Opinion: The definition of what is a “loan and settlement cost” needs more clarity on NWMLS Form 22-A (revised 12/2009).
Background:
The most recent revision (December of 2009) of the Financing Addendum “Form 22-A
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Good points, Tim…but some loans do allow for prepaids, taxes and insurance to be paid for by the seller, like FHA for example.
That goes without saying.
Whether a lender allows for the payment by a seller on behalf of a buyer for prepaids, taxes and insurance is irrelevant. The question is: is the seller OBLIGATED to pay the prepaids under the current Financing Addendum language?
The PSA contract, specifically, what is in the contract as spelled out by Form 22A, in its current language, is what dictates what is paid by any seller concessions. The problem, as I stated above, rests with how it is interpreted.
I get that…I guess I didn’t think the addendum could possibly be that poorly written and you added your opinion above stating you didn’t think the fees should count (at least that’s how I read your post).
I think including prepaids is the “intent” of most parties, but if the seller wanted to challenge it, I think they would have a very solid argument the way the Financing Addendum is currently written.
The problem is that paragraph 3 in the Financing Addendum is vague and just a blanket “seller to pay $5K towards buyer loan and settlement costs” is not necessarily clear. Plus, you are asking escrow to do the “interpreting” for the parties.
I agree with Tim. This is often a problem as well as the need to clarify the intent about FHA or VA non-allowable costs and if they are included in or in addition to any seller concession.
I can’t tell you how many escrows have been waylaid by disagreement created by vagueness on this point. It shouldn’t be escrow’s responsibility to catch these issues and resolve them.
For the smoothest closings spell it out very clearly.
Tim:
It might be helpful to attach the document you are discussing, (the new form 22-A).
I agree that the definitions could be more comprehensive.
If it helps any, the new GFE considers prepaids to be settlement costs, and obscures the line between loan costs and prepaids (another example of its poor design).
Perhaps the new form was designed to conform to the new GFE?
Before Tim complies with Roger’s request…note that Tim cannot do that (nor can I) as that is proprietary information under mls rules regarding their documents.
Hey Roger,
Thanks for the note. I quoted directly from the old and newer paragraphs within the Financing Addendum. I could probably capture the paragraph in an image so it might be more helpful. If I can find the time I’ll respond but its been a busy Friday at the office with some transaction drama and running documents around. Plus, it’s property tax day at the County.
-Tim
Ardell:
Thanks for keeping Tim and I out of jail! 🙂
Still, it’s hard to discuss a document that we do not have in the room, so to speak. Of course, I can get one, but this blog is meant to be illuminating to both folks in the biz and those that are only interested in it, and how their interests might be affected by these obscure issues.
I agree, Roger. Neither of you are “members” so…maybe. But Tim better ask his wife first 🙂
Until this issue is clarified, why not just add some additional language to the contract when drafted indicating that the credit in paragraph #3 of the NWMLS Financing Addendum includes and not be limited to interest rate discount points and or prepaid items to the maximum allowed per lender and or Federal guidelines. I have not had an issue doing this with my clients having received the dollar credit expected versus waiting for a future form change or legal precedent. Typically we are best served by using the drafted forms with no insertions, but as the numerous revisions annually indicate the original draft at times leaves something to be desired.