underwriting alert that deserves repeating

If you are asked to close a deal with any Lender where good funds, incoming money from the lender have not been received,  please contact the Underwriter prior to closing the transaction. 

In Underwriting Directive Numbers 30, 35 and 47 we drew your attention to the Mortgage Broker’s Act which requires a mortgage broker to disburse the proceeds of a mortgage loan as cash, wire transfer, certified check, or cashier’s check. At the end of 1998, Senate Bill No. 94 was signed into law by Governor Ridge which amended the Mortgage Broker’s Act. The Amendment, however, was a minor change and did not in any way change the requirement that a title agent receive good funds from any licensee under the Mortgage Broker’s Act. In fact, the amended section now reads "(a) prohibitions - a licensee shall not: (3) disburse the proceeds of a loan mortgage in any form other than cash, electronic fund transfer, certified check, or cashier’s check where such proceeds are disbursed by the licensee to a closing agent." Should you need a copy of the pertinent section of the Senate Bill, please do not hesitate to contact our office.

We would also like to remind you that these protections, which are for your benefit, do absolutely no good if you do not have the funds in your account prior to disbursing a loan. We have received more reports of delays or failures to fund and changes in the amounts actually funded from the amounts required to fully fund the transaction. All of these problems can be avoided by requiring that all transactions are funded in accordance with the above, prior to your disbursement.

I frankly cannot believe that there are still title agents out there closing and disbursing without having good funds in hand.  Can you?

Demotech's report on defalcation aka escrow theft

Several years ago I went to Harrisburg and met with representatives of the insurance department.  There were a few things on the agenda.  High on my list was a warning about a potential tsunami of defalcations as the mortgage credit crisis, then just beginning, evolved.

I knew from my experience in continuing education classes and that full reconciliation of escrow and other important controls were being ignored by agencies.  It was obvious to me that things looked normal to the outside world only because so much money ran through the accounts. Deficits by theft or mismanagement were covered by the constant flow of new money.  Once the flow of funds slowed or stopped with the expected steep decline in business, we would see widespread defalcations.

This is a problem in the title insurance industry.  It's one more thing for real estate agents, lenders, and consumers to keep in mind when choosing to work with a title insurance agency.  With that in mind I tried to come up with some observations that could be made from the outside looking in to try to determine if you are working with a title agent who responsibly manages their escrow funds.  This is pretty hard because from the outside I think you can only observe a philosophy or structure controlling the collection and disbursement of funds.

So, you want to be working with a title agency who requires "good funds" coming into escrow.  That means they want a cashiers check or wire for all but nominal amounts.  You also want to be working with a title agency who verifies that they have all funds in hand before disbursing a transaction.  For instance, let's say a buyer's mortgage company hasn't yet funded the transaction and the parties are sitting at the closing table.  The pressure is high, they want to move, the real estate agent wants their commission.  All eyes are on the title agent.  Does the title agent hold their ground and say they cannot disburse until they have the lender's funds or do they take a chance and disburse?

The "easy" title agency, the one who takes a check that isn't "good funds" or goes ahead with a disbursement when they do not have funds in hand, is the title agency who also probably doesn't fully reconcile their escrow account.  They don't take the responsibility of guarding other people's money seriously.  They may even be living off of the escrow.  So be careful.

Here's the Demotech report.

query: how to sign a cashiers check over to a title company

If you've decided to have the cashiers check made payable to yourself, you'll need to endorse it over to the title company. You do this by signing/endorsing the back and under your signature write "pay to the order of" then print the name of the title company.

Let's add another scenario. Let's say you get a cashiers check and it is payable to the title company and the transaction does not close. All you need to do is take the cashiers check back to your bank and they will void it. They'll do a void for the remitter. That's you. ;)