Major Proposed Changes for Residential Closings in 2008
Rhonda Porter on 12 12, 2007
Alternative sexier titles to this post are: “Your Escrow Officer is a NARC” or “No More Quicky Closings” or how about “The Escrow Hills have [photopress:detctive_1.jpg,thumb,alignright]Eyes”. There are some major changes brewing with how escrow will be practicing their business in 2008. Escrow companies may become “undercover” fraud agents for the lender under the current draft of the Uniform General Closing Instructions.
Here are some of the changes proposed in the current draft:
If a lender has not provided escrow documents two days before the scheduled signing appointment, the lender must notify all parties “that the scheduled Signing has been postponed to a date and time at least two Business Days after receipt of required information from Lender”.
The Settlement Agent (ie the escrow company) “must obtain Lender’s written approval of an estimated Settlement Statement at least one Business Day before Signing”.
“If Lender has not provided Borrower with copies of the Loan Documents and Lender’s contact information at least one Business Day before the scheduled Signing, then the Signing must be postponed until this condition is met.”
I think it’s great to provide escrow with plenty of time to review loan documents. And for the borrower to have a chance to review them as well. This puts the burden of providing loan documents to the borrower before their escrow appointment and this may delay or prevent “rush closings”. Do borrowers really want to automatically receive the entire set of loan documents before their closing appointment?
If Settlement Agent uses a Signing Agent, Settlement Agent is responsible for selecting and directing Signing Agent and is responsible for the actions of any Signing Agent utilized in this transaction. Settlement Agent shall not designate as a Signing Agent Lender, any real estate agent or broker involved in the transaction, or Mortgage Broker, or any of their employees.
Say good bye to signings using a notary not employed by the Escrow Company. What happens if the signing is in another country? How can the Escrow Company (Settlement Agent) be held responsible for a notary in Argentina?
Are you sitting down yet? You’ll find this under the Fraud Prevention section:
“If a Lender employee, Mortgage Broker employee, or real estate brokerage employee or agent attends the Signing, Settlement Agent shall not permit such a party to overtly pressure Borrower at Signing or encourage Borrower to Sign prior to reading the Loan Documents, act as interpreter, or in any way obstruct the ability of Settlement Agent or Signing Agent to perform its duties. It must not be suggested by any party that Borrower use the rescission period to read Loan Documents or to address questions or objections raised at Signing. In the event any such conduct set out in this paragraph occurs, Settlement Agent shall stop the Signing and contact Lender’s designated ‘Fraud Prevention Contact”.
Will this encourage Loan Originators and Real Estate agents to not attend signings with their clients?
Escrow must “as soon as reasonably possible of discovery of what it suspects may be unfair, deceptive, misleading or unlawful behavior by any Lender or Mortgage Broker employee in connection with the Loan. Lender indemnifies Settlement Agent and Signing Agent against any legal claims brought by a Lender employee or Mortgage Broker employee who is the subject of any suspicious activity report given in good faith”.
Many loans seem unfair and probably a significant amount are. When I was wearing my escrow hat, we would often think the lender was unfair or perhaps charging too much. Now that I’ve walked in “mortgage shoes”, I know that I was judging without knowing the entire story, programs, what the rate was on the day the borrower locked…etc.
“Any material fact that may…have an impact on Lender’s decision to make the Loan. A material fact includes but is not limited to, any significant information on changes in the value or title of the Property, financial condition of Borrower, changes in marital status or the legal status of Borrower, changes to the sales contract (if a purchase), changes to the financing, Borrower or Seller bankruptcy, enforcement of creditor’s rights against Borrower or Seller, or any other indication of suspicious activity.”
Knowledge of potential or actual fraud, misrepresentations, falsehoods…including “any person involved in the transaction, including but not limited to Borrower, Seller, real estate broker, builder, Mortgage Broker, Title Insurer, appraiser, Signing Agent or Settlement Agent may have made a material misstatement or committed a falsehood that might affect this transaction.”
Whew…I think our escrow fees just went up!
This draft has been proposed to Mortgage Bankers Association (MBA), American, Land Title Association (ALTA) and the American Escrow Association (AEA). This proposal is open for comments until January 31, 2008.
There are many good aspects to this proposal. Is it fair to make escrow (who is suppose to be a neutral third party) “big brother” and placing this responsibility and possible liability on their shoulders?
About the Author: Rhonda Porter
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25 Responses to “Major Proposed Changes for Residential Closings in 2008”
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I think it is exactly the intent of these instructions to slow down the process……”It is intended that changes will be required in the traditional closing processes in order to make this concept work efficiently.”
While I think receiving every single piece of paper in a loan package may be a bit of overkill, the NOTE, DEED OF TRUST, TILA and a HUD are essential and when you have all the information to complete those the rest are easy.
I think the issue of using Signing Agents is with foundation. In both Oregon and Washington Escrow providers are licensed and “fully explaining the closing process” is probably the practice of escrow. This would preclude a person who has only a Notary License from doing that at the time of taking signatures. If the documents are out early and in the hands of the Borrower, the licensed Escrow Agent could handle the communication with the Borrower before hand and a Signing Service could still take the sigs. Seems a bit awkward but it is viable.
I have had countless Loan Officers and Realtors attend the closings with their clients and I don’t feel the Uniform Closing Instructions inhibit that in any way. But it would inhibit (and from my personal experience I will speak to SOME loan officers) Loan Offficers who say things like….”just go ahead and sign and we’ll get that all sorted out in the recission period…” or….”Well, I know it has a pre-payment penalty but sign and I’ll get that removed…” It will inhibit those instances as it should.
As for fraud reporting, if it would have been mandatory over the last two years I would have reported 5 or 6 Borrowers who disclosed during their signing that they really didn’t live in the house or plan to, 2 Borrowers who when you called them at work the phone was answered as a business which was NOT listed on their 1003, two instances where there was financing NOT done through escrow and NOT known to the lender and two or three transactions where the Loan Officer wrote up a Lease Option to support his borrower getting a refinance where there were realtors receiving commissions, Sellers owing mortgages and prorated taxes to deal with! I’m sure it would require a learning curve to learn to spot the more subtle instances. As an aside, Settlement Agents are already watch dogs for IRS; being required to complete a 1099 and report proceeds.
Escrow people have been very conflicted but the legal professionals and law enforcement people I have talked to tell me it was never contemplated that we be neutral in the face of fraud on our desks.
Tim…your thoughts? (Thanks, Nancy!)
Seems to me if this goes through it would be best to have a clause automatically exending closing if it can’t close due timely due to no fault of the parties. I’ve always thought of those as earthquake and storm clauses, but it would seemingly cover this too (unless the lender was late due to the buyer being tardy at something).
I’m not a Realtor but I’m guessing that would necessitate an extension for the agreement between the Buyer and Seller. In Oregon at least as our Purchase and Sales Agreements have a “drop dead” date for closing. (no automatic extension for loan issues)
Quick drive by comment:
Lenders/Originators should be held accountable for submitting loan docs absurdly late in the game–ie, very last possible signing day.
Regarding the “overt pressure” brought to bear by a LO on a borrower OR settlement agent:
I can think of a few instances where that could have been utilized over the last couple years. Actually, I guess that would have been nice to enforce over the last month when an LO made very condescending remarks at signing in our office (arguably threatening) towards my wife and one of our staff.
Some escrow instructions from lenders already have fraud language in it that may be redundant to the Uniform General Closing Instruction proposal, but we’ll see how this plays out.
Being the escrow police is generally an awkward thing and bad for business, even if escrow is correct. Get a name for shutting down deals and it would be tough to recover from the fallout, but that’s the game you have to play in the real estate biz.
I am all in favor of giving time for buyer’s review of documents. Too much is happening during signing for buyers to absorb all the paperwork.
For the clients who are out of the country, it was already difficult enough for people to have to find an American embassy or consulate to notarize documents. Now what?
I agree with Kary that a clause in our contracts would be great to protect both buyer and seller if the loan docs are late getting to escrow. That will probably be considered in the next P & S revision since we just received new forms two months ago. Stay tuned to 2009 or 2010.
Lastly, as agents, I have always understood if we attend signings we are there for moral support, not to give advice on closing documents. Real estate agents are licensed to fill out purchase and sale agreements, not closing documents. I leave that to the LPO’s or or lenders. I’m not always able to make it to the signing appointments, but would miss going when I can. As agents we take our sellers through most of the sales process, yet we would not be there when they about to cross the finish line!
Sexy titles, not withstanding, this is a great post. I guess you can leave the sexy titles to Marlow and Sellsius!
I can just picture the lender giving docs to the buyer (will they charge a fee to print the docs as escrow does now? Will the buyer be responsible to bring this set to escrow to sign?…just thinking “out loud”) and the buyer not reading them. The should really be reviewed at application! Maybe the whole process is backwards.
We always try to get our docs extra early to escrow. You have no idea (Tim and Lynlee do) how many calls you receive in escrow from lenders pleading or worse yet, telling borrowers that escrow has had docs for days (when they don’t have them at all). The worst offenders are the LOs who show up with docs and wait in the lobby refusing to leave until somebody signs their client. Sometimes though, we will be in a position where we cannot provide docs because of conditions to the loan. There are circumstances where we will make an exception and issue docs with all parties knowing we do not have all conditions satisfied…we prefer not to do that. This could happen more often in order to avoid delaying a transaction.
How about the signings where you’re dealing with people who do not speak English as their primary language and their Agent or LO are of their ethnic background interpreting the documents? That used to make me uncomfortable when signing docs (I was only a Branch Manager/Sr Sales Person/Notary Public…NEVER an LPO).
I like all of these changes. I have for so long tried to get the docs to escrow 2-3 days early and then I would give them the option of having the docs delivered so they could be read ahead of time. When I did get the docs early (1-2% of the time:), No buyer ever took advantage, but at least I gave them the choice. Then I always went to closing with balloons, (unless it was a single man!) and told the clients I was only there to help them celebrate, that escrow was in charge.
I’m not sure what document has the prepayment penalty in it, but that should certainly be in the docs they can read early. If the docs have to be thoroughly read, then escrow signing will be more like 4-5 hours. I do think that’s ok, though because they really should know what they’re signing.
I like the changes and think it’s about time.
And, I can’t count the number of times escrow was blamed for being late. It always seemed to me that the lender had it time to be last minute. If forced to be earlier by law, then they wouldn’t have a choice.
Everything else, everyone else addressed. Good post and thanks for the update.
Eileen, the prepayment penalty is currently disclosed on the Federal Truth in Lending and is a rider on the Note. A Mortgage Professional will not let the borrower go to escrow unaware they have a prepayment penalty…prepays are something I would love to see go away.
There’s been a few times escrow has caused a transaction to be late with my clients…not my preferred company of course. They were full of excuses and really didn’t care. I’ll never use them again. (I would bet that most times it’s the lenders fault).
Debra wrote: “Lastly, as agents, I have always understood if we attend signings we are there for moral support, not to give advice on closing documents. Real estate agents are licensed to fill out purchase and sale agreements, not closing documents.”
And the Law Practices Board (part of the WSBA) has a formal opinion out stating we’re not to even explain the P&S documents, so explaining the closing documents would be a big no-no..
I’ve always viewed attending escrow as being more hand holding than anything. It’s the least valuable thing we do.
Clearly there is no buyer or seller who does not expect us to explain these things to them. I will stop short of saying that I do…because apparently some think it is illegal for me to know my business well enough to explain it to my clients.
Is it also illegal for me to hold classes to explain these things to my agents?
Is it illegal for me to explain why the buyer is reimbursing a portion of the real estate taxes to the seller?
Is it illegal for me to explain that the calling for a 2nd inspection means that the entire results of the first inspection are also delayed because of the wording of the inspection addendum?
Is it illegal for me to explain that the Finance Contingency does not cover the buyer not having enough cash to close?
Just how much am I not supposed to say…does it involve duct tape on my mouth from beginning to end?
“the Law Practices Board (part of the WSBA) has a formal opinion out stating we’re not to even explain the P&S documents, so explaining the closing documents would be a big no-no..”
I’m not a member of the WSBA, which I assume is the Washington State Bar Association. So how do they control what me and my clients can discuss? Another case of duct tape your mouth and stick your thumbs up your butt. Give me a break! What exactly do they expect us to do when our clients have questions?
If I tell them that the inspection is due on Tuesday, is that “explaining the contract” because Tuesday is the 7th day, but technically the 5th day because the boilerplate “legal” language made it so? Do I have to tell them to consult an attorney to find out when the home inspection is due because the “blank” doesn’t explain it, the “legal document” does?
Steam coming out of my ears…again.
What they do to control you is take you to court for a cease and desist order, and refer you for prosecution for unauthorized practice of law. Either of both is sufficient.
I think they’re taking an extreme interpretation of the law, but the opinion dealt with an agent who was licensed in CA but not WA. He asked a couple of questions, one of which was whether he could explain the forms to his client. They answered no, saying the case law only allows you to fill out the forms.
I don’t know that any court would support their opinion of the law, but I don’t know that they wouldn’t either. It seems a bit extreme to say the least. But I don’t think there’s a problem telling the client how you filled out the form (e.g. 7 days for inspection). What beyond that you could do really isn’t clear.
Check out opinion 04-02 here:
http://www.wsba.org/lawyers/groups/practiceoflaw/advisory+opinions.htm
I was surprised when I saw it, but it does say what it says.
Apparently this issue has come up before, before I was reading this site:
http://www.raincityguide.com/2007/02/13/wheres-the-line-between-agent-and-lawyer/#comments
I didn’t read all the comments, but Ardell asked a question early on about how you get to can’t do it (write language in a form 34) from the court decision. I’m not sure whether that was answered to her satisfaction, but here’s my answer.
As a real estate agent you’re authorized to practice law to a very limited extent. The prior blog noted that the agent in that case did draft some language, but that it wasn’t found to be unauthorized practice. Interesting take–I’ll have to re-read the case. But in any case, there is a line somewhere between what you can do, and what you can’t do. Unfortunately that line is not exactly clear, the the consequences of crossing it are not good.
Seems to me agents should be in court all the time in the spirit of the way WSBA defines what an agent can or can’t do.
Case in point: What P & S does not have addenda filled out by the agent (s). Some addenda is drafted with technical and complicated terms or instructions, sometimes not so much. Practically speaking, I would guess 95% or more P & S have addenda drafted by agents. Almost every P & S I review has addendums. I’m not an agent, but if agents are allowed to be only “fill in the blanks” robots, then Ardell’s “duct tape over the mouth” analogy rings true.
Ardell, I have a solution. Anytime any client has a question, let’s just say, “call Kary!” LOL.
Tim, I appreciate the thought, but I try to avoid answering legal questions for my clients. The thing is though, if I venture over the line too far, I don’t have the penalties hit me that would hit other agents (attorney fees, limited treble damages, etc.).
Kary,
Clearly you know that every agent in the Country explains the contract more than any Bar Association would have them do, except in NYC and North Jersey. Your case of a CA agent in WA notwithstanding, given he was practicing without a license, how many cases of the hundreds of thousands of agents explaining contracts for 100 years have been brought to penalty phase?
It becomes an issue if something goes wrong with the transaction.
If real estate agents were penalized, fined, sued every time they made a mistake, there’d be a lot of fines, penalties and lawsuits filed. But in 95%+ of transactions, both parties are happy when the day is done, and they don’t think about it any more.
I really don’t think individual agents have much to worry about from the WSBA. The WSBA would go after bigger targets, like Redfin, but even that’s unlikely because this isn’t a state that has ever used attorneys much for real estate tranactions (compared to some states). What the individual agent (or larger firm) has to worry about is the lawsuit situation where a claim for damages gets trumped into something more.
In the Cultum v. Heritage House case, which allows us to fill in forms, the damages were under $200 (interest on the earnest money). If the agent have been found to have been practicing law in an unauthorized manner, the attorney fees they would have owed would have been $32,000 (based on the amount awarded in the lower court). That’s the risk!
[...] Here is this week’s short-list of Odysseus Medal nominees: Rhonda Porter — Closing procedures, Major Proposed Changes for Residential Closings in 2008Krista Baker — Emotional needs, Do You Address Your Clients’ Emotional Needs?Brian Brady — Sub-prime oil, We’re All Sub-Prime Borrowers (Who Consume Oil)Gary Elwood — Online marketing, The 3 Commandments of Online Marketing You Must ObeyKris Berg — Concurrent closings, Newton’s Umpteenth Law – Concurrent ClosingsBrian Boero — Blurred vision, Blurred visionKris Berg — RESPA, What’s my real estate license worth? More than a hundred bucks.Bill Leider — What is a brand?, What Is A Brand?Chris McKeever — Listings portals, A [HAR]d LessonJoel Burslem — Scripps, Scripps Cracks Open the DoorDan Green — Foreclosures, Why Healthy Bodies and Healthy Marriages May Be More Relevant To Slowing Foreclosures Than Interest Rate AdjustmentsKevin Boer — Redfin, The Lessons Of Redfin, Part I: The Marketing Value Of The Obvious [...]
Wow! Fun stuff….I say we LO’s start making our Good Faith Estimates look exactly like the HUD-1 Settlement Statements. That oughta help some.
And, I bet you’ll see a Yield Spread Premium Disclosure right around the pike, where the yield is ‘dollarized’.
Of course, this definitely helps the banks that have their own escrow companies, thus making it all the more harder for self-employed peoples to provide sustainable business models. Ah well, it’s either big government or big business right? (Go Ron Paul!)
How could a bank be an escrow in a transaction to which they were also a party? That seems like a really bad idea all around, especially from the bank’s point of view. If such departments exist, they’ll probably get closed damn fast once the first deed of trust gets avoided based on something the escrow knew at closing.
Here’s Wells Fargo Escrow, LLC: https://www.wellsfargo.com/jump/mortgage/escrow?_requestid=42153
Here’s Countryslide’s Title and Escrow Services in FLorida: http://www.countrywidetitle.net/HomesAndAgents/
Fun stuff, eh?
Banks have been using their own escrow for years and years. How neutral is that? Plus (off topic now) when you use a bank, you may get to use their in-house appraisal (like Countrywide’s Landsafe).
Many local real estate companies have ownership interest in escrow and title companies too. Cozy.
I don’t think that the new escrow requirements will stop agents from attending signing appointments. It might alter how they engage in those meetings but I don’t think they’ll go away. I tend to go to about 95% of my client signings because we know that there are plenty of times that last minute issues come up that need problem solving and we’re there to help handle it since the escrow company doesn’t represent our client.
It will be interesting to see if lenders start working harder to get documents in to escrow at an earlier date but I’m sure there may be pressure from lenders to agents to begin pushing out timelines of contracts to accommodate these requirements. Such as, put a 35 day closing period versus 30 days since we know it typically takes 15 – 21 days to get through the underwriting process. It’s one of the sad issues of the general industry that all these specialities don’t work more closely together to streamline processes and that many of the legal requirements of one segment are in direct conflict with another segment (escrow/lending/real estate).
Our docs are typically very early to escrow. Sadly, escrow companies we’ve not worked with before are often very surprised. Many lenders (and escrow companies) work from the closing date backwards. Which of course you do have to prioritize transactions…this will make it tougher to do “quick” closings like a 10 day or two week.