" mortgage broker who likely referred them to Ms. "Independence something or other" title insurance agent.
Once again we get to say, please shop around before selecting your title insurance agent and YES you do have a choice - even when refinancing.
Wednesday, December 20, 2006
an old mortgage underwriter talks about "new fangled" risk assessment
When I made the transition from loan originator to mortgage underwriter, I made some costly mistakes. They weren't costly to me personally - they were costly to my customers. You see, given the reins of the power to approve mortgages, I took risk. I approved some folks with higher ratios and with sad credit stories. These were the types of cases on whose behalf I had argued as a loan originator. Now I had the power to say yes and I did. Guess what? I saw a few of those families go into foreclosure the first year. I felt bad and I learned my lesson. A responsible mortgage underwriter has the responsibility to use prudent risk assessment and understand that giving people what they want may not be the best path. It was a lesson in professional tough love and I haven't forgotten it.
Nowadays when I observe mortgage lending from a small distance, as a title insurance agent, and I see lenders taking outrageous (to me) risks, I know the circle will turn and the losses will be costly. I don't say anything because it's not my place. It's up to today's underwriters to assess the level of risk, but consumers DO have a choice and so for the record.....please consider being just a bit more conservative. This article discussing sub-prime lending may help you to understand that foreclosure is real. When it happens, you lose everything you have put into the house and more. There is emotional trauma. Sometimes the difference between safe homeownership and foreclosure is just buying a more modest house.
There are many responsible mortgage lenders who consider the risk and don't push people into bad decisions. Unfortunately, there are also predators who churn refinances - especially with homeowners who have an addiction to credit cards. They churn and refinance and churn and refinance until there's no more gravy then they leave the homeowner in the lurch soon to face foreclosure.
So, keep your head. Deal with reputable mortgage lenders and be happy.
Nowadays when I observe mortgage lending from a small distance, as a title insurance agent, and I see lenders taking outrageous (to me) risks, I know the circle will turn and the losses will be costly. I don't say anything because it's not my place. It's up to today's underwriters to assess the level of risk, but consumers DO have a choice and so for the record.....please consider being just a bit more conservative. This article discussing sub-prime lending may help you to understand that foreclosure is real. When it happens, you lose everything you have put into the house and more. There is emotional trauma. Sometimes the difference between safe homeownership and foreclosure is just buying a more modest house.
There are many responsible mortgage lenders who consider the risk and don't push people into bad decisions. Unfortunately, there are also predators who churn refinances - especially with homeowners who have an addiction to credit cards. They churn and refinance and churn and refinance until there's no more gravy then they leave the homeowner in the lurch soon to face foreclosure.
So, keep your head. Deal with reputable mortgage lenders and be happy.
Tuesday, December 19, 2006
"pretend" "fake" "silent" seller second mortgages?????
I am truly trying to get some title work done today, so I will be back later to expound on this issue, but for now here's an interesting post.
OK - Here I am , back to expound. ;)
OK - Here I am , back to expound. ;)
Let me divide “pretend”, “fake”, “silent” seller second mortgages into four categories:
Seller lures buyer into collusion to defraud the first mortgage lender.
Buyer lures seller into collusion to defraud the first mortgage lender.
Real estate agent lures both parties into collusion to defraud the first mortgage lender.
Mortgage loan broker or originator lures parties into collusion to defraud the first mortgage lender.
Notice a pattern here?
It’s always fraud.
The victim is always the first mortgage lender, though other parties may be harmed.
It's interesting that the person who comes up with the idea usually knows they are doing wrong. Some know it's fraud and don’t care, others at least know they are breaking rules. The sales pitch makes light of the matter, makes it seem like it’s no big deal – you know the “everybody does it” routine.
Don’t buy into that scenario. Refuse the deal and walk away. You do not want to face prosecution.
Let's talk about two real life cases I experienced in which people were instructed to defraud the first mortgage lender.
The first happened while I was a loan originator in 1980. I had just changed employers, taken on a new territory and if you remember that year, interest rates were in the double digits. The closing of the steel mills in the Pittsburgh area devastated our local economy and mortgage applications were few and far between. My product was FHA/VA mortgages. Before the layoffs started the mortgage origination staff was kept busy riding around town taking pictures of houses in default. It was tough and real estate agents and loan originators were desperate.
As I said I was assigned a new territory and started to solicit business from a group of real estate agents I had not previously worked with. One nice lady hooked up with me and started to send regular referrals. My boss was pleased. I had a few other sources of business, but she was the most reliable. People loved her and she sold a lot of houses.
It didn’t take more than a couple of months for me to get the vibe that something just wasn’t right. I started paying closer attention and realized that she was putting deals together with fake hand money and fake gifts – all money coming from the sellers. I’m sure the sellers were happy to sell their homes and the buyers happy to buy, but I stepped out of the picture. I didn’t accuse her openly, but I made no further contact. The following year I read about her arrest by the FBI. The FHA looks for patterns in foreclosures and they found her name on one too many. She was taken from her house in curlers.
The second example took place in 1999 when I was contacted by a vivacious sub-prime mortgage loan originator named Samantha. I never met Samantha but her personality screamed through the phone and all her customers loved her. This time the fraud was harder to see because it came all wrapped up with the first mortgage lender’s approval.
Samantha worked for one of the big mortgage lenders and they were approving sub-prime first mortgages with seller seconds. Their closing instructions included the terms and they instructed us to prepare the second mortgage. All fine and good except Samantha had instructed the parties – seller, buyer, and real estate agent – that the buyer really didn’t have to pay the money back. They had all agreed to artificially raise the sale price to cover the second. Everybody was happy except me. Even though I was just the title insurance agent in the transaction, my old mortgage loan underwriter cells were screaming FRAUD FRAUD FRAUD!
I contacted the mortgage processing/closing center and confirmed that they understood the terms and had no problem. Since I had my instructions in writing, I prepared to close. Just before closing Samantha called and instructed me to prepare a satisfaction for the second mortgage and told me to record it immediately. I called the mortgage processing/closing center and that’s when I realized the entire department was colluding to defraud their own employer. The written instructions from the underwriting department clearly approved terms of a seller second mortgage – a REAL seller second. I am certain that the underwriting terms had been negotiated into the price for a security pool and the underlying investors had rated the risk of the pool accordingly. Here we had a situation in which a leading mortgage lender had consciously decided to offer a high risk loan to sub-prime borrowers and their own employees, engaged in subterfuge, were escalating that risk into the stratosphere.
I refused to prepare the satisfaction and advised all parties that the terms of the mortgage called for a real seller second. Samantha advised the buyer to just close and deal with it later. Well, the seller died before a satisfaction was ever recorded and the last I heard from the buyer, they couldn’t get the estate to deal with it. The buyers were stuck. They couldn’t refinance or sell.
We had received numerous title orders from Samantha at the same time and were having the same experience on them all and in addition I found out she had counseled the some of the parties to create fake hand money. I contacted her boss and told him we did not want to close anymore of her transactions. They reimbursed us for the search costs. Samantha doesn’t work there anymore and I haven’t heard of her since.
These are just a couple of cases. I could go on and on and on. We say no to fraud all the time - it's a regular part of the job. Be strong. You can say no , too. None of us look good in stripes. ;)
Mechanics Lien Law Changes Start Soon!
I'll be back on to finish this post but for now, please read this memo.
Okay, I’m back. The memo is fairly clear and so I just want to add these comments:
Construction mortgage lenders in Pennsylvania PLEASE have your legal counsel look into the new guidelines. You MUST make sure your construction mortgage instruments are the right ones to take advantage of the protection offered under the new law.
Construction permanent mortgage lenders, beware, your mortgage instruments may not afford this protection – especially against third tier contractors, so-called sub-sub-contractors. PLEASE talk with your legal counsel.
So far our underwriters tell us Owner Title Insurance will NOT protect against mechanics liens. New construction homebuyers must take whatever measures they can to make sure all sub-contractors and sub-sub-contractors are paid in full. On a case-by-case basis, title underwriters will consider insuring the owner but expect indemnification agreements and perhaps a higher premium.
Everyone needs to have some more experience with the new law. Over time the guidelines will be refined and as that happens we’ll let you know.
Saturday, December 16, 2006
I respectfully disagree with Terrance R. Monnie.
Read this follow-up to a prior post.
I disagree on two points.
While every state is different, I can’t imagine that Ohio has no instances in which unfiled lienable items are valid clouds on title. The nuances of knowing which potential unfiled risks may affect title and where to find them make the title examination process tough. You must have an expert title examiner review title and make the call. This is precisely the reason why a courthouse dump of raw data is only a small part of the examination.
I need to make this perfectly clear because much of the media hoo-hah about title insurance touts cheap $25 electronic courthouse searches as acceptable substitutes for a real title examination.
The case in question involves a municipal assessment and whether or not it was a valid lien against the property. In Pennsylvania, municipalities have three or five years to file a lien at the courthouse, depending on the nature of the service. During that interim “grace” period, the amounts owed are considered lienable and must be paid to clear title even though there is no lien filed at the courthouse. I presume Ohio has a similar system. If not, the municipalities would have to immediately file liens each and every time a charge was incurred and that would be ludicrous.
So the crux of the matter rests with whether or not the assessment paid by the Crookers was a valid lien, filed or unfiled. The fact that the window of time for filing had expired, giving the municipality no legal right to place a lien against the property, caused the denial of the title insurance claim. If the claim had been made before the expiration of the filing “grace” period, the assessment would have been deemed lienable and the title insurance would have covered it. So when Mr. Monnie says, “the important thing for the public to understand is that title insurance covers only those items contained in the public record” - I disagree. Title insurance covers both filed and unfiled items. If you rely on a search of the public records alone to ascertain the status of title to real estate, you don't understand the risks and are likely not a title insurance pro.
I also have to take issue with this statement: “If the sellers had a real estate attorney representing them at closing, Monnie agrees the closing would have been put on hold until the title insurance underwriter was contacted and a claim made on that policy.” Maybe, maybe not. The Crooker’s case is not that unusual and frankly, in my personal experience, insured sellers more often than not pay first, then contact the title insurance company on the advice of an attorney. Not every attorney understands title insurance. Not every attorney is an expert title examiner. So the moral of the story still stands.
MORAL OF THE STORY: Sellers faced with title clearance conditions should immediately contact their title insurer for resolution. Allow them to do their job and defend your title.
Friday, December 15, 2006
Builders put pressure on buyers to use their title company.
Here's an example. I couldn't figure out how to register to comment on this post, so here are my two cents. ;)
I agree that the loan offered by Wells Fargo is not unusual in today's market and I wouldn't consider it predatory lending. Most predatory lending occurs in a brokered transaction. The focus of predatory practices is in the total fees earned per transaction and the total is regulated. We've seen transactions re-structured just before closing because the mortgage lender determined that the mortgage broker was earning more than permitted under federal law.
You are right to be cautious about overextending yourself. I have been in the business for a long time and as a former mortgage loan underwriter, I am surprised at the level of risk both consumers and lenders are assuming. Unless you truly want to be "house poor", the good old fashioned 28/36 ratios are where most families will thrive.
Spec homes are high risk commerical mortgage lending. Builders and mortgage lenders do NOT engage in such speculation to keep workers busy. Far from it. They have gambled that they will be able to move the houses at profit.
The two issues in the post that DO concern me are the deposit retained by the builder and the attempt to force use of affiliated businesses.
The builder may have a legitimate right to retain the deposit. I would pursue the matter until that's determined one way or the other. Of course, if $1000 isn't worth your time, don't bother.
RESPA expressly prohibits required use of affiliated business arrangements - ABAs. The builder should have disclosed the relationships in writing in a special RESPA disclosure and BACKED OFF when you chose to go somewhere else.
Shopping for price and service are the powers - significant powers - held in the hands of consumers. Think for yourself. Keep your head. Real estate transactions involve a lot of money and emotion. That's a heady mix. Yes, buyer beware, but don't give up. There are plenty of honest builders, mortgage lenders, and title insurance agents who will help you find your new home.
I agree that the loan offered by Wells Fargo is not unusual in today's market and I wouldn't consider it predatory lending. Most predatory lending occurs in a brokered transaction. The focus of predatory practices is in the total fees earned per transaction and the total is regulated. We've seen transactions re-structured just before closing because the mortgage lender determined that the mortgage broker was earning more than permitted under federal law.
You are right to be cautious about overextending yourself. I have been in the business for a long time and as a former mortgage loan underwriter, I am surprised at the level of risk both consumers and lenders are assuming. Unless you truly want to be "house poor", the good old fashioned 28/36 ratios are where most families will thrive.
Spec homes are high risk commerical mortgage lending. Builders and mortgage lenders do NOT engage in such speculation to keep workers busy. Far from it. They have gambled that they will be able to move the houses at profit.
The two issues in the post that DO concern me are the deposit retained by the builder and the attempt to force use of affiliated businesses.
The builder may have a legitimate right to retain the deposit. I would pursue the matter until that's determined one way or the other. Of course, if $1000 isn't worth your time, don't bother.
RESPA expressly prohibits required use of affiliated business arrangements - ABAs. The builder should have disclosed the relationships in writing in a special RESPA disclosure and BACKED OFF when you chose to go somewhere else.
Shopping for price and service are the powers - significant powers - held in the hands of consumers. Think for yourself. Keep your head. Real estate transactions involve a lot of money and emotion. That's a heady mix. Yes, buyer beware, but don't give up. There are plenty of honest builders, mortgage lenders, and title insurance agents who will help you find your new home.
Sunday, December 10, 2006
Homebuyer Guide - Before You Start, Assess Your Situation
PAYING CASH – If you are buying your new home without a mortgage, call The Closing Specialists® at 888-680-5177 first for an idea of transaction costs. If the property is not in our service area, call a few title insurance agents in your market. Shop around until you are sure you understand the customary transaction costs and who typically pays for them, buyer or seller. You'll want to have this basic information in hand before you negotiate your purchase contract.
GETTING A MORTGAGE – The mortgage process will be a lot easier if you approach it with a plan.
How much cash do you have available for the transaction? Make copies of your bank or investment account statements. If you are receiving financial help from a relative, make some notes. Your lender will need to verify gift donor information.
Make a list of debts you owe including account number, monthly payment, and balance owed. If you think you may need to reduce your debt to get a mortgage, wait until you choose your mortgage lender. If you need to reduce debt, your lender will advise you which accounts to pay off in order to qualify.
Realistically calculate your gross monthly income. Make a copy of your most recent pay stub and the W2 form for last year. If you are self-employed, make a copy of your tax returns for the last two years. Any other source of income should be noted such as child support or social security.
Get a copy of your credit report to avoid surprises. You can skip this step if you want because your lender will order one anyway. If you find a less than perfect report, don't give up. Perfection is in the eye of the beholder and you may find a lender willing to work with you.
Now you are ready to start talking with mortgage lenders. Notice I didn't say start looking at houses? That's right. If you don't have cash to purchase, your buying ability is in the hands of mortgage lenders. Without a mortgage pre-approval, you are flying blind.
Consider the embarrassment and heartache you might feel if after having searched for your dream home and signed a contract, you didn't qualify for a mortgage. Worse, every time you look at a more affordable house, you or your spouse will be mentally comparing it to the one you really wanted and satisfaction may be hard to find.
Take your time, plan, and consider your options, one step at a time.
GETTING A MORTGAGE – The mortgage process will be a lot easier if you approach it with a plan.
How much cash do you have available for the transaction? Make copies of your bank or investment account statements. If you are receiving financial help from a relative, make some notes. Your lender will need to verify gift donor information.
Make a list of debts you owe including account number, monthly payment, and balance owed. If you think you may need to reduce your debt to get a mortgage, wait until you choose your mortgage lender. If you need to reduce debt, your lender will advise you which accounts to pay off in order to qualify.
Realistically calculate your gross monthly income. Make a copy of your most recent pay stub and the W2 form for last year. If you are self-employed, make a copy of your tax returns for the last two years. Any other source of income should be noted such as child support or social security.
Get a copy of your credit report to avoid surprises. You can skip this step if you want because your lender will order one anyway. If you find a less than perfect report, don't give up. Perfection is in the eye of the beholder and you may find a lender willing to work with you.
Now you are ready to start talking with mortgage lenders. Notice I didn't say start looking at houses? That's right. If you don't have cash to purchase, your buying ability is in the hands of mortgage lenders. Without a mortgage pre-approval, you are flying blind.
Consider the embarrassment and heartache you might feel if after having searched for your dream home and signed a contract, you didn't qualify for a mortgage. Worse, every time you look at a more affordable house, you or your spouse will be mentally comparing it to the one you really wanted and satisfaction may be hard to find.
Take your time, plan, and consider your options, one step at a time.
Thursday, December 07, 2006
A seller, a municipal assessment, and a title insurance claim denial
Take a minute to read this article.
You have to read it carefully to get to the real truth because I see three mistakes, but none by the title insurer.
FIRST MISTAKE: Municipal authority failure to file a lien pursuant to statute.
SECOND MISTAKE: Closing attorney or agent raising the municipal assessment as a condition of sale presumably without considering validity of the lien.
THIRD MISTAKE: The sellers [insured homeowners] assumed the lien was valid, paid it, then contacted their title insurance company to make a claim.
If the lien had been valid, the title insurance policy would have covered it. Had the sellers contacted their title insurance company upon notification of the problem, rather than simply paying the assessment, the title insurer would have defended the sellers and enlightened the closing attorney or agent and the municipality.
When examining title prior to issuance of a title insurance policy, municipal accounts are reviewed and delinquencies or assessments are paid if deemed lienable. Balances that have matured beyond the statutory limit for lienability are not paid. In those cases we contact the municipality, explain why we are not considering the balance lienable, and if they don't understand, refer them to their legal counsel.
MORAL OF THE STORY: Sellers faced with title clearance conditions should immediately contact their title insurer for resolution. Allow them to do their job and defend your title.
You have to read it carefully to get to the real truth because I see three mistakes, but none by the title insurer.
FIRST MISTAKE: Municipal authority failure to file a lien pursuant to statute.
SECOND MISTAKE: Closing attorney or agent raising the municipal assessment as a condition of sale presumably without considering validity of the lien.
THIRD MISTAKE: The sellers [insured homeowners] assumed the lien was valid, paid it, then contacted their title insurance company to make a claim.
If the lien had been valid, the title insurance policy would have covered it. Had the sellers contacted their title insurance company upon notification of the problem, rather than simply paying the assessment, the title insurer would have defended the sellers and enlightened the closing attorney or agent and the municipality.
When examining title prior to issuance of a title insurance policy, municipal accounts are reviewed and delinquencies or assessments are paid if deemed lienable. Balances that have matured beyond the statutory limit for lienability are not paid. In those cases we contact the municipality, explain why we are not considering the balance lienable, and if they don't understand, refer them to their legal counsel.
MORAL OF THE STORY: Sellers faced with title clearance conditions should immediately contact their title insurer for resolution. Allow them to do their job and defend your title.
Sunday, December 03, 2006
Act 52 of 2006 Mechanics' Lien Law Changes in PA
Mechanics’ Lien law changes taking effect with any contracts entered into on or after January 1, 2007. Mortgage lenders and builders should seek legal advice now on how these changes will impact their business practices.
Here are a few of the changes:
1. The filing period has been extended from 4 to 6 months.
2. Another tier of potential claimants has been added – those contracted by sub-contractors.
3. The protection of properly filed No Lien Agreements has been significantly diminished.
4. Good news for lenders in that mechanics’ liens will be subordinate to certain types of mortgages. Lenders should pay close attention to the definitions in the act.
As title insurance underwriters struggle to create new guidelines, they expect a wave of claims. For now and until the industry has some experience under its belt with the new law, owner policies will likely NOT COVER mechanic’s liens.
We’ll keep you posted as new information is available. For now, good old-fashioned methods should be relied on. Do not start construction – no delivery of materials or breaking of ground – until the mortgage instrument is on record.
Here are a few of the changes:
1. The filing period has been extended from 4 to 6 months.
2. Another tier of potential claimants has been added – those contracted by sub-contractors.
3. The protection of properly filed No Lien Agreements has been significantly diminished.
4. Good news for lenders in that mechanics’ liens will be subordinate to certain types of mortgages. Lenders should pay close attention to the definitions in the act.
As title insurance underwriters struggle to create new guidelines, they expect a wave of claims. For now and until the industry has some experience under its belt with the new law, owner policies will likely NOT COVER mechanic’s liens.
We’ll keep you posted as new information is available. For now, good old-fashioned methods should be relied on. Do not start construction – no delivery of materials or breaking of ground – until the mortgage instrument is on record.
Saturday, December 02, 2006
Impressive Real Estate Agents Read Title Insurance Commitment and Lose Sale to Protect the Buyer!
Great post. I’m impressed. I don’t think I have ever met a real estate agent here in Pennsylvania who routinely reviews title insurance commitments. In fact, I would guess most PA real estate agents have never read one. I’ll take that one step further and say that most PA title insurance agents don’t even mail a copy to the buyer for review before closing.
The other important point in your story is the visual notice of the easement on the survey. In PA, we don’t have survey standards and so even if the buyer decides to purchase a survey – which is rare – there's a high probability that easements won’t be drawn on the map.
Any consumer reading this post should take heed. Shop for a real estate agent like Kris or Steve Berg who is capable and cares enough to watch your back. Shop for a title insurance agent like The Closing Specialists® who will make the title insurance commitment available for review and approval prior to closing. Shop for a surveyor who will show all easements and restrictions so you have full knowledge of what you are buying and understand realities that may affect your use and enjoyment of the property.
The other important point in your story is the visual notice of the easement on the survey. In PA, we don’t have survey standards and so even if the buyer decides to purchase a survey – which is rare – there's a high probability that easements won’t be drawn on the map.
Any consumer reading this post should take heed. Shop for a real estate agent like Kris or Steve Berg who is capable and cares enough to watch your back. Shop for a title insurance agent like The Closing Specialists® who will make the title insurance commitment available for review and approval prior to closing. Shop for a surveyor who will show all easements and restrictions so you have full knowledge of what you are buying and understand realities that may affect your use and enjoyment of the property.
Monday, November 27, 2006
Lawrence Walsh: Dirty deed has Baldwin couple up in arms
If you Google "The Closing Specialists" or "Diane Cipa", the link for this Post Gazette article will pop up. To my knowledge, Lawrence Walsh never did a follow-up piece. The claim was settled shortly after publication. Mr. Gruendl decided to accept the $650 offered by Al Watterson of Lawyers Title. A friend or acquaintance, after reading the article must have helped the Gruendl’s understand that they were entitled recovery of damages but not a refund of the insurance premium.
Following the incident, I sent a note to Mr. Walsh thanking him for the publicity and giving us a fine public example of title insurance in action.
The unnamed title searcher was the source of two claims that year, both outsales. In both cases, our file audit revealed that the searcher was aware that the lots in question had been deeded to other parties, but she failed to include this information in the reports sent to our office. The title searcher made an error in judgment. The outsales had occurred in the 70s and the properties had changed hands a few times. In each of these conveyances, none of the attorneys who prepared the deeds had noted the outsales. The searcher assumed that all of these attorneys had searched the title and that their judgment was better than hers. She assumed the attorneys were right and failed to report the outsales.
The Closing Specialists® and this searcher parted company. Even after reviewing the claims, she argued her case and we had to conclude that she might do it again.
So in each of these two cases, the seller’s deed included land that they did NOT own. In each case, the buyers decided to NOT get surveys. Thank heavens the buyers decided to purchase owner title insurance. If they had not, they would have had no recourse but to sue the sellers and hope for the best.
The Gruendl’s were more than compensated for the value of the lot. They paid the neighbor $530 and got a check from Lawyers Title for $650.
The other party – who did not go public and so shall remain nameless – received a much higher compensation. Lawyers Title had the property appraised. They apportioned the fair market value of the lot between the insured owner and the insured mortgage lender.
When the “dirty deed” article was published in the Post Gazette, friends and associates asked why I was silent. I simply have a policy of not commenting on a formal claim in process. I don’t think it’s fair to either the insured or the title insurance company.
So in the end, the dirty deed was human error – a bad search report, and the only way to protect yourself against human frailty in a real estate transaction is to buy owner title insurance.
Following the incident, I sent a note to Mr. Walsh thanking him for the publicity and giving us a fine public example of title insurance in action.
The unnamed title searcher was the source of two claims that year, both outsales. In both cases, our file audit revealed that the searcher was aware that the lots in question had been deeded to other parties, but she failed to include this information in the reports sent to our office. The title searcher made an error in judgment. The outsales had occurred in the 70s and the properties had changed hands a few times. In each of these conveyances, none of the attorneys who prepared the deeds had noted the outsales. The searcher assumed that all of these attorneys had searched the title and that their judgment was better than hers. She assumed the attorneys were right and failed to report the outsales.
The Closing Specialists® and this searcher parted company. Even after reviewing the claims, she argued her case and we had to conclude that she might do it again.
So in each of these two cases, the seller’s deed included land that they did NOT own. In each case, the buyers decided to NOT get surveys. Thank heavens the buyers decided to purchase owner title insurance. If they had not, they would have had no recourse but to sue the sellers and hope for the best.
The Gruendl’s were more than compensated for the value of the lot. They paid the neighbor $530 and got a check from Lawyers Title for $650.
The other party – who did not go public and so shall remain nameless – received a much higher compensation. Lawyers Title had the property appraised. They apportioned the fair market value of the lot between the insured owner and the insured mortgage lender.
When the “dirty deed” article was published in the Post Gazette, friends and associates asked why I was silent. I simply have a policy of not commenting on a formal claim in process. I don’t think it’s fair to either the insured or the title insurance company.
So in the end, the dirty deed was human error – a bad search report, and the only way to protect yourself against human frailty in a real estate transaction is to buy owner title insurance.
Thursday, November 16, 2006
I am a title insurance agent.
Everyday I work with prevention of title claims prior to closing and correction of title problems that are discovered later. Over my morning coffee, these are the problems on my desk to work out this morning:
1. File closed in 1999 with owner title policy. The insured just received notice of revival of a state tax lien from 1997 in the amount of $696. I’ll be reviewing our search file to see if the lien is valid. If so, how was it missed? If the lien is not valid, we’ll defend the property and fix the problem. If the lien is valid, it will be paid. The insured owner is covered.
2. I have a search that revealed a second mortgage in foreclosure. The sellers had filed bankruptcy and assumed they could ignore the foreclosure notice. They put the property on the market and sold it to a buyer who was smart enough to order title insurance. We suggested that the seller pursue a “short sale” – a reduced payoff with the lender to avoid foreclosure. I’ll help them process the short sale request later today.
3. I have a corrective deed to prepare and send out to a seller. Both the buyer and the seller failed to disclose there was a second parcel that should have been conveyed back in 2003 when we insured their title and closed the purchase transaction. When discovered, the seller’s attorney refused to assist the correction in any way even though he had prepared the original incorrect deed. We are fixing it.
4. In 2005 we held money from a seller’s proceeds to satisfy numerous liens. They had been paid but not satisfied of record. The seller’s attorney will not return our phone calls. We are hiring an attorney – at the seller’s expense from the funds in escrow – to resolve and satisfy the liens and clear the title.
These four simple cases are part of my normal everyday work life. Each of the files is covered by an owner title insurance policy and thus the work I am doing is part of that coverage. It’s unlikely that any of this work will be counted in claims reported by title insurance companies. This is the unseen work done by the folks who get the lion’s share of the title insurance premium.
This afternoon, I’ll have a new set of title issues to work on. I love my job and hope this helps you understand why an owner title insurance policy is a good investment.
1. File closed in 1999 with owner title policy. The insured just received notice of revival of a state tax lien from 1997 in the amount of $696. I’ll be reviewing our search file to see if the lien is valid. If so, how was it missed? If the lien is not valid, we’ll defend the property and fix the problem. If the lien is valid, it will be paid. The insured owner is covered.
2. I have a search that revealed a second mortgage in foreclosure. The sellers had filed bankruptcy and assumed they could ignore the foreclosure notice. They put the property on the market and sold it to a buyer who was smart enough to order title insurance. We suggested that the seller pursue a “short sale” – a reduced payoff with the lender to avoid foreclosure. I’ll help them process the short sale request later today.
3. I have a corrective deed to prepare and send out to a seller. Both the buyer and the seller failed to disclose there was a second parcel that should have been conveyed back in 2003 when we insured their title and closed the purchase transaction. When discovered, the seller’s attorney refused to assist the correction in any way even though he had prepared the original incorrect deed. We are fixing it.
4. In 2005 we held money from a seller’s proceeds to satisfy numerous liens. They had been paid but not satisfied of record. The seller’s attorney will not return our phone calls. We are hiring an attorney – at the seller’s expense from the funds in escrow – to resolve and satisfy the liens and clear the title.
These four simple cases are part of my normal everyday work life. Each of the files is covered by an owner title insurance policy and thus the work I am doing is part of that coverage. It’s unlikely that any of this work will be counted in claims reported by title insurance companies. This is the unseen work done by the folks who get the lion’s share of the title insurance premium.
This afternoon, I’ll have a new set of title issues to work on. I love my job and hope this helps you understand why an owner title insurance policy is a good investment.
Saturday, November 11, 2006
Is title insurance enough protection?
Human beings we are, and it’s “people” problems at the heart of it all. Humans make mistakes; some steal, and most are poor communicators. An owner title insurance policy will protect the homebuyer from many of the risks, but not all.
A consumer should also buy a current up to date survey, making sure the surveyor actually does field work and research. The drawing should accurately show the location of easements, rights of way, and improvements/structures. It’s not safe to rely on the seller’s knowledge of lot line locations. They may be mistaken. Owner title insurance typically does not cover the location of structures or lot lines. So if you close without a survey and find out later that the garage is actually on your neighbor’s property or that lovely area for a garden is not yours, you’re on your own. You’ll either go to court or take your lumps.
Owner title insurance does not cover the condition of the structure. A smart homebuyer will take the time to hire professional inspectors and look at their reports before the closing. Keep in mind the age of the house and be realistic about your expectations. Every good home inspector will point out all the flaws they find. You, the homebuyer, will need to decide which ones are really important and then negotiate with the seller for repair.
I am amazed when a transaction falls apart because the buyer insisted that the seller make the house perfect. Unless you are buying a brand new home, try to keep your expectations realistic. It probably took a long time to find the right house in the right neighborhood at the right price. Don't blow the deal seeking perfection. A willing buyer negotiating with a willing seller will usually find the right balance and resolve their concerns.
Here's some language we use at closing to make sure both buyer and seller have reached an understanding:
"The undersigned buyer(s) and seller(s) agree that all terms and conditions of the sales agreement have been satisfied or waived.
The undersigned buyer(s) confirms that they have had an opportunity to inspect the premises to their satisfaction and that they have personally reviewed and accepted any inspection reports issued by contractors performing tests on their behalf including but not limited to septic dye test, termite/pest inspection, home inspection, etc.
For purposes of holding the real estate agents, real estate companies, Lender, its successors and assigns, and The Closing Specialists® harmless, buyer(s) agrees to accept property in "as is" condition. Representations and warranties from the seller are still being relied upon by the buyer(s) and are not hereby waived.
Buyer(s) and seller(s) further agree to hold harmless all/any real estate agents, real estate companies, Lender, its successors and/or assigns, and The Closing Specialists® from further liabilities and/or remedies related to the physical condition of the premises."
I know it's boring stuff, but signing this document at closing is a sort of "speak now or forever hold your peace" moment. We really do not want you to close until you are satisfied.
Do your homework before you go to the closing table. Order your survey and inspections as soon as the agreement is accepted. Review any concerns directly with the surveyor or inspector. Negotiate repairs, if necessary. Do a final walk thru right before closing to make sure the condition of the house is broom clean and as agreed. Then close knowing you have done as much as possible to protect your interests and enjoy your new home!
A consumer should also buy a current up to date survey, making sure the surveyor actually does field work and research. The drawing should accurately show the location of easements, rights of way, and improvements/structures. It’s not safe to rely on the seller’s knowledge of lot line locations. They may be mistaken. Owner title insurance typically does not cover the location of structures or lot lines. So if you close without a survey and find out later that the garage is actually on your neighbor’s property or that lovely area for a garden is not yours, you’re on your own. You’ll either go to court or take your lumps.
Owner title insurance does not cover the condition of the structure. A smart homebuyer will take the time to hire professional inspectors and look at their reports before the closing. Keep in mind the age of the house and be realistic about your expectations. Every good home inspector will point out all the flaws they find. You, the homebuyer, will need to decide which ones are really important and then negotiate with the seller for repair.
I am amazed when a transaction falls apart because the buyer insisted that the seller make the house perfect. Unless you are buying a brand new home, try to keep your expectations realistic. It probably took a long time to find the right house in the right neighborhood at the right price. Don't blow the deal seeking perfection. A willing buyer negotiating with a willing seller will usually find the right balance and resolve their concerns.
Here's some language we use at closing to make sure both buyer and seller have reached an understanding:
"The undersigned buyer(s) and seller(s) agree that all terms and conditions of the sales agreement have been satisfied or waived.
The undersigned buyer(s) confirms that they have had an opportunity to inspect the premises to their satisfaction and that they have personally reviewed and accepted any inspection reports issued by contractors performing tests on their behalf including but not limited to septic dye test, termite/pest inspection, home inspection, etc.
For purposes of holding the real estate agents, real estate companies, Lender, its successors and assigns, and The Closing Specialists® harmless, buyer(s) agrees to accept property in "as is" condition. Representations and warranties from the seller are still being relied upon by the buyer(s) and are not hereby waived.
Buyer(s) and seller(s) further agree to hold harmless all/any real estate agents, real estate companies, Lender, its successors and/or assigns, and The Closing Specialists® from further liabilities and/or remedies related to the physical condition of the premises."
I know it's boring stuff, but signing this document at closing is a sort of "speak now or forever hold your peace" moment. We really do not want you to close until you are satisfied.
Do your homework before you go to the closing table. Order your survey and inspections as soon as the agreement is accepted. Review any concerns directly with the surveyor or inspector. Negotiate repairs, if necessary. Do a final walk thru right before closing to make sure the condition of the house is broom clean and as agreed. Then close knowing you have done as much as possible to protect your interests and enjoy your new home!
Tuesday, November 07, 2006
REAL LIFE TITLE INSURANCE COST COMPARISON
We occasionally collect HUD-1 Settlement Statements as proof of the sale of a residence to clear lender conditions. The following cost comparison is based on HUD-1 Settlement Statements prepared by three different title insurance agents for closings that took place in 2006. The fourth title agency quoted is The Closing Specialists® using our standard fee schedule. All quotes have been adjusted to show a premium based on $100,000. All of the actual transactions were close to that price level so I am presuming the underlying non-regulated fees would remain the same.
Set of facts: The sale price is $100,000 in a purchase transaction with a mortgage and the property was sold within the last ten years for consideration.
The fees used in the following comparison are those solely controlled by the title insurance agents:
#1 title insurance premium 858.75
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 285.00
lien letters 75.00
document preparation 0.00
courier fee 55.00
wire fee 20.00
notary fee 0.00
#2 title insurance premium 772.88
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 250.00
lien letters 15.00
document preparation 0.00
courier fee 15.00
wire fee 17.00
notary fee 35.00
#3 title insurance premium 772.88
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 250.00
lien letters 15.00
document preparation 0.00
courier fee 15.50
wire fee 10.00
notary fee 0.00
#4 title insurance premium 772.88 The Closing Specialists®
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 0.00
lien letters 15.00
document preparation 175.00
courier fee 25.00
wire fee 0.00
notary fee 0.00
#1 $1478.75
#2 $1289.88
#3 $1248.38
#4 $1172.88
Example #1 is from a title insurance agent who has overcharged the buyer by failing to give the reissue rate and adding $50 to the cost of lien letters. Both overcharges are unlawful. The remaining examples, including TCS, show routine differences in non-regulated fees. All four examples demonstrate that even in a regulated state there is good reason to shop around before placing an order for title insurance and closing services.
Set of facts: The sale price is $100,000 in a purchase transaction with a mortgage and the property was sold within the last ten years for consideration.
The fees used in the following comparison are those solely controlled by the title insurance agents:
#1 title insurance premium 858.75
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 285.00
lien letters 75.00
document preparation 0.00
courier fee 55.00
wire fee 20.00
notary fee 0.00
#2 title insurance premium 772.88
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 250.00
lien letters 15.00
document preparation 0.00
courier fee 15.00
wire fee 17.00
notary fee 35.00
#3 title insurance premium 772.88
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 250.00
lien letters 15.00
document preparation 0.00
courier fee 15.50
wire fee 10.00
notary fee 0.00
#4 title insurance premium 772.88 The Closing Specialists®
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 0.00
lien letters 15.00
document preparation 175.00
courier fee 25.00
wire fee 0.00
notary fee 0.00
#1 $1478.75
#2 $1289.88
#3 $1248.38
#4 $1172.88
Example #1 is from a title insurance agent who has overcharged the buyer by failing to give the reissue rate and adding $50 to the cost of lien letters. Both overcharges are unlawful. The remaining examples, including TCS, show routine differences in non-regulated fees. All four examples demonstrate that even in a regulated state there is good reason to shop around before placing an order for title insurance and closing services.
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