How Loan Officers Harvest Seller Paid Contributions: An escrow perspective for buyers and sellers.

Preface: Last week Rhonda Porter brought up the topic of β€œAre you leaving too much on the table.

46 thoughts on “How Loan Officers Harvest Seller Paid Contributions: An escrow perspective for buyers and sellers.

  1. Thanks, Lynlee! You really hit it home. This is what I was trying to convey in my post, but as Morgan mentioned on his blog, Blown Mortgage, I “sugar coated” it. This was my experience when I was in escrow as well.

    There is an attitude of some in the industry to “not leave anything” on the table. And it can come from the buyer feeling as if this negotiated “up to” closing costs was not properly spent on…yet if it just goes to “origination” and not to buying down the rate (which in my scenario, at 1%, it probably would have bought the rate down from 0.125% to 0.25%), it’s wasted on the LO.

    I’m not sure if this is a question for you or not…but since the p&s is left up for interpertation… how could an agent prepare the addendum so that the LO does not get the “crumbs” of the closing costs? I’m thinking it might have to have “allowable costs” with actual figures…

    Great post! πŸ™‚

  2. I have a great idea.
    Why allow the seller to contribute to closing costs at all?
    We only use to allow that on VA loans.

    Everyone knows the seller isn’t giving the $10,000 (using Lynlee’s example) to the buyer out of the goodness of his or her heart. The seller and agent raise the sales price and everyone else hopes the appraiser hits value, thereby creating an artificial bubble in the market and in the comparable sales used by other real estate agents and appraisers down the road.

    Let’s get real and make the lender finance closing costs by making an above-100% LTV loan, instead of pretending it’s just a lil ‘ol harmless 100% LTV.

    Don’t like the interest rate and payment that goes along with that kind of loan? Then save up some money first. Of course if we enact such strict guidelines, the entire industry will scream bloody murder because this will turn off the profit machines.

    We need one of our RCG attorneys to jump in here and give some direction to the agents on how the existing NWMLS forms might be able to help the homebuyer, homeseller, and agent.

    I can tell you what the Wa State Mortgage Broker Practices Act says, but like I keep saying over and over again, the state does not have enough resources to monitor every single transaction.

  3. That is just so gross.

    The only time I remember having an issue, the buyer hadn’t selected his lender yet. Then he qualified for the then available First Tech first time buyer program with costs of only $500 or so. We changed the price very early on so the docs were correct the first time.

    The very first time it happened escrow called me, the buyer’s agent, and I did POC’s for the Home Inspection fee paid out of pocket, the appraisal paid out of pocket and threw in a warranty for the buyer to suck up the small remainder.

    Why would escrow NOT call the buyer’s agent to work this out? Why are they calling service providers and not the buyer’s agent? I don’t get that part.

    I do know the first time it happened and I was finding things of the buyer’s to use it for, escrow did say I was the first agent they heard of trying to use the money for the buyer. Isn’t that what it’s FOR? How could I have been the first one scrambling not to lose it?

    It is too gross for words. This is the kind of stuff that happens when we expect too little of agents. Rarely are my original estimates off and never would anyone I work with try to take advantage of that situation. And yet you say it happens all the time.

    Shouldn’t the buyer be the first call? The buyer’s agent? Shoot, we could get the place professionally cleaned, make a repair, install a new chandelier…something that benefits the buyer!

  4. Jillayne,

    I don’t like the idea of not allowing for financed closing costs. It’s a tool used for many reasons.

    Like the house needs a new roof in a year or two, but is currently “passable”. We can’t get money for a roof from the seller as the lender won’t permit the wording for “roof”. The new roof going up protects the lender for the higher value, even if done after closing. The only way to get the roof money is to say it is for closing costs, and have the buyer use the closing cost money for the roof.

    Often the buyer has just enough to put 20% down, but not enough for 20% down plus closing costs. Doing only 15% down gives the buyer PMI or a high rate small second. Allowing him to put 20% down and stack the costs works out better.

    I’ve been using stacked costs for negotiating, repairs and to give the buyer a higher downpayment for all of my career. So I don’t know when “used to be only VA” was. If it was before MY time, it was definitely before yours.

    FHA includes costs as far as I can remember. It’s been a long time since I’ve done an FHA loan.

    Also, if someone is buying a condo, and I know all of the comps had closing costs included, I often equalize by including them. A seller often wants what everyone else got. He wants the price to be X. The price would not be lower without the closing costs, so the only way for a buyer to get a fair shake is to include them too.

    No, I don’t like the idea of not allowing them to be in there all of a sudden. Would do a lot of damage to a lot of people. Get tough on the appraisers, yes. But if it appraises for the price with the costs, why penalize the buyer?

  5. Lynlee, I’ve seen lenders redo docs in a short time when they make a mistake, why not to capture the buyer’s credit.

    I do not agree with suggesting to people reading this that the Price can’t be changed. It can. Depends on the amount of the credit. Once the difference was so small that I let it go back to the buyer and gave the amount to the buyer. Under no circumstances should ANYTHING happen without the buyer being notified first.

    Sorry…I’m getting riled up. I’ll go to bed.

  6. Ardell, this is a gross practice and it does happen. When I cannot use all of the funds, it is credited back to the seller (not me–I like my sleep and I do think about that “golden rule)…although I could easily pump up my origination–I don’t.

    Estimated Settlement Statements are provided to the lenders and I’m assuming both agents (am I correct, Lynlee?)… I know 90% of the time the escrow company provides me one for review so I can make sure I’m in line with my GFE and that there are no mistakes with the lender fees. If the est. HUD-1 is provided to both agents, then they would see (assuming they have an honest LO) that not all the credits were used (the agent would need to add up the costs the seller is paying to see what was used–otherwise, it would just “blend” into the sellers proceeds).

    When I was in escrow, we did a separate list to show what sellers costs were being paid and the total. We found that the seller and buyer both wanted to know where the money was going.

  7. Jillayne,
    Lenders do have 103% financing. These programs require much higher credit scores and may have higher pmi rates.

    I don’t think sellers contributing to closing costs should go away. I think greedy LOs should (go away). πŸ™‚

  8. Ardell and Lynlee, regarding comment 5 (and back to my original post):

    If the closing costs says “up to” then is it really all of the buyers’ costs? It seems to me the seller is agreeing to pay closing costs and is trying to be generous in covering up to a certain amount–not all of the amount if the cost come in lower. Isn’t the p&s about what is intended by both parties? (I’m not an atty or agent…however, this has been my understanding).

    If it says “up to” shouldn’t the difference come back to the seller?

  9. Pingback: phil.rice » Blog Archive » Loan Officer Harvest

  10. I have just never seen this be an issue, personally. When the contract reads “up to”, all parties are very clear that the intent is for the buyer to enjoy the benefit of the entire credit. I agree with Ardell – There is no reason for this to ever be a problem. I am making the presumption here that the buyer’s agent has run the numbers and satisfied themself and their client that sufficient, legitimate costs will be involved to absorb the full credit. If that is not going to be the case, there is no excuse to not recognize it early on. Then, there are truly options (adjusting the purchase price being just one of them). Since credits to the buyer can be used for non-recurring costs as well, there is always the ability (again, in my experience) to prepay items to a greater extent in order to realize the full benefit of the credit.

    Just this week a buyer I was working with accepted a substantial credit from the seller in lieu of repair items. My first call was to escrow and the lender for an estimated closing statement to ensure that we wouldn’t be exceeding the buyer’s “true” costs. Had I found that the credit was excessive, we would have restructured the concession accordingly.

    I suspect that the issues you raise occur only when the agents aren’t paying attention and then, when closing is on the horizon, suddenly recognize the gap and scramble for a solution. And the “solution” you spoke about is, as Ardell put it, gross to the nth degree. Yuck – I’m feeling the need to go shower.

  11. Rhonda,

    No. I can see from your end why you might feel that way, but anything built into the price at time of negotiation is boiled down to a net.

    When a buyer makes an offer of $330,000 with $5,000 toward closing costs, that is an offer to the seller of $325,000. The seller looks at it that way and so does the buyer and so do the two agents involved.

    Adjusted gross offer pirce…take a peek at an escalation clause (35E) for clarification. The credits are netted out.

    Because of the boiler plate wording, you are correct, but the buyer doesn’t “say” that…NWMLS says that. What people don’t understand is that you can’t “cut a check” to the buyer for the difference.

    We all wonder how escrows absorb the Redfin credit if there are seller credits in addition to the agent credit. Though I have had situations where the buyer was allowed to receive money back, it has to be “on the sheet” and depends on the buyers downpayment and qualifications.

    Just because costs are included does not mean it is 100% financing. Most times not for me. And the lender in those cases is more lenient regarding return of excess to the buyer.

    Sometimes it is about the psychology of negotiationg. Say asking price is $309,000, which usually means the seller wants at least $300,000 and the buyer wants to pay $295,000 (the standard first number tug of war negotiation), If you offer $300,000 less $5,000 for closing costs, the buyer has a better chance of getting it for $295,000. Seller sees $300,000 and is OK, buyer sees net offer as $295,000 and is OK. It’s a common “win-win” scenario.

    If the seller later gets back a portion of the credit, it screws up the original negotiation (intent of parties).

  12. I just read Phil Rice’s companion article.

    Here’s how I REALLY feel, and my ethics in the whole subject of excess credit.

    It should NOT go in the buyer’s pocket or the seller’s pocket or the agent’s pocket or the lender’s pocket or escrow’s pocket.


    It is part of the financing. The whole point of “lender fraud” is when money loaned for a property ends up in someone’s pocket, without the lender’s express approval (off the sheet).

    If the money ends up improving in any way the lender’s collateral (the house) then the lender is protected. If the money is used for a roof, the lender is greatly protected. He funds a house with a roof that needs replacement soon. IF there is a NEW roof on the property IF the buyer defaults, then the lender is better off.

    If people truly understood what “lender fraud” meant, and the reason behind it, we wouldn’t have these problems. Heck if you put in a granite countertop with the money, the lender would be better protected than if the LO made more money.

    I always make sure that somehow the money ends up in the house. That protects the lender as it improves the value of the lender’s collateral for the loan.

  13. Kris, ask your escrow officer/closer if this happens. My point in my original post is that this practice goes undetected. I’m curious what your closer will say. (I hope you’re correct and that it doesn’t happen).

    Just as Lynlee mentions that the processor asks if they want to bump up their escrow fees, I’ve had escrow contact me to see if I wanted to increase my origination “no sense leaving anything unused on the table”. Like Lynlee, my response is always a firm NO.

  14. Someone read all of Lynlee’s post and tell me where the Buyer’s Agent is in the picture when this happens? All the calls seem to be to everyone except the Buyer’s Agent. If no one advises the Buyer Agent…then whose fault it is that the buyer gets screwed?

    I rant on this whole Buyer Agent thing because clearly the escrow process iteself, and all common practices on the West Coast vs. East Coast, do not adequately respect the role of the buyer and the buyer’s agent in the process.

    On the East Coast (outside of NY/N.NJ) that never happens because everything is table funded and both agents and the buyer and the seller are AT the proverbial table, literally and physically. Things can’t get between the cracks as much when all parties are staring at the paper at the same time.

    Something as simple as file being in seller’s name. When I first came to Seattle and called escrow regarding my buyer client’s closing, they kept asking “what’s the seller’s name”, as if the buyer wasn’t a party. Even in my then real estate office, every file was in the seller’s name, even though most files we represented the buyer.

    It seems like a small thing. But every tiny sway to ONLY SELLER MATTERS in terminology, like saying “selling agent” vs. “buyer’s agent” and like saying “co-broke fee or co-op fee vs. “buyer agent fee”, invades the thinking and actions of everyone involved.

    Do you know the owner-brokers of NWMLS actually made a change in the Rappatoni system to make sure the Buyer Agent name NEVER shows up???

    If it hurts the buyer, if the buyer is the one getting short changed, it is the buyer agent’s job to know about it and to fix it. I’ll have to scan the original article to see if the word’s “buyer agent” even appear.

  15. Hi Lynlee,

    Great post. You did a great job highlighting this issue that’s easy to miss. Just an idea…you might consider keeping a list of things, like this one, buyer’s & buyer’s agents should be aware of in their transactions (for that matter, make another list of things seller’s & seller’s agent’s should be aware of). That’s something I know many of my clients could/would use, and I’d be happy to link my sites to yours, if you’re interested in this?

  16. Ardell, Lynlee does mention “agents” (plural, meaning both listing and selling, I presume). I would love to hear a listing agent chime in on the “up to $$” phrase.

    The listing agent who contacted me which prompted my post believed the difference of unused closing costs would be returned to the seller, not buyer (and certainly not the LO).

  17. Lynlee (or Tim), I just had an idea–let me know if this works– if you get a 1003 (loan ap) when escrow is set up, could you compare the closing costs shown on page 3 to what is charged on the HUD?

    Or, since escrow is a “neutral 3rd party”, is this something that escrow cannot do?

  18. This is a practice of which I was totally unfamiliar. I’m not willing to give any “tips” about how an agent can draft a contract to protect her client and herself, as I need to keep some of my trade secrets secret (and, quite frankly, I need to think about it). However, at first blush this appears to be inconsistent with the WA Consumer Protection Act. I am intrigued, to say the least…

  19. Craig,

    The issue, Craig, is often not so much the legal wording of the appropriate clause, as it is timing and lender requirements.

    I was involved in one once where the lender wouldn’t permit the payment of prepaids, only “closing costs”. It was a “condition of funding” at the last second. Regardless of the wording of the document…lender rules! No funding, no closing. Even if contract said (and it does) that seller WILL pay the prepaids, lender still has final say regarding whether or not seller CAN pay the prepaids. That changes from one buyer to the next, and sometimes is a last minute decision of the lender for an “on the fence” situation.

    A final underwriting decision on a “maybe” loan can be “OK, we’ll fund this IF the buyer pays their own prepaids”. No well worded contract is going to help you out there, unless the buyer retains an out. Good luck getting the seller to accept a clause that gives the buyer an out up to the minute of funding. You can WRITE it, but getting a seller to accept it is another story.

    It was a scramble, but of course resolved.

    There are many ways to resolve these issues, even at the last second, but overpaying the LO isn’t one of them.

    Much depends on the seller’s situation. If it is easy to extend the closing a day or two to adjust sale price, then the wording helps. If not, then the wording doesn’t necessarily do the trick, regardless of how well it is worded by an agent or an attorney.

  20. “Allowable closing costs” vary from the amount the buyer has invested into the down payment and from program to program w/various guidelines.

    Buyers agents I’m working with will contact me to make sure they have a fine tuned number on what will be allowed per the program their buyer is approved for to avoid “leaving left overs” or having to try to negotiate more $$ than they need to (ie bumping the sales price).

  21. Honestly, you’ve caught me a little flat-footed here. I don’t know that I can quickly draft a meaningful clause to protect against the LO taking up the balance of these pre-paids as everyone has been discussing. At the risk of sounding very ignorant, I don’t think I’ve seen this before…I certainly don’t remember it. Honestly, I’m also worried that if I write something, someone may lift it for their own use, and if the deal later goes bad, then they may try to pin the problem on me (do I sound too cynical?).

    I agree with Craig in that this smacks of a CPA violation, if not some form of predatory lending tactic the DFI should be policing up. Ardell brings up another valid point about the practical problems this issue raises (contributing to why I’m stuck as to how to write a provision agains this practice). I can see how this issue would also be hard to detect in an audit (it seems very easy to “safely” cover up, right?). For the moment, since I can’t see how best to handle it at the contract level, it seems to me this matter may be best addressed at the regulatory level. Anyone else agree? OK, gulp…I guess that makes 2 lawyers stumped in 1 day…Yikes!! πŸ™‚

  22. LOL,

    No worries Joe, I’ve been dancing that dance for a very long time. It’s not a “wording” issue, except in simple form. All I do is leave the clause alone in the Finance Addendum and then tack on some extra language on 22D-10. No biggee.

    It’s not the wording…it’s the watching and follow up. Also anticipating who can and can’t, etc. I’m sure it’s not a violation of any kind as the IRS provides that Seller Paid costs are deductible by the buyer. If there were a problem, the IRS would not have a provision for handling these seller paid costs.

    The absorption of them is a skill of both writing the correct number in the first place, and then modifying as needed in the case of unforseeable events taking place.

    All it takes is a Buyer’s Agent BEING a buyer’s agent, and not tossing off to the lender and escrow and never looking back.

  23. Speaking from the LO view and experience-This needs to be placed on the shoulders of the LO not the buyer’s agent. The LO knows first when there is an overage -way before docs are out or ordered..and should have the conversation with the buyer. Seller contribution is to the benefit of the buyer NOT the property Ardell and ethical LO’s should inform the buyer of the overage and inform them of their options…say improving their interest rate or (gasp) getting a rebate check back from the LO….My clients love the news that we can improve their rate and almost always opt for this…It goes on all the time where the buyer and buyer agent never know and it gets eaten by the LO…certainly a grey area in many LO’s minds as the overage can be very small of course…very interesting topic.

  24. Vern,

    Are you suggesting that the LO take the money and hand it to the buyer after the underlying lender disapproved the balance of the credit? Isn’t that Lender Fraud? How can the LO cut a check to the buyer? I’ve never heard that one.

  25. Without addressing Vern’s proposed solution (I appreciate Ardell’s point on the issue), I agree that this problem falls squarely on the loan originator’s shoulders. I respect Ardell’s passion for buyer’s agency, and I agree that a good buyer’s agent (or, for that matter, attorney) should be aware of the situation and should take steps to prevent the LO’s “harvesting.” That said, the LO has an independent legal obligation to the buyer, defined at least in part by RCW Chapter 19.146. The conduct described her and in Rhonda’s earlier post on the issue appears to (perhaps “clearly does”) violate this statutory duty. A good agent or attorney will head this off before any it causes any harm. However, the LO is the responsible party and should be held to account if this conduct actually occurs, regardless of whether or not the buyer’s agent or attorney was asleep at the switch.

  26. Craig, should the LO contact both agents to make them aware? I have an issue with the phrase “up to”. The seller is agreeing to pay “up to” x amount, not x. So if the closing costs are less than x, in my mind, the difference would go back to the seller.

    When I have leftover closing cost credit, I buy the rate down as much as possible. Any difference is left for escrow to deal with and I would assume it is credited back to the seller.

    Thanks so much for your comments on this matter!

  27. Ardell– Completely legal. The law in mortgage is you can’t pay 3rd parties for can offer any incentive you want to ..pre or post closing to the borrower…btw I never said the lender disapproved the amount of the credit and you as an agent should know the max credit allowed if your LO is any good…usually 3 or 6% depending on the type of loan..sometimes pre-paids allowed and sometimes not..depends on the loan type and lender which can and does change in the broker world without the buyer’s agent ever knowing…You are the exception in that you are even reading a prelim hud..must be an Eastcoast thing….more agents should.. 90% of agents don’t even bother.

  28. Rhonda, I agree that, per the terms of the standard pre-printed contract, the seller has the contractual right to the money. This is the wrinkle that makes the issue even more interesting: the services, and the estimated costs of those services, are provided to the buyer, yet the seller pays the bill. Ultimately, I think the LO would probaby satisfy his/her legal duty without contacting either agent. Absent escrow shenanigans (which apparently also occur, but definitely not at Legacy Escrow), those funds would be disbursed to the Seller. The fraud occurs when those funds are “harvested” by the LO.

    I would be very, very interested in talking to either a buyer or a seller who had a contract calling for seller to pay closing costs “up to” a certain amount, where the buyer’s GFE showed a lower loan origination fee than what eventually appeared on the HUD (or, for that matter, any other discrepancy between the estimated closing costs and the actual closing costs). Even a discrepancy of a few hundred dollars may be worth pursuing given the protections offered by the WA Consumer Protection Act.

  29. Craig, the agent I refered to you in my original post may be contacting you. The transaction has since fallen apart and that story in itself is amazing. Meanwhile, the sellers no longer have the home they had an offer in AZ and no buyer…just $5k of the buyer’s earnest money.

  30. One of the reasons I use Legacy a lot is I was having a heck of a time getting a preliminary HUD 1 from some of the big escrow companies. I always had to fight for it, and was told they “don’t usually do that”, as if it’s just too much trouble.

    My clients do not question that I need the GFE, need to oversee the loan process and review the HUD 1, prior to the buyer getting it and being told how much money to bring to the closing.

    The problem is that if 90% don’t watch things, it makes it that much harder for the 10% of us that do. We are treated like we are “putting everyone out”. Even when I find problems they are not happy. You think they would say thank you for fixing that.

    Errors are not limited to those transactions that have seller paid costs either.

  31. I empathize with escrow. They are often waiting for documents from the lender.

    Everyone needs to know WAY in advance that the home buyer (or refinancing homeowner) is asking to review the HUD 1 one day prior to SIGNING.

    Idea for a NEW SERVICE mortgage brokers can offer consumers (which will also please the Realtors): “The lenders we broker our loans to will have documents to escrow at the agreed upon day/time so escrow can provide your consumer with a HUD 1 one day prior to signing.”

    Is this such an unreasonable service promise?

    If not, then any retail mortgage salesperson out there who wants to set himself or herself apart from the competition can pick this up and run with it.

    If this IS an unreasonable service promise, then how can anyone be expected to stay in compliance with THE FEDERAL LAW THAT REQUIRES WE DO THIS FOR THE CONSUMER WHEN ASKED?????
    My font selection doesn’t have a Colbert Report font style to indicate how he would have said that, so I had to settle for bold.

  32. Escrow reality at month end: Being an air traffic controller at 5 pm at Los Angeles International Airport!

    1) Escrow is closing transactions throughout the month, but the majority close within the last week or last couple days.

    2) Escrow receives loan documents from the lender within, literally, one or two days prior to closing—like clockwork, with few exceptions of receiving them a week early, per se. There is little to no time to get all HUD’s to everyone asking for them.

    3) RESPA requires consumers to have the settlement statement (estimated, not final) PRIOR TO ACTUAL CLOSING. This is too vague and does the consumer no good when the first time they see a Settlement Statement is probably when they are signing their paperwork. It should be required to have settlement statements at least THREE BUSINESS DAYS PRIOR TO CLOSING.

    4) OVER HALF of loan docs ARE WRONG when received at escrow. Wrong vesting, wrong spelling for borrowers names, wrong loan program, wrong interest rate or something. This is one of the LARGEST TIME & MONEY WASTERS escrow has.

    There is nothing more frustrating at ANY escrow office than getting pressed by all parties of the transaction to close on a transaction “Yesterday” after we receive loan documents (that have to be on an Fed/Ex or UPS airplane by 5:45pm to a lender in California or somewhere else) and make arrangements to meet with borrowers on their time, only to have the borrowers say the loan program was not what they expected and refuse signing. L O V E L Y.

    5) When escrow receives loan docs from a lender there is NO MAGIC BUTTON to push and the file is ready to close and the seller/buyer are ready to sign. It takes time to go through lender instructions, loan docs and prepare the settlement statement.

    Example: Today is Wednesday 12 noon and Friday is the day of closing. We have 18 files waiting to close. 14 of those files we do not have loan docs yet. Escrow knows they will be e-mailed to escrow within the next day, probably getting a bunch all the VERY LATE MORNING THURSDAY, (some will come Thrusday afternoon), THE VERY LAST POSSIBLE DAY the borrower can sign. Agents call and ask, “why haven’t my buyers been scheduled to sign yet?” Escrow: no docs. Loan officers call escrow: got docs yet? Selling agent calls: have buyers signed yet? Escrow: nope, no docs yet.

    Think of all the people calling or e-mails we receive for those involved in these transactions (title, lenders, loan officers, clients, agents, funders, our bank, courier services, etc.)

    So now we have several doc sets to prepare and the phones are slammed into action trying desparately trying to manage finding borrowers who may work in different areas and/or hearing, “oh, my agent or loan officer told me you would come to my house this evening, how about 7:30, no, make that 8 pm because we won’t get back from Johnny’s baseball practice until then.” Escrow: sorry we must sign you before 3pm because your loan docs must be with the lender by 5pm to fund tomorrow so we can close on time. Borrower: but, I’m at work, why didn’t anyone tell me about this earlier (angry tone). Escrow: good question sir, unfortunately, escrow did not receive loan docs from your lender until late this morning.

    And this, stylish people, is how transactions are managed 24/7. It’ like being an air traffic controller at LAX at 5pm in the afternoon. Managing chaos Legacy Escrow Service style! LOL!

    That’s escrow! Come join us! πŸ™‚

  33. Ardell, what if as in the scenario I did my post on, it’s not your client? You’re representing the Seller and the escrow co., and the Selling Agent refuse to provide you with the GFE or to ask the buyer if its okay for you to look at to review the closing costs your Seller is paying for on the buyers behalf?

    Jillayne, I review the HUDs before the buyer/borrower does. And I let them know that I have done this. I assumed that they receive a copy as well (after the lender/agents) have reviewed. I’ll start insisting this happens w/escrow companies I’m not familiar with.

  34. Tim, you’ve just described my least favorite part of being in escrow! The other part I loved (not) was when a LO would call me to see if we would lower our escrow rate…I’d look at their GFE and say, your fees are $2000 (or what ever); mine are $500…where are you, mr/miss LO going to lower your fee?

    I actually have a post “in waiting” on my other blog about an experience I’m having right now with an escrow co. Because of my background, I always get loan docs out as soon as possible. In this case, EO has had them since April 16. I had to call several times on Wednesday and Thursday to ask for a HUD. The EO would not respond until I called the selling agent (his company has an interest in the escrow company)…funny…she started communicating then. Our transaction is closing on May 2. She wasn’t going to sign the buyers until May 1 at 3:00! She complained to me about not having time to prepare an est. HUD because of being so buys and “month end”. I do relate…that’s why she’s had the docs since April 16! πŸ™

    We need time for our funding department to review the docs after signing…so now she’s signing the clients at 5 on Monday.

    Escrow is so important. It’s the tail end of the transaction and if it’s not done right, it can leave a bad taste in everyone’s mouth.

    The ironic part is this company (it’s not a title/escrow co) that is owned by a large real estate co. sends out tons of email updates… worthless if it’s not backed up by enough staff who can do the job.

    That’s all I have to say!

    Tim and Lynlee, How about my idea on Comment 17 (when month end is over, of course)! πŸ™‚

  35. Rhonda,

    In your scenario I’d say both agents screwed up. No agent worth their weight in peanuts would permit a seller to sign a Purchase and Sale Agreement without knowing the exact amount of the seller contribution.

    Often buyers would like it to say “Seller to pay all closing costs”. I hear that a lot. Whether my client is the buyer or the seller, I explain that number needs to be defined as a dollar amount. Once it is a dollar amount, that amount is “carved in stone” and factored into price negotiation.

    I explain to the seller that the number, if agreed to, is gone. I do not give the seller false hope that some might not be spent on behalf of the buyer. The intent of the parties at time of signing is, that the buyer benefit from those funds and the seller adjust the price accordingly. Even when the costs aren’t stacked on top of price, the seller’s net is calculatd without the credit prior to signing. So the “meeting of the minds” understanding is not “gray”.

    Here’s another factor from the seller agent side. IF the buyer asks for an UNREASONABLE amount to be paid for buyer’s closing costs, that is a HUGE RED FLAG that the sale may not close.

    Look at your example. The sale never closed. In my experience sellers are a whole lot more worried about a sale not closing at all, than grabbing a piece of that credit. An agent should know when the credit is out of whack and what that means. It means these costs are higher than normal, because this buyer may have a pre-approval or pre-qual letter, but it’s going to be a “hold your breath, cross you fingers and toes” kind of transaction.

    You don’t give credit for people wanting to keep their end of the bargain. You assume that after a seller agrees to give a buyer X towards closing costs, that the seller wants to later renege and NOT do that. That has not been my experience.

    When I represent the buyer and the lender says costs and prepaids will be $6,300 I look hard at the GFE. Sometimes they use 30 days for interest, even though the closing date is the 25th. If the agent just gets a number from the LO, without looking at the GFE, that is when there is most likely going to be a problem.

    I rework the GFE and have never had a problem. There are just as many ways to insure NO problem as there there are ways to MAKE problems. And it’s all in the agent’s hands, because the agent is the one writing the Purchase and Sale Agreement.

    If everyone has to scramble, the agent wrote it wrong in the first place. The agent should pay for their mistakes.

    I did have one where the costs were a tad lower than expected, because someone was added to the contract while in escrow. That decreased the costs just a little, and there was an excess of $163. I decided it wasn’t worth going back and forth with the seller about, and gave the buyer this choice. We can tack on a home warranty for $225 or I can just pay you the $163 and let the seller have it. They opted for the warranty.

    If it’s a $25 overage say, much easier for me to just let it fallback on the seller side and for me to cover it on the buyer’s side. All too often agents just want to sit back and wait for their check once a transaction is in escrow. That is a fall back to when all agent’s represented sellers, and unfortunately many agents are trained by people who use seller tilted logic and training practices.

    Buyer Agency is not being taught anywhere. Handling these situations from the buyer’s standpoint, is not being taught anywhere. Except maybe…here on RCG πŸ™‚

  36. Tim says 50% of loan docs come in wrong and are redone. So how’s come when the only recourse for the buyer to capture the excess credit everyone acts like it is “too late” if docs are in? Because no one is pushing for the buyer. Escow CANNOT do that. It has to be an agent who does it, because it requires advocacy on behalf of the buyer client and an addendum.

    Even when I write in “any excess to be deduction from sale price” I need to do a price change addendum saying “price to be” reducing by the excess, and have that signed by all parties.

    I have had agents say “Can’t escrow do that?” NO Escrow cannot initiate contract addendums. They can have the addendum signed at escrow, but they cannot introduce or prepare addendums.

  37. Rhonda, good morning!

    Yes, it is feasible to use the initial 1003 to compare, but realistically, at the time of closing the initial 1003 is not looked at by escrow. Escrow is not in the position nor is it the role, nor has the time or energy to look back and start a big argument regarding initial fees vs. final lender/broker fees.

    The problem,arguably, is that addendums written in the spirit of “seller to pay up to $10K in closing costs” is too open ended. For buyers that is typically construed as “I’ll get all 10K for increasing the sales price by that much.” Unfortunately, the buyers and their agent don’t anticipate that all the 10K may not be used up.

    That can create several problems of which moves into the realm of Russ Cafano and Craig Blackmon’s professional services.

    How many agents out there try to resolve this problem by having the seller give the buyer a Home Depot gift card after closing or something else after closing? (that $1,000 lawn mower in the garage sure looks nice) πŸ™‚

  38. Ardell,

    When I talk about docs being wrong, I’m talking about misspelled names, incorrect addresses, wrong vesting etc…

    Changing the fees in the manner we were describing requires the file to go back to underwriting, which takes much longer than correcting some of the other errors mentioned above.

    For example, yesterday we had loan docs submitted to us at 3:15 pm and the buyers signed at 4pm. If there were issues, when in the world would we have time to correct problems? This file was supposed to close yesterday but now will close on Monday, hopefully.

  39. I don’t understand why most lenders cannot provide escrow docs quicker. Way back in my escrow days, this was a HUGE problem too. Receiving loan docs at least 3-4 business days in advance reduces headaches for everyone involved AND keeps your EO happy!

    It is inexcusable. In seven as years as an LO, I maybe have had 1 or 2 times when I had to call my EO apologizing like crazy to say we would have last minute docs. It was a couple years ago during the refi craze. And the other time was a 4 day close (court house sale). But both times, the EO knew about it in advance and we sent instructions over before the docs. Plus, my EO knows its the exception and not the rule with me.

    I didn’t have a great relationship with LOs when I was in escrow/title. As the manager of the branch, I did not encourage refi business from LOs who would “wear out” our EOs with last minute docs. There were only one or two LOs that we would make an appointment for BEFORE having loan docs. In escrow, you can be burned so many times by setting up tenative appointments for docs that never show up in time…meanwhile…the clients are fuming in your lobby. It’s really a screwy system IMHO!

    I think every LO should have to work at least one week in escrow…maybe during month end! πŸ™‚ Most have no idea just how tough your jobs are.

  40. Ardell, the listing agent who asked me to review the HUD now thinks that the LO/Selling Agent had two offers going at the same time with the buyer. She suspects that the pumped up loan origination/seller credit is on both offers and would be used to cover the earnest money lost on the one listing. This deal flipped AFTER signing. After signing the LO/Selling Agent (same person doing two jobs) tried to tell escrow that they needed the funds that were all ready in escrow’s possession to be refunded back to LO so that the lender could verify funds! Have you ever heard of such a thing? Escrow refused and so they walked from the transaction and now the seller has the $5k earnest money…but has lost the house they had an offer on. It’s stinky…and getting stinkier.

    Real estate will never cease to amaze me.

  41. Lynlee,

    Thanks for clarifying the difference. So if the loan program is entirely wrong…it doesn’t have to go back through underwriting? That seems odd.

  42. Ardell, if the loan program is wrong (arm vs fixed for example) or if the loan amount is being increased, then yes, it does need to be re-underwritten. Depending on the lender that can take minutes or a day or two.

  43. Im Purchasing a condo the sellers have agreed to pay 2% of our closing cost and giving us a 10k concession to with as we please,
    …the Loan officer says the lender will not allow ..and now they are forcing us to put up 21 months tp prepay HOA’s to obsorb those funds,..this is,so rediculous to me when those funds coukd be use for my relocation across country from Vegas to Washington …I thought the sellers could just cut a,check from oroceeds or bring to close …is the,any guildline to structure this to go to the buyers …paying Hoa upfront is robbery

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