Real estate attorney William D. Tucker, III is a big believer in helping everyone in the Charlottesville real estate industry. For years he’s provided useful tips to our local Realtors and Lenders. We hope you find some of these tips useful as well….
Bill Tucker – Real Estate Settlement Attorney
Mary Ann Barnes – Land Partition Suit Attorney
Russell N. Kruse – Real Estate Litigation Attorney
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Survey Affidavits: One of the issues with each purchase of a home is whether or not the Purchaser needs a physical survey showing all improvement. The lenders do not usually require a survey unless the title insurance company requires it for the lenders title policy. Unless the property is new construction, most title insurance companies will provide lenders title insurance without a physical survey.
Most real estate attorneys believe that a physical survey is very important to protect the Purchaser from such things as fence encroachments, setback issues, etc. At the very least, the Purchaser will know exactly where the house, driveway, etc. are relative to the boundary lines.
Even though a new physical survey is the best protection for the Purchaser, there are many instances where a prior existing physical survey will be sufficient. The current Seller may have had a survey prepared when they bought the property and there have been no changes since. Most title insurance companies will accept a survey affidavit from the Seller that the existing survey is accurate.
Accordingly, it is recommended that the Sales Contract contain a clause that “the Seller will provide any existing physical surveys, and if requested will sign a survey affidavit.” (There have been several instances lately where the Seller will not voluntarily sign a survey affidavit even when an existing survey is accurate.)
Scenario with Non Local Settlement Agent: A recent Tucker’s Tip encouraged buyers to use a local settlement agent since Central Virginia has practices that are different from other localities around the Commonwealth.
Here’s a hypothetical scenario that highlights some of the issues that can arise when a Purchaser uses an out of state settlement agency:
If the above scenario sounds convoluted, use it as a reason to encourage buyers to use local settlement agencies!
P.S. The real estate commission was mailed directly to the listing realtor from the out of state settlement agent. Unfortunately, it was mailed to the wrong address and took an additional week to get to the realtor.
For REO Purchases, Choose Your Own Settlement Attorney: Tucker’s Tips especially recommends choosing your own (local) settlement attorney or settlement agency when purchasing from an REO seller. Never choose the settlement agent selected by the bank as the seller. That settlement agent’s primary relationship is with the REO bank.
Recently Tucker’s Tips encountered a closing situation where the REO selling bank had prepared the new deed based on the deed description from three owners prior! Needless to say, the “Being” clause and the deed were completely wrong. In this case Settlement was not delayed because the closing paralegal on the purchaser’s side spotted the discrepancy while reviewing the proposed deed and comparing it to the property description in the title work and binder. (Had the purchaser selected the bank’s settlement agent, this error would have gone undiscovered as the bank’s settlement agent prepared the incorrect deed.)
Remember, the REO seller’s offer of “free” title insurance is not really “free”, as it requires using the REO’s choice in settlement agency which can create a whole host of unnecessary problems.
For a Short Sale – Expect four years to pass from the completion date before applying for an FNMA loan. You can get an FHA mortgage three years from the date of sale. A USDA mortgage is similar, three years from the short sale. There are no short sale guidelines for obtaining a VA loan, however you may not have had more than one short sale.
For a Foreclosure – You need to wait seven years from the completion date for an FNMA loan, and three years from the completion date for an FHA or a USDA loan. Two years from the foreclosure date must pass to be able to qualify for a VA loan.
For Chapter 7 Bankruptcy – Four years from the discharge or dismissal date must pass for an FNMA loan. Three years from the discharge date for a USDA loan and two years from the discharge date for an FHA or VA loan must pass.
For Chapter 13 Bankruptcy – Two years from the discharge date or three years from the dismissal date must pass for an FNMA loan. For FHA or USDA, one year of payout must elapse, with payment being satisfactory and made on time. Buyer must receive permission from court. For a VA, one year of satisfactory payments must have been made and the buyer must also receive permission from the court.
Basics For the Busy Season: As springtime comes into full swing, and the busy and hectic real estate selling season along with it, facilitating a smooth closing is more important than ever. We’ve already discussed the benefits of communication and patience for all parties involved. Here are a few more practical tips that can help lenders and realtors provide their purchasers with a wonderful, streamlined closing experience:
Title Underwriters Protecting Against Fraud: Title insurance underwriters are starting to require more proof that deeds of trust and mortgages have been paid off. A recorded certificate of satisfaction is not necessarily enough.
The underwriting industry is experiencing a higher than usual volume of fraudulent releases of Deeds of Trust or Mortgages. The seller makes it seem like the deed of trust has already been paid off, and then receives the proceeds from the sale without paying off the still unpaid loan.
It is rare for a borrower to pay off a loan before selling or refinancing. Therefore title insurance underwriters see a “red flag” when a property with a deed of trust is being released with no concurrent refinance loan or sale of the property taking its place.
If you have a seller who has finished paying off his or her mortgage, and the mortgage has been released, the releasing lender should be contacted to confirm payment and validity of the release. If the homeowner has received a letter from the lender stating that the loan has been paid in full, this will usually suffice as proof.
Preventing Underwriting Delays: Recently more lenders are requiring that the termite inspection be signed by all parties in order to get through underwriting. If the termite inspection report is ordered well before closing (such as 10-15 days before), then there is ample time to provide the report to all parties and collect the necessary signatures so that closing is not delayed.
Also, just a reminder, title work needs to be obtained prior to final underwriting. The quicker title is ordered, the less likely that the underwriter will be delayed. Some lenders even require the title binder within a short timeframe (for example five business days). Tucker’s Tip recommends that the title search and binder be ordered at least as soon as the inspection is satisfied (if not before).
Communicating about who is ordering what and when, can make the whole closing process smoother and less stressful for all, which may certainly be necessary with the coming RESPA/CFPB changes!
Underwater Homeowners and the Right to Sue: Distressed homeowners, strung along by mortgage servicers who do not evaluate their loan modification applications now have some recourse. The Federal Real Estate Settlement Procedures Act (RESPA) is bringing changes in other areas besides to closing procedures.
On January 10, 2014, new regulations became effective requiring loan servicers to follow certain rules when offering loan modification applications and other loss mitigation packages to their underwater borrowers.
Up to this point, for someone attempting to do a loan modification or other type of loss mitigation the scenario often played out like this: The borrower submits a loan modification application. Bank/servicer does not receive the application, or states the application is incomplete. The borrower submits more paperwork, to complete the application. The servicer says it has not received this paperwork, and still does not have a record of a completed application. Meanwhile the lender/servicer initiates foreclosure. Eventually the borrower is foreclosed on, loses his home and has no recourse for any incompetency on the bank’s part.
This new regulation/law requires servicers to evaluate borrowers for all loss mitigation options available to the borrower and to provide the borrower with written notice of the servicer’s determination within 30 days of receiving the borrower’s application for loss mitigation. If a complete loss mitigation package has been received, then the lender cannot foreclose on the borrower. Above all, borrowers now have the right to sue the servicers and lenders for violating the new RESPA regulations.
As court cases are being brought forth against lenders and servicers by borrowers since the regulations took effect in early 2014, we are now starting to see how the RESPA regulations will affect the procedures for loan modifications and other loss mitigation packages.
NO HOA – Double Check!: The VAR Contract, in Paragraph 23, “The Property Owners Association Disclosure”, indicates whether or not the property being purchased is within a Home Owners Association (HOA). However, just because the “Is Not Located” box is checked does not necessarily mean the property is free from a set of governing covenants, conditions or restrictions (CCRs).
To qualify as an HOA, there has to be the ability to collect dues and/or there is common area to maintain. Usually a Home Owners Association Board is in place and most definitely a recorded set of restrictive covenants (CCRs). These CCRs are provided to the Purchaser with the required “Association Disclosure packet”.
However, if there is no required HOA packet, there still may be a set of CCRs that govern the property being sold. Remember, just because there are no dues, does not mean there are no rules or restrictions on the property. There could also be other restrictions (such as road maintenance agreements, subdivision restrictions, etc.) that affect the Purchaser’s title to the property. (Typically these types of restrictions without HOAs can be found in old established neighborhoods and subdivisions.)
Therefore it’s always a good idea for the listing agent to ask the Seller for previous title work to see if there are restrictive covenants (maybe even a road maintenance agreement) that needs to be reviewed. The VAR Contract in Paragraph 15, entitled “Title”, provides that the property be “subject to such restrictive covenants…which do not materially and adversely affect the use of the Property for residential purposes or render the title unmarketable”. This way the Purchaser will not get any surprises at (or even after) closing, if the Purchaser intends to do something with the property that may not be allowed according to the CCRs.
VAR Contract and HOA Restrictions: In some situations where there is “no HOA,” there still may be a set of restrictions and covenants that limit the Purchaser’s use of the property. If a recorded set of CCRs or other type of restrictions governs property not in an HOA, to protect the Purchaser, insert the following into the blank “Other Terms” Paragraph 31 of the VAR contract:
“In the event the Property is not in an HOA, the Purchaser’s obligations under this Contract are contingent on Purchaser reviewing and approving any recorded covenants, conditions, and restrictions (CCRs) including road maintenance agreements. Said review and approval shall occur within ____ days of receipt of any applicable CCR and/or road maintenance agreement.”
This way, the Purchaser will have the opportunity to determine if any recorded restriction which is not subject to the Virginia Property Owners’ Association Act, (and therefore is not provided in an HOA disclosure packet), would inhibit the Purchaser’s intended use of the property. Since the VAR contract states that the Seller is conveying the title to the property to the Purchaser subject to any recorded restrictions (“Title” paragraph in the VAR), including the above language protects the Purchaser, if the CCR contains provisions that the Purchaser does not like.
Tucker’s Tips had heard of a situation where the Purchaser intended to have donkeys on the property. There was no active homeowners association and all the neighboring properties had other farm animals, so donkeys did not seem out of the ordinary. However, at the time of closing, the parties discovered that there were CCRs which dictated donkeys could not be kept by property owners. Since the contract stated the Purchaser was accepting the property subject to all CCRs, there was nothing the Purchaser could do but continue to close on the property and never have donkeys as a pet.
Practice Tip: Review title work at the time of listing, especially for properties without active HOAs or in old developed neighborhoods. Keep an ear open to a prospective Purchaser’s intent to use the property, especially if it sounds out of the ordinary.
The No Financing Affidavit: Assuming the Seller has no outstanding loans on the Property being sold (Deeds of Trust, HELOCS, Equity Lines), the Purchaser’s title company, while doing the title search, will find there is no mortgage on the property. The title company will accordingly request that the Seller sign a “No Financing Affidavit” to confirm that there is no loan on the property. In this situation, to make the closing smoother and to protect the Purchaser’s interest, consider inserting the following into paragraph 31 of the VAR Contract:
“Seller is required, if applicable, to sign a No Financing Affidavit for the Purchaser’s title insurance Company.”
The failure to sign the No Financing Affidavit could create additional work and/or delay for the Purchaser. Inserting this sentence in the contract during execution, when all parties are eager to make a deal, could save hassle later on for the Purchaser.
In the same vein of making the closing process smoother, please also consider inserting the following into Paragraph 31:
“The Seller agrees to provide to the Purchaser, if available, copies of any physical surveys and/or owners title insurance policies or binders. In addition, if accurate, the Seller agrees to sign a survey affidavit stating that the prior physical survey is still accurate.”
Again providing these documents to the Purchaser can actually save money, time and possible future problems.
TRID – Last Minute Changes on the CD: Here is another example of why it’s important to stay flexible during the closing process now dictated by TRID regulations. Although lenders theoretically have to tell the Purchaser how much money is needed for the closing well in advance of the actual settlement, it still doesn’t always work that way.
Providing the Purchaser with the CD three days in advance of closing has helped resolve questions regarding the breakdown of various closing fees. The CD can give the Purchaser a good idea of how much money to bring to closing. (An answer to the Purchasers’ most frequently asked question, “How much money do I need for my closing?”) However, the actual CD at closing can still change between the three-day delivery and the actual closing, thus causing a last minute change in the amount the Purchaser must bring to closing.
The good news is that any such changes are normally not a large difference.
Tip: Remind your Purchasers that the final numbers on the CD could vary at closing from the CD version they were provided three days prior, and that a last minute change in the amount needed to bring to closing is not uncommon.
Choose Your Own Settlement Agent: Never choose the settlement agent selected by the REO bank as the seller. That settlement agent’s primary relationship is with the REO bank. Tucker’s Tips encounters time and again how using the REO selling bank’s closing agent causes needless issues and delays for a settlement.
For example, we encountered a situation where the current seller of a property had used the REO seller’s closing agent when they purchased it. A boundary line adjustment had increased the parcel’s size and went unnoticed when the REO bank foreclosed on the previous owners. When transferring the property to the new owner, the REO closing agent prepared the deed and property description without taking into account the full title search, which would have revealed the boundary line adjustment to the property. Thus the REO bank transferred only a part of the property to the new owner, which again went unnoticed because the new owner had not used his own settlement agent or attorney.
Fast forward to when the new owner wants to sell, and the big title problem, that of not transferring the whole property, finally emerges.
So remember, the REO seller’s offer of “free” title insurance will rarely really be free, as using the REO’s choice in settlement agency can create a whole host of unnecessary problems.
Tucker’s Tip: Remind Purchasers to choose their own (local) settlement agent or attorney when purchasing from an REO seller.
New Wiring Instructions Scam Alert: Tucker’s Tips has learned of a new spin on a fraudulent scheme that scammers are using in our area! Scammers are attempting to hack into email addresses, to take over communication and gain information so they can change wiring instructions to direct funds to their own accounts.
Previously, scammers have sent out emails to closing agents purporting to be from the Seller informing the closing agent to wire funds to a different bank account than the one originally given by the Seller. The scammer hopes that the fraudulent email is not discovered until several days after the money has already been wired to the wrong account. This scheme can be avoided by strict instructions between the settlement agent and the Seller regarding where to send the proceeds.
Now scammers are targeting Purchasers. Posing as the settlement agent, the scammer emails the Purchaser with new wiring instructions and instructs him to send the money needed for the closing to the new (wrong) account, instead of the correct one that the settlement agent originally gave to the Purchaser when they began working together.
As before, the scammer’s email address looks deceptively similar to the authentic email address, only varying by one letter or number.
Stay vigilant and be aware, especially when communicating through email. Tucker’s Tips suggests advising your clients of the fraud attempts and have procedures regarding the verification of wiring instructions. Also, Realtors should make sure to have their own safeguards in place in the event they plan to receive real estate commissions by bank wire.
Who is on Title?: Make sure the settlement agent or attorney knows of everyone who will be on the deed to the property, especially if they are not going to be on the loan. Individuals who are not going to be on the loan are sometimes not listed in the contract. It is therefore important to share this information as soon as possible during the closing process.
The non-borrowing co-owner does not need to sign most of the loan documents. However, there are some loan documents and other necessary documents such as title work, title insurance, and homeowners insurance which require the names of all owners (whether the borrower or not). Also the deed will need to be prepared with all correct names of the owners. The non-borrowing individuals will also then know ahead of time that they too need to be at closing to sign paperwork.
If the new owners want to take ownership in the names of their trust, this has its own set of issues. The lender may need to see the trust and sometimes obtain an attorney opinion letter regarding the terms of the trust. Also the attorney preparing the deed for the Sellers needs certain trust information to properly prepare the deed.
Tucker’s Tips has found that communicating this information from the start will make the settlement process a more positive experience for all parties involved.
The TRID Experience: With the new TRID laws in place for over four months, Tucker’s Tips has made the following observations about how TRID is affecting settlements:
TT Advice: “Just go with the Flow.” The new TRID procedures will eventually work out and become more routine and uniform.
Correction to last week’s Tip 7-2016: Thanks to the sharp eye of Peg Gilliland, we incorrectly stated that page 9 of the VAR Contract of Purchase needed to be completely filled out, when we should have stated page 10. Thanks, Peg.
Sharing Information Can Make TRID Easier: Navigating a closing with the new TRID laws can prove difficult, especially when completing the CD which requires more information than the HUD and/or GFE. Tucker’s Tips has found that including certain information in the Contract can help make the closing process under TRID go much smoother.
Under TRID, lenders now need certain information such as realtors’ full names and license numbers for formulating the CD. Having this information at the beginning, on the signature page of the purchase contract, (page 10 of the VAR Contract of Purchase), can be very useful. Also include realtors’ phone numbers, email addresses, and the real estate company’s mailing address. In other words, complete page 10 of the VAR Contract of Purchase in its entirety.
Finally, as mentioned in prior Tucker Tips, please include in the Contract the Purchasers’ full names (not “Bobby”), to correspond to exactly how the Purchasers want to take title on the Deed and how they will be applying for the loan. Specifically ask the Purchaser what names they want to use. If the names are consistent on all three documents (VAR Contract of Purchase, Loan Application and Deed), the process will be more efficient.
TRID – Recommended Contract Language: One of the goals of the new TRID regulations was to protect Purchaser’s and Seller’s financial information and other non-public information. Also, TRID requirements provide for Closing Disclosures (CD’s) to be prepared for both Purchasers and Sellers.Many lenders for the Purchaser require that they be provided with information from the Seller’s CD. This requirement unfortunately makes it more difficult and time-consuming for lenders and attorneys to timely ascertain the most accurate numbers from the Seller’s CD since they need to obtain permission to have the information disclosed.Usually obtaining this information occurs when the lender is trying to meet the three day review requirement for the Purchaser. Add to this the TRID requirement of protecting the Purchaser’s and the Seller’s “non-public information” and chaos can occur. (Also the realtors and the other parties to the transaction may require information from both the Seller’s and Purchaser’s CD’s.) To resolve these problems of allowing timely disclosure of this information, Tucker’s Tips recommends that the realtors add the following language to Paragraph 31 of the VAR Contract of Purchase: “The parties agree to provide and consent to the disclosure of any and all information requested by any party, real estate agent, lender, settlement agent or attorney involved in this transaction to comply with applicable state or federal law or regulation relating to real estate settlement practices and reporting, including the TILA-RESPA Integrated Disclosure (TRID) rule”. With this language, all parties can obtain the financial information they need to double check that all numbers are accurate and save valuable time in meeting TRID deadlines.
TRID Closings & Winter Weather: Inclement weather causes delays in more than one way. Bad weather can cause Clerk’s Offices and other government agencies to close, and as a result general delays in settlements. But now it can also cause delays regarding the 3-day requirements for CDs to be delivered to the purchaser. Due to weather, settlement agents and attorneys who may need to review the CD might not be able to get into the office to do so.
Lenders may not be able to obtain information they need to generate the CD. Termite inspectors’ and surveyors’ offices could be closed. Conducting a termite inspection may be limited due to snow. Obtaining propane readings may be near impossible if the propane tank is buried under snow. Accordingly, account for the possibility that inclement weather can cause additional delays in meeting the 3-day time period purchasers have to review the CD.
Plan ahead with the inclement weather, and build in extra time. As this past weekend has demonstrated, with significant winter storms, it is more important than ever that everyone involved with a real estate closing stay flexible and be prepared!
Lenders Need Settlement Fees Sooner: One of the biggest changes with the new TRID laws is that the lender must provide a “Loan Estimate” (LE) within three business days of the loan application. The LE (which has replaced the GFE) contains all of the estimated closing costs, including the total cash to close and the estimated mortgage payment (PITI).
As lenders are responsible for the accuracy of the LE, they will want this financial information to be as correct as possible to avoid creating “tolerance” issues. Accordingly, having Purchasers select service providers (settlement agent, title insurance, homeowners insurance, etc.) much sooner than before TRID was in place, could be very useful.
Because the lender will need various fees from the settlement attorney, the Purchaser may want to select the settlement attorney at the loan application stage, instead of at a later stage as had typically been the case before TRID. Purchasers should also consider selecting a homeowners’ insurance agent earlier since the lender will want to include the homeowner’s insurance premium information on the LE.
New Forms Under TRID: Most loans will now require use of the Loan Estimate (LE) and Closing Disclosure (CD) forms. Loans that are not applicable under TRID, such as cash purchases, Home Equity Lines of Credit, Mobile Home/chattel only loans, Reverse Mortgages, private loans, institutions originating 5 or fewer loans per year, will still use the existing HUD and/or GFE forms. The LE form is broken down into seven categories, “unbundles” the GFE and preliminary TILA fees, and discloses the amount of money needed to close as well as the monthly PITI. The categories are:
The CD replaces the final TILA and HUD-1 forms. There is a separate CD for each loan. On the CD, there is no longer an individual comparison of the items, but page 3 of the CD shows a total comparison of the closing costs and cash to close. The CD is prepared by the lender.
Closings May Take Longer Under TRID: From loan application to settlement, now that TRID is underway, closings that fall under it may take longer than before. The previous quick closings of three to four weeks may be difficult to accomplish and “domino” closings could be a thing of the past.
One change that could make the process to Settlement longer is the new waiting period. The Borrower now has three business days to review the Closing Disclosure form prepared by the lender before Settlement can occur. If the Closing Disclosure form is not delivered by hand, then there is another three business-day delivery period for delivery of the Closing Disclosure to the Borrower. (The three-day delivery period can be shortened if the Borrower acknowledges receipt, but it is still unclear what constitutes “acknowledgment.” Lenders may ask their Borrowers to sign an acknowledgement of receipt to shorten the wait.) This means that assuming the Closing Disclosure is mailed or emailed rather than hand delivered and there is no earlier acknowledgement of receipt, the actual time from Closing Disclosure to Settlement (including weekends) is at least seven days.
P.S. Although a lot of commentators are worried about potential longer closing periods (six to eight weeks at a minimum), We believe that with a little practice, most of our local lenders will figure out a procedure to shorten this period.
TRID Impact on Local Realtors: October 3, 2015 is upon us and so are the new TRID laws for most loan applications starting October 3rd. There are many new rules that lenders and consequentially realtors, closing agents and lawyers must contend with; new forms, time lines, tolerances are just a few of the changes.
I’m offering a presentation analyzing how the new TRID laws could impact our local realtors. Please contact me if you’d like to set up a presentation or meeting for a group of realtors to discuss changes coming to our local practice, related to the new TRID laws. Also if individual realtors have questions about these changes, please feel free to contact me directly.
During this transition it is most important to be flexible, patient and communicate with all parties involved.
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We have two offices conveniently located in Charlottesville and Lake Monticello, Virginia for your real estate settlements. Please note: We don’t handle real estate settlements in our Harrisonburg office.
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