Chris Thomas

It's important to make sure your mortgage broker is reviewing the title commitment on all your deals. Many times, there are issues that must be addressed by the seller that could be deal-killers if they are not dealt with correctly. Some examples of things that might show on the title commitment include:

• Tax liens
• Judgments
• Mortgage liens that far exceed the value of the property
• Foreclosure proceedings have been started
• Etc.

Although these are all issues that the seller must address before the closing, the lender should make sure they are being resolved in a timely fashion.

The new Truth-in-Lending law recently went into effect. One of the most important parts of the law says that if the Annual Percentage Rate (APR) on the final Truth-in-Lending disclosure differs by more than 0.125% from the APR that was disclosed on the most recent Truth-in-Lending disclosure issued by the lender, then the loan cannot close until 3 days after the lender delivers an updated disclosure showing the correct APR. Ensuring that the APR is correct is the responsibility of the lender. However, there are a couple things that routinely change near the end of a transaction that are the responsibility of the real estate agents. Here's what you need to look out for:

• Changing the closing date. If you change the closing date, the number of days of pre-paid interest will change and affect the APR.
• Not telling the lender if there is a change in the amount of seller-paid closing costs or the sales price. If there is an amendment to the contract that changes the amount of seller concessions or the sales price, that will affect the APR. You MUST tell the lender about any changes so they can re-disclose the APR.

Remember, if the APR changes by more than 0.125% (either higher or lower), then there is a federally mandated 3-day waiting period before the closing can take place. The way to avoid delays is to send all contract changes to the lender immediately and to resist the temptation to change the closing date during the week before the scheduled closing. If you do those two things, then you can blame all delays on the lender :-)

We're seeing a lot of sales contracts with counter-proposals from the seller stating that the seller will only pay for non-recurring closing costs. A non-recurring closing cost is a fee that is only paid once, at the closing. If a fee will need to be paid more than once over the life of the loan, then it is known as a recurring closing cost. In the counter-offers we're seeing, the dollar amount of the closing cost concession in the counter-offer will very often be the same as in the offer, but there can be a big difference in how much money actually gets passed from the seller to the buyer if only non-recurring closing costs are going to be paid by the seller.

As an example, let's assume that the buyer asks that the seller pay $6,000 towards the buyer's closing costs and pre-paids. The seller counters by saying they will agree to pay $6,000, but only towards the buyer's non-recurring closing costs. If the buyer agrees to that, the seller will not have to pay for the following recurring closing costs:

• the first year of homeowner's insurance
• the money used to set up the insurance portion of the escrow account
• the money used to set up the tax portion of the escrow account
• interest from the date of closing until the end of the month

In many cases, the total of these fees is well over a thousand dollars. That's extra money that the buyer will need at closing.

For loan applications taken on or after July 30, 2009, the Mortgage Disclosure Improvement Act imposes new waiting periods before closings can take place. There are many changes, but here are the things that will affect the closing date:

• No loan can close in less than 7 business days from the time the Good Faith Estimate (GFE) and the Truth-in-Lending (TIL) disclosures are delivered to the borrower or placed in the mail by the lender.
• The TIL that the lender gives the borrower must show the annual percentage rate (APR) within 1/8th of a percentage point, or 0.125%, of the final APR.
• If the APR is off by more than 0.125%, then the loan cannot close until three days after a corrected GFE and TIL are given to the borrower.

What does this mean for agents? It means that your lender (whether you use a mortgage broker, a mortgage banker, or a retail lender), must know what they are doing. If they are in the habit of low-balling the GFE or lying about the interest rate, then the APR will be wrong and the loan cannot close until they correct the GFE and TIL and deliver them to the borrower. There are dozens of fees that affect the APR. If they are not shown correctly on the GFE, then your deal is not going to close.

This is a GREAT law. It is the federal government's attempt to rid the mortgage industry of crooked and inept loan officers. The government is telling us that we have to learn how to do our job, or no one gets paid. If the GFE is done correctly (and there is absolutely no reason for it to be done wrong), then your deals will close on time. If your lender does not know what they are doing, then your deals will not close on time. There will be lots of complaining by the lenders who don't know what they're doing. Any lender who already knows what they're doing doesn't have to change the way they do business at all.

We are seeing an increasing number of title companies requiring an improvement location certificate (ILC) before they will issue a title insurance commitment. An ILC differs from a survey in that the ILC simply identifies the location of the property improvements (buildings), encroachments, and easements, but it is not evidence of the exact boundaries of the property. Although it is not a full survey, it's usually sufficient documentation for properties that are located within subdivisions. It is less expensive than a survey, also.

If a real estate agent enters "N/A" in the survey section of the sales contract, indicating that an ILC is not needed, that has absolutely no bearing on whether an ILC is actually needed. The title company decides whether they need one before they will issue the title commitment. If the contract states that an ILC is not needed, but the buyer will pay for it if it is needed (we see this a lot), then your buyer is on the hook for the ILC fee if the title company needs one. On deals where money is tight for the buyer, this can be a big problem.