Tag Archives: escrow

$100,000 + in consumer savings: It pays to shop

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[photopress:j0409344.jpg,thumb,alignright]Since Ardell mentioned the rebates her clients enjoyed, it got me thinking about our small business and how we stack up. During 2006, our purchase and sale clients saved over $60,000 in escrow fees alone compared to our competitors, more if you add up all the other industry inventions consumers are charged for. That figure does not even include the refinance business our office closed.

Put this in perspective:

Let’s say the median sales price in the Seattle area for a single family house is about $450,000 and the fee a seller pays to agents is $27,000, or 6% of the sales price. In contrast, the escrow fee each party (buyer,seller) pays at our office is about .0011111 or 1/10th of one percent of that same sales price. This illustration is not to say agents are overpaid.

Evidently, escrow fees are negotiable. Over the last few weeks our office has received a few calls from people asking if we will match certain title companies who are dropping their escrow fees—ironically, to levels that our clients have enjoyed and where we’ve been residing for the last three years running.

It pays for consumers to shop.

End of Month Fireworks: LOE's and YSP's

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(LOE) Letter of Explanation:

Can a loan officer draft their own letter of explanation (typically to explain issues on a credit report or some other circumstance) on behalf of the borrower? Is this ok, ethical or worse, fraudulent. If they can draft the letter and the borrower signs it, is it acceptable at that point? If underwriting became aware of this, even though the borrower signed the form indicating that it is a true statement, would that fly? My wife and I are arguing over this, but we don’t know the answer.

YSP (Yield Spread Premium):

There may be some agents that do not understand this, so I’ll let the loan officers explain its meaning and various uses.

Recently, a borrower at a signing was given a brutally clear disclosure/explanation of the YSP as part of their loan package. It disclosed how the YSP could be used to assist the borrower in paying for closing costs, or buying down the interest rate or used as additional compensation to the loan officer for INCREASING (this “increasing” verbage was on the disclosure and not used here for effect) the interest rate over what the borrower could have received. This disclosure actually stated the interest rate on the note and the specific amount of the compensation going to the broker over and above the 1% loan origination. I’ve never seen such a clearly explained YSP disclosure. Many lenders do not have a YSP explanation disclosure as part of the loan documents.

Did the disclosure or the loan officer (LO) kill the transaction (with borrowers who had sterling credit, pushing the envelope with a 3 yr. pre-pay penalty AND the YSP)? I really would like comments because my guess is that the LO will blame the lender. In this case, the borrower was highly concerned (there is a better word for it , but concerned will do) and promptly called the LO to discuss the situation and I’m speculating that the conversation also touched on why this disclosure was not given when they made loan application or on the GFE. The borrowers promptly signed the rescission and left. Although I am somewhat aware of up-front disclosures on the lending side, perhaps someone in the business could shed light on this. Obviously, you cannot know loan fees until the lender, loan program and interest rate is chosen.

Lastly, should any escrow firm be entitled to a full escrow fee for fulfilling their job and recovering any third party fees incurred during the escrow period? Any escrow/title/attorney folks want to comment on that?

Escrow agents and how they protect themselves

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When you choose an escrow company (or “closing agent,” the person who does the work necessary to close the transaction), you look for several qualities: competence, service, location, etc. One factor you probably don’t consider is whether the escrow company is willing to be responsible for its own significant errors.

When escrow is opened, the closing agent sends both buyers and sellers a copy of its standard escrow instructions. These instructions supplement the purchase and sale agreement and instruct the agent as to how the transaction should be closed. There appear to be only a handful of templates used by the many different escrow companies, as it is very common to see the same set of instructions regardless of the escrow company. In the vast majority of those instructions (perhaps 85-90%), there is a little-noticed sentence, typically in the “Disputes” paragraph: “The parties jointly and severally agree to pay the closing agent’s costs, expenses and reasonable attorney’s fees incurred in any lawsuit arising out of or in connection with the transaction or these instructions, whether such lawsuit is instituted by the closing agent, the parties, or any other person.” The exact language of this sentence may vary somewhat, but the gist is the same: if anyone sues the closing agent for any reason, buyer and seller will be responsible for the closing agent’s attorney’s fees and costs.

The effect of this language is to insulate the escrow company from any liability that arises out of the closing agent’s negligence. Say, for example, the closing agent neglects to pay off an existing lien on the home. When buyer takes title, the buyer will now have to deal with this lien that was incurred by the seller. A reasonably prudent closing agent would have insured that all liens were satisfied at closing, and the agent’s failure to do so probably constitutes negligence. Under normal circumstances, the agent (and escrow company) would be liable to the buyer for the harm caused by this negligence. However, if the instructions contained the above language, the agent almost certainly will avoid liability. Why? Because if buyer were to file suit against escrow in this situation, buyer would be responsible for paying escrow’s attorney’s fees and costs in the lawsuit. As anyone who has used an attorney to defend them in litigation knows, attorney’s fees can be very, very expensive. Thus, the above language is an incredibly strong disincentive to seeking compensation from escrow, even in those instances where escrow’s negligence causes harm. I believe this is simply not fair to the buyer and seller.

In my experience, most (but not all) escrow companies are willing to modify the above language so that it does not effectively bar a suit against escrow based on escrow’s negligence. It’s certainly an issue you may want to address when deciding which escrow to use in your transaction. Needless to say, an attorney can quickly negotiate a change in these instructions on your behalf. [This post does not constitute legal advice. Consult a lawyer regarding your particular situation.]

The Escrow Files: sometimes stuff happens

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[photopress:destroyed_check.JPG,full,centered]
When checks are late to the recipients, escrow tends to sweat. Now we know where this check ended up! Everyone started laughing when we received this 1/6th scale “lost” check in the plastic baggy from the post office. This was shreaded and after a few minutes of taping what we had together and smoothing it out with books, this is what was left!
Note the language on the postal baggy: “We care….we hope this didn’t inconveniece you….” Nah, we enjoy angry customers wondering where their money is. 🙂

Agents & Loan Officers to communicate regarding seller-paid closing costs

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(Editor’s note, Tim jumped the gun and posted this article by his wife, Lynlee, before I had a chance to set her up as an author. As soon as I have it set-up, I’ll give her the proper introduction.)

I’m writing this because of numerous problems I have encountered in regards to seller paid closing costs. It has been a trend for buyers to increase the purchase price in exchange for sellers paying buyers’ closing costs by the amount of the price increase. For example, we commonly have transactions where the buyer offers $10,000 more than the listing price and the seller will pay up to $10,000 of the buyer’s closing costs.The financing addendums used in our area specifically indicate that the seller credit may be applied only towards actual closing costs/pre-paids (interest,taxes, HO Dues, etc). The problems that we have encountered occur when the closing costs are less than the amount the seller agreed to contribute.For example, if the seller agreed to pay up to $10K, and the closing costs only come to $8K, then the buyer is looking to get the difference in some manner. Buyers get extremely upset at their agents when they have increased the purchase price by $10K and they are only receiving a credit of $8K. Again, the seller can only pay the actual closing costs.

Suggestions to avoid this problem and reduce obvious tension created by having escrow call the parties involved at the very last minute (which by the way, is usually the day or two before closing):

  • Have the buyer get a good faith estimate from their loan officer BEFORE determining what the seller credit should be.
  • Agents, MAKE CERTAIN that the loan officer knows the amount of the seller credit. If the seller credit will exceed the closing costs, have the difference applied towards a loan discount fee to buy down the interest rate. THIS SHOULD BE DONE WELL IN ADVANCE OF CLOSING DOCS SENT TO ESCROW. (I know many escrow folks may thank us for saying this) 🙂
  • The difference CANNOT be used to reduce the purchase price. This would require the loan to go through underwriting again.
  • Agents need to understand the ramifications of increasing the sales price and having the seller pay for buyer closing costs that may not meet the intent of the parties.

When this problem occurs the common knee-jerk response by the agents to escrow is “why didn’t I hear about this sooner.” Escrow’s response is typically, “we agree.” 🙂

It is always better to “anticipate” problems that can occur and work through issues including being receptive to suggestions by your loan officers and other real estate professionals rather than being “reactionary” when one is in a pickle that is entirely avoidable.

Note: This is general in context and is written primarily for Washington State

The Rockford Files leads to "The Escrow Files"

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[photopress:Jimrocky.jpg,full,alignright]

For those of you who grew up in the 70’s, if you were like me and missed an episode of the Rockford Files, you were really bummed out. Missing the Rockford Files was almost as bad as my parents making me late for my soccer games. Not a good thing. Tivo, where were you?

Jim Rockford (James Garner), what a guy. He always seemed to get into a pickle and get out of it. That Pointiac Firebird of his; all my friends wanted one, even if it meant riding my dirt bike to the store and buying a $2.50 model of it and putting it on my dresser. That was good enough for me. Those humorous one liners with “Angel,” brings back lots of great memories. The humor reminds me of some of the things we have come across in the world of escrow. In escrow, if you can’t find any humor in the business, it will eat you up.

Rather than send out mundane APB’s to our entire client base about issues that come up or tips based upon transactions that go haywire, we think that adding humor into the fold has more impact and can also be helpful to our Realtor customers in providing better service and foster smoother closings for their clients.

For example, escrow companies are extremely busy at months end and the phones ring constantly. It’s hard to get work done when you receive phone calls from nearly every party, sometimes two or three times in a day, asking, “is it closed yet?” So, to help reduce stress at month end, we started a “counting” system where we tally the transaction with the most phone calls asking, “is it closed yet?”

We made the question, “Is it closed yet?” into a funny YouTube video parody skit, starring our kids who play the Realtor, the buyer, the seller and loan officer. The movie series is called “The Escrow Files.” This Fall our series will be both print and video.

Since the month ended yesterday, the transaction with the most “is it closed yet” calls was nine! For perspective, if our small office closed 30 purchase transactions this August, you get a good picture of all the people calling: buyers, sellers, agents, loan officers, funding depts, etc….on just one deal…now multiply by 30. Maybe we should get another number from Verizon dedicated as our “Is it closed yet?” hotline!

To tickle your funny bone here’s a sample from this year’s, The Escrow Files:

  • Written on an “Addendum” during 2nd quarter 2006: “Buyer to walk through house prior to closing.” Didn’t they do that already, like many times?
  • Lowest earnest money amount winner ytd: $200 cash. Wow.
  • “Should I stick around for you to cut my commission check?” –agent with clients who just signed their loan docs and the deal won’t close for another week.

Stay tuned for more and have a great three day weekend! We are looking forward to the day off!
Tim & Lynlee

"Tiptoeing" through ethical minefields

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It’s getting a little warm in the kitchen of Real Estate

Two questions have been eating at me for some time.
First, one of the most difficult questions to answer deals with my own brethren in the escrow industry. Why is it that a traditionally transaction “neutral escrow company or service” only receives compensation if a transaction successfully closes?

To me, at least in the realm of escrow, this is the mother of all potential conflicts of interest. Isn’t it a conflict of interest to the parties involved and our fiduciary duty to the lender (yes, folks we do have a duty to protect the lender from potential fraud, which is clearly stated in escrow instructions from some lenders) if we are only paid if the deal closes? Wouldn’t that create a lot of problems, particularly if you have pressure from loan officers or Realtors to “just get it done