Escrow Trenches: nutty funding conditions

Recall those episodes where Jerry Seinfeld grits his teeth and in one exasperated and frustrated breadth says, “Neeeewman!”

Similarly, so do title and escrow staff in dealing with lender funding conditions and other challenges that seemingly are for no other purpose but to drive us to the closet for our straight-jackets.

Unfortunately, some conditions cannot be easily met at the moment the request comes over the fax or e-mail.   Some require work that delays closings.  Or, in extreme cases a condition can completely shut down all other transactions you are working on for a couple of hours to work feverishly to meet conditions or do a workaround when parties to a transaction become completely uncooperative.

Here’s a couple funding conditions pulled from our short list posted on our blog:

  • “Prove that the borrowers are not married.” (hmmm)
  • “Slight variance in borrower’s signature from others of the same borrower, need borrower to re-execute documents.”  (can cause escrow people to find a new profession.  Who’s signature is the same after signing an FHA loan package that is 119 pages long and 1.375 inches thick?)
  • “Borrower signed on the line adjacent to the one provided where the name appears.   Please re-execute the document.”  (resulted in a re-sign after tracking down the borrower).

While these are humorous after the fact it also paints a picture of what goes on behind the scenes.   Another thing that creates grins for title and escrow staff:  When there is a “rush” on a request and that request involves the collaboration and cooperation with a government agency.

60 thoughts on “Escrow Trenches: nutty funding conditions

  1. Mortgage closings are why banks, government, and lawyers should never ever work together. It takes 200 pages and 2.5 hours to say pay your mortgage on time or else the bank will foreclose.

  2. Lenders simply don’t understand that escrow cannot guarantee everything that others may do.

    How does escrow satisfy the condition of Bank of America on its short sale authorization that no resale of the property may occur for 30 days? Exactly how does escrow guarantee that the purchaser cannot resell? Perhaps we are required to record the completed deed, but hold the buyer’s new loan funds, and of course hold the proceeds for 30 days, so the closing does not become finished unless no resale occurred within 30 days.

      • A Loan Officer. B of A was specifically mentioned as one that may no longer permit agents to credit buyers at closing toward closing costs. Perhaps they want the buyer to be more vested than the downpayment as in paying their own closing costs. Not sure. But not surprised either. I’ll have to do Purchase Price adjustments early in the game to compensate as needed.

        Have to get over to meet Rhonda and Rob over at The Tap House in Bellevue for Game 6!!! Go Phillies!!!

        • Dang banks. Sick of ’em. Spent almost an hour on hold for the release dept. of a large bank so I could could work to clear an old encumbrance long since paid off only to be given the wrong fax number by a customer service person located in a far away land. Actually a good topic on other item that can derail a closing.

          Go Phillies!

        • Ardell, I wonder if that’s a loan to value issue? Typically, the larger the downpayment, the more credits the borrower may be allowed towards actual closing costs and prepaids.

          I haven’t heard of this either and BofA is one of the lenders we work with.

    • That’s news to us, too. We’re contractually obligated to apply the full SOC to the buyer’s closing costs and if that does not exhaust the SOC then return the balance to the buyer. We’re completely up front with the lenders and provide them with all information necessary or requested to facilitate the transaction. So far, we’re finding the lenders cooperative, although it does take some education. That said, I don’t believe we’ve dealt with BofA yet.

      • This is what I don’t get Craig. Banks providing conditions on agreements (like listing agreements for example) that they are not a party to.

      • Craig,

        You need to add a capture provision and item on your site that includes a last resort option of reducing the purchase price, if needed. And “if needed” can’t happen too close to closing or the loan docs will have to be re-done.

        This is one of those “new” but old considerations. Historically lenders have been known to draw a line between “true” closing costs and “prepaids”. Where the credit is not getting approval, often closing agents will shift costs to to the seller side, as there is no reason the contract can’t be amended to say that seller will pay ALL escrow fees, vs. half. But shifting the buyers pre-paid interest??? Not often allowed.

        It is also not possible to get a firm “ruling” or even statement of “a rule” on these things, as lenders will say yes you can to one borrower and no you can’t on the next, based on the individual buyer’s credentials. Strong buyer can = no prolem and a minute later a different Weak buyer can = no you cant from the same lender.

        All that said…handing money to the buyer off the sheet is almost always a no you can’t, so the option to capture that via an adjustment to the Finance Contingency at time of offer, is very important. “excess credit to be applied as an adjustment to purchase price” is a good safeguard.

        I did one in the first quarter of this year with a $36,000 credit from the builder, and I could only use $26,000 and had to reduce the purchase price by $10,000. The standard contract as written would have that $10,000 go back to the builder if I had not written in the capture provision.

        • Thank you, Ardell, for the input. That said, I assure you we are well aware of the various “no”‘s — and of the “NO!”s — and never run afoul of them. Again, we are of course completely up front with all interested parties. As for changes to our site, again thanks for the input but we feel the site is sufficient in terms of describing our arrangement with our clients. The forms actually signed by the clients of course go into much further detail.

  3. I was wondering earlier if the agent “credit” question from Ardell had anything to do with the new changes coming to us via RESPA in Jan. Found this in HUD’s FAQ PDF:

    6) Q: How should payments by the seller or real estate agent that are for settlement services included on the GFE be shown on the HUD-1?
    A: If a seller or real estate agent pays for a charge that was included on the GFE, the charges should be listed in the borrower’s column, with an offsetting credit reported in Lines 204-209 of the HUD-1, identifying the party paying the charge. For a seller-paid charge, the charge should also be listed in Lines 506-509. For a charge paid by the real estate agent, the name of the person paying the charge must also be listed.

    • It seems to me that initial GFE’s are going to be virtually worthless because there are so many variables (fees) that can change from the time a borrower becomes pre-qualed to the point of making a purchase where credits and debits can change sometimes twice or more withing the framework of a sale. My sense is that there is going to be a lot of changes moving from specific fee quotes to generic “all in one” fees to avoid potential issues, re-disclosure after re-disclosure etc…

      Title companies are already charging flat fees for recording charges to prep for the new year. And, these flat fees are over and above what true recording fees etc. really cost. Are the new changes to RESPA going to decrease fees for borrowers and promote clarity. I wish, but it does not appear that is going to happen as hoped.

      Two weeks ago I spent three hours in the wee very early morning before work started updating software changes with our vendor (all title & escrow firms are doing this) to prepare for the January 1 changes.

    • Jillayne,

      I was surprised recently when a closing required (not sure who required it, but assuming it was the lender) that the buyer costs be shifted to the seller side until the seller credit was fully absorbed.

      This bothers me because some income tax deductible costs are deductible by the buyer, regardless of who pays them, under IRS rules. If the buyer doesn’t get the seller closing statement, they don’t have a record of those tax deductions.

    • Really don’t know for sure. 🙂

      LO’s are busy trying to figure out how to deal with the new regs and what it means to work in a new world of “fiduciary duty.”

  4. We are seeing more and more conditions–including proving a house had proper permits from years ago (prior to the borrower’s ownership of the home).

    Homebuyers/borrowers and re agents need to remember that we’re dealing in unprecedented times.

    • I have seen some wacky stuff of late. Very frustrating as clients, Realtors, attorneys don’t know why we are asking for it.

      Everyone needs to change their expectations. I still get agents trying to write in two week mortgage commitments. Borrowers thinking getting financing takes like five minutes and they get angry that we are asking for a DNA sample. Everyone needs to get a little more flexible. Everything we could do a year ago… hell a week ago… doesn’t mean we can do it now.

      • Lately it seems like there has been less of “working together” to have a successful closing…folks seem very intolerant of what’s going on in the mortgage industry. I don’t know if it’s the euphoria of the tax credit that’s made people forget the last 2 years or what the cause is.

        I also feel that w/the new GFE alone, we’ll see more LO’s exit the business beginning Jan 1. (not me!)

  5. We are seeing more and more conditions–including proving a house had proper permits from years ago (prior to the borrower’s ownership of the home).

    Homebuyers/borrowers and re agents need to remember that we’re dealing in unprecedented times.

  6. GFEs have always been worthless… most aren’t worth the paper they are written on. They are not commitments to lend money and are only as good as the LO preparing it.

    Everyone involved in the transaction is going to have to get their figures straight ahead of time. I agree that we are going to see a move towards just one shot pricing which typically means some padding is going to be added to make up for mistakes.

    I have had a few issues with agents adding credits at the last minute and not telling anyone until the closing. A lot of lenders want the contracts and credits to match what is given at the closing, so we need new addendums reflecting the changes.

      • Rhonda,

        “Why does the lender care?!” is a question/complaint I often here both from agents and buyers. An agent not knowing what lenders will care about is one of the reasons for the huge pending fall out.

        1) Why does the lender care where the downpayment is coming from?

        2) Why does the lender care that the downpayment didn’t come from my account?

        3) Why does the lender care that the downpayment is coming a different account of mine than the one I gave them statements for back on week two?

        …and the agent “none of your business” you refer to only shows that the agent is lacking the experience to be being paid at all…and I have heard it often.

      • “Kicking back”? Boy, that is a really poor choice of words as that certainly implies some fraudulent or criminal scheme. Assuming the return of funds to the buyer — whether as closing credit, cash back, or other benefit — is fully disclosed to all interested parties, the term “rebate” should be used. Now, if the return of funds was done under the table and was not disclosed to the lender (or escrow, or the seller, etc.), then perhaps “kick back” really is the right term.

        • Craig, you’re right–poor choice of words–how about scratching that for a selling agent contributing a portion of their commission towards the buyers closing costs. 😉

          This was a situation where the agent did not think that I needed to know. If it wasn’t for me sending an updated good faith estimate to the borrower prior to their signing appointment, we would not have known without seeing the estimated HUD (assuming escrow provided one and that it was disclosed there).

          In a situation like this, the lender does need to verify that the buyer is not receiving too much in credits/funds per the guidelines.

        • Craig,

          While I agree that it is not a “kickback” I don’t agree with your why. Clearly if an agent received $50 for the buyer or seller choosing a home warranty, disclosure of that fact does not make it any less of a “kickback”. So disclosure and approval by all parties is not the reason it is not a kickback.

          The reason it is not a “kickback” when the buyer’s cost is less than the seller offering, is because the buyer is every bit as much a party in interest to the transaction that the seller is. So a reduction in the buyer agent fee needs to find equal footing to reduction of the seller agent fee, but price reduction of that amount is likely the most responsible way of achieving that.

          UNLESS the buyer is a cash buyer, the lender has every right to restrict cash backs and rebates as long as the money being exchanged is related to financed funds. Just because the lender is willing to allow financing of legitimate costs, does not mean they will allow $5,000 cash back or rebate to a buyer so that the Disney Family Vacation is financed in the home mortgage.

    • Russ,

      Clearly GFEs are NOT worthless if you use them as the worst case scenario as to cost. Costs are less…does not make them “worthless”.

      As to agents not telling you about a credit until the last minute…count me in on that list, though day of closing is a bit of a stretch unless you are having a Settlement on the East Coast vs. an Escrow Closing on the West Coast.

      RARELY (ask Lynlee and Tim) do I send a Commission Disbursement Form to escrow when they want it (on day 2) because I often don’t know the final cost of my service until I have done the service…or at least am deep enough into the transaction to have a clear handle on that. It annoys me to no end when escrow wants the cost on day one of the escrow period.

      As to late in the day agent credits, often those are about home inspection issues or “fairing out” an issue that arises during escrow. The Seller offered Buyer Agent Fee is basically a “retainer” and not a set amount that holds steadfast to the end.

      All industry professionals need to get their brain around all the things that are happening from start to finish of a real estate transaction, and not simply their piece of the multi-faceted exchange.

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