That's easy. A mortgage lender who is insured in first position but finds that they are in a subordinate position can make a claim against the loan policy. This type of discovery typically surfaces during a foreclosure action.
The liability of the title insurer is whatever it takes to fix that up to the amount of the loan policy.
Showing posts with label loan policy. Show all posts
Showing posts with label loan policy. Show all posts
Wednesday, July 18, 2012
Thursday, June 14, 2012
query: Why do I have to pay real estate taxes at closing even if I do not escrow?
That's a great question.
Even though you are not escrowing your taxes with your mortgage lender, your lender requires that you verify payment of the real estate taxes.
Your mortgage lender also requires a loan policy of title insurance without exception for real estate taxes. The title insurer will check to see if there are any real estate taxes currently due and payable. Currently due and payable means that a bill has been issued by the tax office. Even if the bill says you are in the discount period, the taxes are still currently due and payable so the title insurer must collect these taxes from you and remit them to the tax authority in order to issue a clear loan policy to your lender.
This is why you have to pay real estate taxes at closing even if you do not escrow. It sets the slate clean and from that point on your responsibility is to pay your taxes as they come due and provide proof of payment to the lender annually. If you fail to pay your taxes, most mortgage lenders will revoke the waiver of escrow, step in and pay the taxes to protect their security interest. They will then setup an escrow account for you and if you fail to fund it, start foreclosure.
I've been in this business for a darn long time and it is my observation that most consumers get into trouble without an escrow account. This is why responsible lenders view the waiver of escrow as a privilege and they only grant it to consumers who have demonstrated an ability to handle it or have a large equity position.
Since we are on the subject of waiver of escrow, I think it's important to note that a failure to escrow taxes by the predator mortgage lenders who engaged in the subprime market was a primary cause of the property value bubble. They setup consumers who were irresponsible with money - needed subprime lending - and left them with paying taxes on their own. Do you think they didn't know consumers who have a hard time controlling their finances wouldn't pay their taxes? Of course, they knew. Once the consumers got tax sale notices they needed to refinance again to save the house and all the lender had to do was up the value of the property to cover a new mortgage and then set them up yet again for another failure with another escrow waiver. This was a churning scheme with each transaction pulling in thousands of dollars for the subprime lenders and ballooning values to cover the new fees and all based primarily on a system of NOT escrowing property taxes. It was hideous but I am rambling and I think I have already answered your question so I'll stop here. ;)
Even though you are not escrowing your taxes with your mortgage lender, your lender requires that you verify payment of the real estate taxes.
Your mortgage lender also requires a loan policy of title insurance without exception for real estate taxes. The title insurer will check to see if there are any real estate taxes currently due and payable. Currently due and payable means that a bill has been issued by the tax office. Even if the bill says you are in the discount period, the taxes are still currently due and payable so the title insurer must collect these taxes from you and remit them to the tax authority in order to issue a clear loan policy to your lender.
This is why you have to pay real estate taxes at closing even if you do not escrow. It sets the slate clean and from that point on your responsibility is to pay your taxes as they come due and provide proof of payment to the lender annually. If you fail to pay your taxes, most mortgage lenders will revoke the waiver of escrow, step in and pay the taxes to protect their security interest. They will then setup an escrow account for you and if you fail to fund it, start foreclosure.
I've been in this business for a darn long time and it is my observation that most consumers get into trouble without an escrow account. This is why responsible lenders view the waiver of escrow as a privilege and they only grant it to consumers who have demonstrated an ability to handle it or have a large equity position.
Since we are on the subject of waiver of escrow, I think it's important to note that a failure to escrow taxes by the predator mortgage lenders who engaged in the subprime market was a primary cause of the property value bubble. They setup consumers who were irresponsible with money - needed subprime lending - and left them with paying taxes on their own. Do you think they didn't know consumers who have a hard time controlling their finances wouldn't pay their taxes? Of course, they knew. Once the consumers got tax sale notices they needed to refinance again to save the house and all the lender had to do was up the value of the property to cover a new mortgage and then set them up yet again for another failure with another escrow waiver. This was a churning scheme with each transaction pulling in thousands of dollars for the subprime lenders and ballooning values to cover the new fees and all based primarily on a system of NOT escrowing property taxes. It was hideous but I am rambling and I think I have already answered your question so I'll stop here. ;)
Thursday, April 05, 2012
When you refinance, why do you have to pay for title insurance and closing services all over again?
I just had a chat with one of our pending refinance consumers. He wanted to know why he was paying for title insurance again. I explained that his owner policy wasn't being rewritten but the loan policy was.
He asked, well doesn't the loan policy just tell the lender that he is the legal owner of the property? I said, no, the loan policy tells the mortgage lender that their mortgage is in first position. What we do, then when we examine title for a refinance is to confirm ownership and then check for intervening liens and unfiled liens.
He wondered if that wasn't just a 20 minute visit to the courthouse. I said know that it also involved checking with sources outside of the courthouse, including municipal authorities.
For folks who are not in this business, it appears that we don't do much in a refinance transaction but the reality is that we have to do almost all of the work we did in the purchase transaction. We still have to set up the file, order title and lien letters, examine title, create the title commitment and policy, create the HUD-1, perform and coordinate the closing which normally takes place in the consumer's home. Then, of course, we do the post closing work of remittances and document storage. That takes resources and several people - all of whom must be paid.
Think of it like a roof. The first person, the builder, created the roof. When a new roof is needed some years later, the next person doesn't have to redo everything but they do replace almost everything and so you have to pay for materials and labor even though there is already a roof structure on the house.
In Pennsylvania, since we have filed title insurance rates, there are special discounts for consumers in a refinance. For this consumer's case, the title services would have been about $1800 is we were charging the basic rate. With the refinance discount, the title services will only be around $1300. I pointed out that the lender had given a conservative quote on the Good Faith Estimate of $1800 and so our fees were already worked into the refinance game plan.
The explanation did seem to help our refinance consumer and I hope it has also helped you. ;)
He asked, well doesn't the loan policy just tell the lender that he is the legal owner of the property? I said, no, the loan policy tells the mortgage lender that their mortgage is in first position. What we do, then when we examine title for a refinance is to confirm ownership and then check for intervening liens and unfiled liens.
He wondered if that wasn't just a 20 minute visit to the courthouse. I said know that it also involved checking with sources outside of the courthouse, including municipal authorities.
For folks who are not in this business, it appears that we don't do much in a refinance transaction but the reality is that we have to do almost all of the work we did in the purchase transaction. We still have to set up the file, order title and lien letters, examine title, create the title commitment and policy, create the HUD-1, perform and coordinate the closing which normally takes place in the consumer's home. Then, of course, we do the post closing work of remittances and document storage. That takes resources and several people - all of whom must be paid.
Think of it like a roof. The first person, the builder, created the roof. When a new roof is needed some years later, the next person doesn't have to redo everything but they do replace almost everything and so you have to pay for materials and labor even though there is already a roof structure on the house.
In Pennsylvania, since we have filed title insurance rates, there are special discounts for consumers in a refinance. For this consumer's case, the title services would have been about $1800 is we were charging the basic rate. With the refinance discount, the title services will only be around $1300. I pointed out that the lender had given a conservative quote on the Good Faith Estimate of $1800 and so our fees were already worked into the refinance game plan.
The explanation did seem to help our refinance consumer and I hope it has also helped you. ;)
Friday, June 27, 2008
query: who pays for the endorsements on the HUD-1
The endorsements you see listed on the HUD-1 are tied to the title insurance and most often, the loan policy. The terms of your sales agreement or local custom will determine who pays for the loan policy premium and the attached endorsements. In PA, it's considered a buyer cost.
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