Usually when we think of a real estate sale we think that the interest of the seller ends with closing. It is, after all, called “closing” for a reason.
Now, however, some sellers are trying to maintain a financial interest in a property for decades after it’s been sold, not with a mortgage or a loan but with something called a private transfer fee.
To understand how this works, imagine that Wilson sells a home for $500,000 but that as a condition of the sale Wilson gets to insert a deed requirement which says that for the next 99 years every buyer will have to pay a sum equal to 1 percent of the sale price each time the property is sold. The money is paid to a fund set up by Wilson. The money in that fund can be used for anything Wilson or Wilson’s heirs want.
In some cases developers justify private transfer fees this way: The money is given to a private group such as an environmental organization. In exchange the environmental group approves of the development. Or, the money could go to a religious organization, charity or cause.
According to the American Land Title Association, private transfer fees are “a controversial new financial scheme that is facing opposition across the country. Developers, in consultation with Wall Street advisers, are attempting to add language to home purchase contracts requiring that a percentage of the sales price be paid to the original corporate owner of a property every time the property is sold, typically for 99 years. The right to collect these Wall Street Home Resale Fees would then be securitized and sold to enrich investors at the cost of stealing equity from consumers, forcing homeowners to pay a large fee to sell their homes and adding a complicated legal roadblock to the home sale process.”
Regardless of how the money is used, private transfer fees create a number of substantial problems.
First, Wilson might want a 1 percent fee but the next seller, Grafton, might also add a deed restriction saying that he and his descendants are also to get a 1 percent fee. Each seller could claim a share of future transaction proceeds, thus increasing the transfer cost of the property over time — but not the value.
Second, in those cases where a charity is a beneficiary, private transfer fees are still ugly. If the organization is truly a charity then contributions should be voluntary and based on the merit of the organization and agreement with its positions and views. With private transfer fees, the organization is receiving money that has been forcibly extracted from a transaction without regard to the wishes of a future buyer or seller.
Third, there can be the appearance of a conflict of interest — if not an outright conflict — when an organization receives funds from a developer and then, somehow, gives a green light to a project from which it will benefit.
Fourth, while a current buyer and seller might negotiate such a fee, there is no opportunity for negotiation by future buyers and sellers as long as the deed restriction remains in place.
Fifth, you simply can’t finance a home with an FHA loan when a private transfer fee is part of the deal. HUD spokesman Lemar Wooley explains that “private transfer fees violate HUD’s regulations at 24 CFR 203.41, which prohibit ‘legal restrictions on conveyance,’ defined to include limits on the amount of sales proceeds retainable by the seller.
“HUD also requires lenders to convey clear marketable title in exchange for insurance benefits.”
Given the widespread use of electronic devices for just about everything — and given the growing volume of ecommerce — it’s not unreasonable to ask if we can have paperless closings, events sealed with electronic signatures.
For the moment and most-likely for a long time to come the answer is no. The problem is not one of technology — if you can order everything from shoes to software online then why not closing papers? — instead the barriers involve conflicting interests and long-time legal standings.
As an example, the HUD has announced that it would accept electronic signatures for FHA loans “on third party documents included in the case binder for mortgage insurance endorsement.”
Okay, so what’s a third-party document?
“Third party documents, says HUD, “are those that are originated and signed outside of the mortgagee’s control, such as a sales contract. An indication of the electronic signature and date should be clearly visible when viewed electronically and in a paper copy of the electronically signed document. Mortgagees must employ the same level of care and due diligence with electronically signed documents that they would for paper documents with ‘wet’ or ink signatures.”
Notice that HUD does NOT include a number of core documents where electronic signatures are permissible. According to HUD, mortgage documents — including the mortgage note — must have regular signatures. Also, the HUD-1 and the sale agreement must be signed by humans.
The reason electronic signatures are not allowed for mortgage documents is that they were created by the lender are the lender is not a third party.
Okay, why not allow electronic signatures for all real estate paperwork?
The reason is to assure with total certainty that the buyer and seller really and truly saw the documents they signed, had an opportunity to read them and that no one other than the buyer and the seller signed the HUD-1, the sale agreement or the mortgage note — the central papers of most real estate transactions. [pullquote]And until things change, hang on to your quill and ink.[/pullquote]
Will this change in the future? Not soon. The reason is that many different parties to the transaction — the buyer, seller, closing agent, lender and others all want documents with original signatures. So while some paperwork can be done electronically, some cannot.
For the latest information speak with local brokers, attorneys and closing agents in your community.
Since January 1st, 2010, all real estate transactions have been settled using a new HUD-1. The HUD-1 is a standardized form which allows real estate buyers and sellers to clearly understand the costs of their transaction.
The original HUD-1 was developed as a by-product of the Real Estate Settlement and Procedures Act of 1974 — or, as it’s usually called, RESPA. Prior to 1974 settlement forms could be different, meaning that it was very difficult to compare costs or to know what was deductible for tax purposes in the year of the transaction.
So what do we get after 36 years? The new HUD-1 is a vast improvement over the old model. It’s three letter-sized pages long rather than two legal pages, but there’s much more information in the new HUD-1. Buried in the form is an accounting of closing costs and perhaps even some write-offs. Buyers will find the full and complete cost of buying real estate while sellers will see how much cash (if any) they’re getting from the transaction.
The first page of the form is a summary of the transaction. In effect, it translates the sales contract between buyers and sellers into hard numbers.
At the top of the form we first have administrative data such as:
- The type of loan (conventional, VA, FHA, etc.).
- The place and date of settlement (the date can be very important for tax purposes).
- The mortgage insurance case number (important if you’re ever facing foreclosure).
- The street address of the property. This is a concern because for great clarity and assurance the form would be better if it also included the legal address of the property.
- The name of the settlement (or closing) agent. The party that conducts the settlement is typically regarded as an agent of the settlement process. In other words, they do not represent you.
Page One, Buyer’s Side
The HUD-1 shows transaction costs for both buyers and sellers — you get to see what the other person’s information. More important you get to see your own.
On the right side of the first page we have buyer costs grouped by sections.
Section 100 — This is where buyers see the cost of the property and the cost of settlement (the figure found on line 1400). Combine the two and you get the gross amount — but not the final amount — due from the purchaser.
Notice that there can be some adjustments in this section. For instance, it may be that the seller has paid local property taxes in advance — those payments would be a credit to the seller and a cost at closing to the buyer.
Section 200 — As a buyer you may have certain credits to offset your gross costs. Credits include such things as your deposit, your new loan (for closing purposes the mortgage is a credit to the borrower because it represents money brought into closing) and any additional financing.
In the 200 section you can also see adjustments which are a credit to the buyer. For instance, maybe the seller still owes some property taxes.
Section 300 — This is a re-cap of all costs and credits. If you take the gross amount due from borrower (line 120) and subtract the buyer’s credits and cash you then get the total cash due to — or from — the borrower.
Most buyers, of course, will need to bring “cash” to settlement. By “cash” what most settlement agents really want is a certified check or a cashier’s check. Also, it may be possible to wire funds to the closing agent. Always ask the settlement provider well in advance of closing how payment can be made.
Gifts: To assure lenders that you are not somehow getting a secret loan from someone, it’s best to have closing funds in your name and on deposit for at least 90 days. If you are getting a gift to close, ask your lender how the gift is to be documented and precisely follow the lender’s instructions.
Page One, Seller’s Side
Settlement is a moment of truth for owners, the time when you find out exactly how much or how little you’re getting from your sale.
Section 400 — The sale price of the house, plus the cash paid for any personal items, are shown here as credits to the owner.
Also in this section are adjustments — credits for property taxes and other costs paid in advance.
Section 500 — If any mortgage debt remains unpaid it shows up here as a cost to the seller. Also, the costs of closing (line 1400) are here as a deduction as well as any adjustments for such costs as unpaid property taxes.
Section 600 — If we take the gross amount due to seller (line 420) and subtract the seller’s closing costs (line 520) we can then see how much cash the owner will get from closing (or, how much cash is needed to close if the seller is upside-down).
Practices around the country regarding cash to owners at closing vary. In some areas there are “wet” settlements where the owner gets a check at closing, in other areas there are “dry” closings where it takes a few days to get a check because it takes time for the lender to fund the transaction and paperwork to be recorded. In some jurisdictions there are rules requiring the disbursement of cash with a few days. For specifics, speak with your settlement agent.
On the second page of the new HUD-1 we have a series of sections which show costs that may be paid by either buyers or sellers — or split between them. In other words, these are costs which can be negotiated when a sale offer is made. For instance, in a slow market a seller might agree to pay all transfer taxes. In a hot market, the buyer might pay.
Section 700 — If one or more real estate brokers are involved in the transaction, this section will show the compensation to each broker and the cost, if any, to buyers and sellers.
Section 800 — Getting a mortgage is hardly free. When the buyer applied for financing the lender provided a Good Faith Estimate of Closing Costs (GFE) on the new form developed by HUD. This section shows such costs as points, origination charges, appraisal fee, credit report and tax service. Borrowers should check the numbers at closing with the estimates provided in the GFE. The costs shown on lines 801 (origination charge), 802 (points), and 803 (adjusted origination fee) must be the same as the GFE.
Please see our guide to the new Good Faith Estimate form to see how it’s coordinated with the equally-new HUD-1.
Section 900 — Closing is scheduled at a time which is mutually-agreeable to the buyer and seller. That time, however, will mean that for such items as interest, mortgage insurance premiums and homeowner’s insurance there will likely be a need to make some payments for daily costs in advance until the next billing period.
Section 1000 — If you purchase a home with less that 20 percent down the lender will likely require that you pay additional amounts each month for property taxes and insurance. This money is held in an escrow or trust account and then paid out as the bills come due.
If you will have an escrow account then the lender will typically collect money in advance from borrowers to assure that the escrow account is properly funded.
Section 1100 — As part of the buying process, sellers typically promise to deliver good, marketable and insurable title — and buyers should want nothing less. This section shows the costs for title insurance — both lender’s and owner’s coverage.
Lender’s cover — which is required by lenders if you finance the purchase — protects you up to the remaining loan balance in the event of a title claim. In other words, it protects the lender.
Owner’s coverage protects you if there is a title claim up to the purchase price of the property — in other words the loan amount plus your equity. Be aware that some title insurance policies have an inflation rider so that the value of the coverage can actually increase over time. For specifics, speak with your title agent.
Also, take a look at line 1107. This shows the commission paid to the settlement agent for providing title insurance.
Section 1200 — This is where you can see how much state and local governments are getting from the transaction. Governments are elated when homes are sold because such transactions are a major source of revenue. Government taxes can includes such things as deeds, releases, transfer taxes, state taxes, stamps, etc. Call it what you will, a tax is a tax.
Section 1300 — This is where you can find additional settlement costs.
Section 1400 — The total costs to close — this number also appears on lines 103 and 502 on the first page.
The third page of the new HUD-1 is partially a confirmation that the costs outlined in the Good Faith Estimate are what you’re actually paying — or pretty close.
Some quoted costs on the GFE cannot be changed, some can be changed as much as 10 percent and some can simply change with the winds.
Also shown on page three is a recap of your loan including the mortgage amount, interest rate, loan term, ARM-related terms (if any), prepayment penalties (if any), balloon payments built into the loan (if any) and related matters.
IMPORTANT: Always keep your closing papers in a safe place for tax reasons and to assure that your loan terms are actually the same as disclosed on the HUD-1. For questions regarding closing issues, speak with your real estate broker, mortgage lender and closing agent. Be aware that some costs found on a HUD-1 may be tax deductible — for specifics speak with a tax professional.
It will be a new deal for real estate borrowers as of July 30th. That’s the day when new standards developed under the
Housing and Economic Recovery ACT (HERA) go into effect.
Okay, so what’s the big deal?
In basic terms, the rule says that if you apply for a loan on July 30th or thereafter the lender must provide you with a good faith estimate of closing costs (GFE) within three business days. Also, you must get your estimate at least seven business days before closing — though borrowers can waive this requirement if they need to close in less than a week.
The new rule also says something else: The lender cannot charge you any fees before delivering the good faith estimate, the lone exception being a reasonable charge for a credit report.
The July 30th standards — which many lenders have already adopted — forces lenders to give notice and tell you the real costs of closing BEFORE you pay out any significant money for a new loan.
“Creditors,” according to the Federal Reserve, “must deliver or mail the early disclosures at least seven business days before consummation. If the APR contained in the early disclosures becomes inaccurate (for example, due to a change in the loan terms), creditors must ?’redisclose’ and provide corrected disclosures that the consumer must receive at least three business days before consummation. The disclosures also must inform consumers that they are not obligated to complete the transaction simply because disclosures were provided or because a consumer has applied for a loan.”
In other words, you can provide basic application information to a lender and elect not to go through with the loan and only be out the cost of a credit report.
Needless to say, some lenders who try to rope in borrowers with stiff “application fees” are appalled by the new regulations, which to them are — of course — unfair, unkind, impractical and no doubt socialistic. To humans who need a mortgage, the new rules merely create an element of fairness in the marketplace.
Gee, golly, mention the idea of pressuring appraisers to come up with the “right” valuation numbers and you’re hardly alone. There seem to be a large number of appraisers who have encountered efforts to distort their valuations. Say 11,000 of them.
That’s how many signed on at AppraisersPetition.com. And what, exactly, is their beef? As the site explains, “pressure comes in many forms and includes the following:
___”the withholding of business if we refuse to inflate values,
___”the withholding of business if we refuse to guarantee a predetermined value,
___”the withholding of business if we refuse to ignore deficiencies in the property,
___”refusing to pay for an appraisal that does not give them what they want,
___”black listing honest appraisers in order to use “rubber stamp” appraisers, etc.
“We request that action be taken to hold the lenders responsible for this type of violation and provide for a penalty on any person or business who engages in the practice of pressuring appraisers to do dishonest appraisals that do not provide for independent judgment. We believe that this practice has adverse effects on our local and national economies and that the potential for great financial loss exists. We also believe that many individuals have been adversely affected by the purchase of homes which have been over-valued.”
The Same Old Story
I have had these arguments before. Long ago I advocated that real estate brokers should be allowed to represent buyers and not act merely as seller sub-agents. Nope, can’t be done, I was told. Today buyer brokerage is everywhere. NAR reports that 42 percent of all purchasers had written buyer brokerage agreements in 2008
Option ARMs are great, I was told. Just look at the credit scores. Right. But the credit scores did not account for vastly higher mortgage payments down the road, after the loan was originated.
Stated-income loan applications are fine, it was said. Why do we have to verify income when we have so many other ways of measuring borrower finances? Sure. Consider what the Mortgage Brokers Association for Responsible Lending found in one study: “A recent sample of 100 stated income loans which were compared to IRS records (which is allowed through IRS forms 4506, but hardly done) found that 90% of the income was exaggerated by 5% or more. MORE DISTURBINGLY, ALMOST 60% OF THE STATED AMOUNTS WERE EXAGGERATED BY MORE THAN 50%. These results suggest that the stated income loans deserves the nickname used by many in the industry, the ‘liar’s loan.’”
Now we’re told that accurate and independent appraisals cost too much and take too long. Right.
The idea of appraisals is to have a fair, accurate and independent property valuation to protect borrowers, lenders, mortgage investors, and lender shareholders. That’s not something you get when appraisers are bullied to come up with the “right” number, as 11,000 appraisers can explain.
Freddie Mac and Fannie Mae’s new Home Valuation Code of Conduct went into effect as of May 1st, a document which is important to buyers, sellers and lenders.
For a number of years appraisers have reported being pressured to meet certain price points when evaluating a home, pressure placed on them by lenders and loan officers who need appraisals to justify loans. Of course, the bigger the loan the bigger the fees, points and commissions involved. Since lenders — not buyers — select appraisers, appraisers who didn’t go along sometimes found that they no longer received business or that payments were delayed.
The losers in this mess were, of course, appraisers. But they were not alone — another set of losers were homebuyers who relied on appraisers to establish fair market valuations. Why? Because many real estate purchase offers say that a home must have a certain value otherwise the buyer can walk away without penalty. In practice if an appraisal comes in below the sale price then buyer and seller usually negotiate to a lower value or the deal is off. If an appraisal above fair market value is created then a buyer is paying too much for the property, borrowing too much and paying too much each month for years on end.
The Code is not entirely wonderful. For instance, it provides that “the lender shall ensure that the borrower is provided a copy of any appraisal report concerning the borrower’s subject property promptly upon completion at no additional cost to the borrower, and in any event no less than three days prior to the closing of the loan. The borrower may waive this three-day requirement. The lender may require the borrower to reimburse the lender for the cost of the appraisal.”
I don’t want an appraisal three days before closing, I want it 10 days after the sale agreement has been created so there is time renegotiate the price and terms of the sale if necessary — or to end the purchase.
The code also has a lengthy list of rules which essentially allow lenders to use in-house appraisers. A better idea would be to have no in-house appraisers, just use licensed independent appraisers who have no stake in the lender’s success or failure.
Below is the full Home Valuation Code of Conduct.
I. Appraiser Independence Safeguards
A. An “appraiser — must be, at a minimum, licensed or certified by the state in which the property to be appraised is located.
B. No employee, director, officer, or agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal company, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner including but not limited to:
(1) withholding or threatening to withhold timely payment or partial payment for an appraisal report;
(2) withholding or threatening to withhold future business for an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser;
(3) expressly or impliedly promising future business, promotions, or increased compensation for an appraiser;
(4) conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser;
(5) requesting that an appraiser provide an estimated, predetermined, or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser’s completion of an appraisal report;
(6) providing to an appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase transactions may be provided;
(7) providing to an appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits;
(8) allowing the removal of an appraiser from a list of qualified appraisers, or the addition of an appraiser to an exclusionary list of disapproved appraisers, used by any entity, without prompt written notice to such appraiser, which notice shall include written evidence of the appraiser’s illegal conduct, a violation of the Uniform Standards of Professional Appraisal Practice (USPAP) or state licensing standards, substandard performance, improper or unprofessional behavior or other substantive reason for removal (except that this prohibition will not preclude the management of appraiser lists for bona fide administrative reasons based on written, management-approved policies);
(9) ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless: (i) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such basis is clearly and appropriately noted in the loan file, or (ii) unless such appraisal or automated valuation model is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value; or
(10) any other act or practice that impairs or attempts to impair an appraiser’s independence, objectivity, or impartiality or violates law or regulation, including, but not limited to, the Truth in Lending Act (TILA) and Regulation Z, or the USPAP.
C. Nothing in this section shall be construed as prohibiting the lender (or any third party acting on behalf of the lender) from requesting that an appraiser (i) provide additional information or explanation about the basis for a valuation, or (ii) correct objective factual errors in an appraisal report.
II. Borrower Receipt of Appraisal
The lender shall ensure that the borrower is provided a copy of any appraisal report concerning the borrower’s subject property promptly upon completion at no additional cost to the borrower, and in any event no less than three days prior to the closing of the loan. The borrower may waive this three-day requirement. The lender may require the borrower to reimburse the lender for the cost of the appraisal.
A. The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents). The lender may accept an appraisal prepared by an appraiser for a different lender, including where a mortgage broker has facilitated the mortgage application (but not ordered the appraisal), provided the lender: (1) obtains written assurances that such other lender follows this Code of Conduct in connection with the loan being originated; and (2) determines that such appraisal conforms to its requirements for appraisals and is otherwise acceptable.
B. All members of the lender’s loan production staff, as well as any person (i) who is compensated on a commission basis upon the successful completion of a loan or (ii) who reports, ultimately, to any officer of the lender not independent of the loan production staff and process, shall be forbidden from (1) selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work; and (2) having any substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment. If absolute lines of independence cannot be achieved as a result of the lender’s small size and limited staff, the lender must be able to clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its loan production process.
C. Any employee of the lender (or if the lender retains an appraisal company or appraisal management company, any employee of that company) tasked with selecting appraisers for an approved panel or substantive appraisal review must be (1) appropriately trained and qualified in the area of real estate appraisals, and (2) in the case of an employee of the lender, wholly independent of the loan production staff and process.
IV. Prevention of Improper Influences on Appraisers
A. In underwriting a loan, the lender shall not utilize any appraisal report:
(1) prepared by an appraiser employed by:
(a) the lender;
(b) an affiliate of the lender;
(c) an entity that is owned, in whole or in part, by the lender;
(d) an entity that owns, in whole or in part, the lender.
(2) prepared by an appraiser
(b) engaged as an independent contractor, or
(c) otherwise retained by any appraisal company or any appraisal management company affiliated with, or that owns or is owned, in whole or in part by, the lender or an affiliate of the lender.
B. Section IV.A. shall apply unless:
(1) the appraiser or, if an affiliate, the company for which the appraiser works, reports to a function of the lender independent of sales or loan production;
(2) employees in the sales or loan production functions of the lender have no involvement in the operations of the appraisal functions and play no role in selecting, retaining, recommending, or influencing the selection of any appraiser for any particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work;
(3) employees in the sales or loan production functions of the lender are not allowed to have any substantive communications with an appraiser, appraisal company, or appraisal management company relating to or having an impact on valuation or to be provided information about which appraiser has been given a particular appraisal assignment before completion of that assignment;
(4) the lender, or its agents, and any appraisal company or appraisal management company providing the appraisal to the lender do not provide the appraiser any estimated or target value of the property or the loan amount applied for (except that a copy of the sales contract for purchase transactions may be provided);
(5) the appraiser’s compensation does not depend in any way on the value arrived at in any appraisal or upon the closing of the loan for which the appraisal was completed;
(6) the lender and any appraisal company or any appraisal management company providing the appraisal to the lender has adopted written policies and procedures implementing this Code of Conduct, including, but not limited to, adequate training and disciplinary rules on appraiser independence (including the principles detailed in Part I of this Code of Conduct) and has mechanisms in place to report and discipline anyone who violates these policies and procedures;
(7) the lender’s appraisal functions are either annually audited by an external auditor or are subject to federal or state regulatory examination, and, unless prohibited by law, the lender promptly provides to Fannie Mae or Freddie Mac the results of any adverse, negative, or irregular findings of such audits and examinations indicating non-compliance with any provision of this Code of Conduct, whether or not the examination was conducted for the purpose of determining compliance with this Code of Conduct; and
(8) the lender and any entity described in section IV.A. providing the appraisal to the lender recognize that, once the Independent Valuation Protection Institute is established, the Institute will receive complaints for review and referral regarding non-compliance with the Code of Conduct. Referrals and reports shall be made to Fannie Mae and/or Freddie Mac regarding such complaints and the Institute will provide information on the results of complaint reviews to Fannie Mae and/or Freddie Mac and make them available to the other parties to the Home Value Protection Program and Cooperation Agreement.
C. In underwriting a loan, the lender shall not use an appraisal report prepared by an entity that is affiliated with, or that owns or is owned, in whole or in part by, another entity that is engaged by the lender to provide other settlement services, as that term is defined in the Real Estate Settlement Procedures Act, 12 U.S.C.? 2601 et seq., for the same transaction, unless the entity that provides the appraisal:
(1) has adopted written policies and procedures implementing this Code of Conduct, including, but not limited to, adequate training and disciplinary rules on appraiser independence (including the principles detailed in this Code of Conduct) and has mechanisms in place to report and discipline anyone who violates these policies and procedures;
(2) recognizes that, once the Independent Valuation Protection Institute is established, the Institute will receive complaints for review and referral regarding non-compliance with the Code of Conduct. Referrals and reports shall be made to Fannie Mae and/or Freddie Mac regarding such complaints and the Institute will provide information on the results of its review of such complaints to Fannie Mae and/or Freddie Mac and make them available to the other parties to the Home Value Protection Program and Cooperation Agreement.
D. Notwithstanding the requirements herein, the lender also may use in-house staff appraisers to (i) order appraisals, (ii) conduct appraisal reviews or other quality control, whether pre-funding or post-funding, (iii) develop, deploy, or use internal automated valuation models, or (iv) prepare appraisals in connection with transactions other than mortgage origination transactions (e.g. loan workouts), if it complies with the terms of this Code of Conduct.
E. The provisions of this section do not apply to institutions (including non-banking institutions) that meet the definition of a “small bank– as set forth in 12 U.S.C. ? 2908, and which Freddie Mae or Fannie Mae determines would suffer hardship due to the provisions, and which otherwise adhere to this Code of Conduct.
V. The Independent Valuation Protection Institute
An Independent Valuation Protection Institute (Institute) shall be created as approved by the parties. Subject to section IX, when the Institute is established, the lender will provide information to appraisers and borrowers regarding the availability of the Institute’s services, which are expected to include: (1) a telephone hotline and email address to receive any complaints of Code of Conduct non-compliance, including complaints from appraisers, individuals, or other entities concerning the improper influencing or attempted improper influencing of appraisers or the appraisal process, which the Institute will review and report as provided in IV.B(8) and IV.C(2) of this Code of Conduct; and (2) the publication and promotion of best practices for independent valuation. The lender shall not retaliate, in any manner or method, against the person or entity that makes a complaint to the Institute.
VI. Appraisal Quality Control Testing
The lender agrees that it shall quality control test, by use of retroactive or additional appraisal reports or other appropriate method, a randomly selected 10 percent (or other bona fide statistically
significant percentage) of the appraisals or valuations that are used by the lender, including the results of automated valuation models, broker’s price opinions, or “desktop– evaluations. The lender shall provide to Fannie Mae or Freddie Mac a report of any adverse, negative, or irregular findings of such quality control testing, and any findings indicating non-compliance with any provision of this Code of Conduct, with respect to loans sold to Fannie Mae and Freddie Mac respectively, and the Enterprise may enforce all applicable rights and remedies, including requiring the lender to repurchase mortgages or the Enterprise’s participation interest in mortgages.
VII. Referrals of Appraisal Misconduct Reports
Any lender that has a reasonable basis to believe an appraiser or appraisal management company is violating applicable laws, or is otherwise engaging in unethical conduct, shall promptly refer the matter to the applicable State appraiser certifying and licensing agency or other relevant regulatory bodies.
VIII. Representations and Warranties
A lender shall certify, warrant, and represent that the appraisal report was obtained in a manner in compliance with this Code of Conduct. If the Enterprise determines, on its own or from a referral made by the Institute, that a lender is in breach of a material aspect of this Code of Conduct or in violation of a provision of the Code by a complaint referred from the Institute, the Enterprise will enforce all applicable rights and remedies, including suspension or termination of the lender’s eligibility to sell loans to the Enterprise, if the lender fails to remediate.
IX. Scope of Code
Nothing in this Code of Conduct shall be construed to establish new requirements or obligations that: (1) require a lender to obtain a property valuation, or to use any particular method for property valuation (such as an appraisal or automated valuation model) in connection with any mortgage loan or mortgage financing transaction; (2) affect the acceptable scope of work for an appraiser in connection with a particular assignment; or (3) require the lender or any third party acting on behalf of the lender to take any action prohibited by federal or state law or regulation.
The closing agent will check with your current lender prior to settlement to get a pay-off for the existing loan. If you have a payment due on the first of the month some will tell you it should be paid.
Others in the lender community argue that it’s okay to bring the last payment to closing as long as it’s not late. This may be okay in some situations and with some lenders, but you may be more comfortable making the payment on time and in full to assure that the first lender is fully paid, that no late fees have been assessed and to be certain that no bookkeeping error results in a credit report ding.
In 2005, HUD said that when refinancing to an FHA loan “the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.–
Mortgage interest is paid in “arrears” — in other words, a payment made April 1st is for principal and it is also for interest earned during the month of March. If closing is on April 15th additional interest will be due for use of the lender’s money during the month — but if payment was made on April 1st nothing will be “late” because payment for the additional 15 days is being made before the next due date. The settlement agent will work the numbers and take care of the pay-off.
For specifics, speak with your lender and the individual who conducts closing.
Question: When applying for a mortgage we were asked to sign a form which would allow the lender to check past tax returns. This doesn’t seem right. What happens if we don’t sign?
Answer: Most probably you have been asked to sign IRS Form 4506. This form authorizes the IRS to provide tax returns for selected year to a party named by you. The form is good for 60 days after being signed AND dated. (If the form is only signed then someone else can fill in the date later.)
This form represents a contest of sorts between lenders and borrowers. Most lenders want the right to obtain tax returns directly from the IRS to see if they compare with the income tax forms you submitted with your mortgage application. In effect, the lender wants to be able to audit the mortgage package.
Many borrowers, however, limit line 8a to the current calendar year. They also, on line 11, list only one or two past years. Since there is space for four years, some borrowers mark through the remaining spaces. As well, of course, it is important to date such forms since they are only valid “60 calendar days after the date you signed and dated the request.”
Oh, and if you do not allow the lender the opportunity to check your tax returns then the lender can decline the loan application.
Syndicated originally by Content That Works and posted with permission.
Question: We\’ve sold our home and are soon going to closing. However, because we have been unable to find a suitable replacement property we want to delay settlement while the buyers want to close on schedule. How can we delay closing?
Answer: Imagine if closing is delayed by a month. Imagine also that the purchasers have sold their home or given notice to end a lease. Where do they live if closing is postponed?
This is a tough issue because both buyer and seller agreed that the home would be sold under given terms. One of those terms was to establish a specific settlement date.
In this situation there are several steps that can be taken:
___ Ask the other party for a delay. However, if closing is delayed buyers may lose a financing commitment at a particular rate. Who pays if closing is delayed and now the interest rate is higher?
___ See if there is a clause in the agreement which would permit delay or cancellation of the contract. This is a matter for attorneys to review.
___ Sell the home — and rent it back. This may be possible for a few days if okay with the buyers, however residential financing agreements usually show that the borrower “intends– to actually live on the property within 30 days. It’s possible that a lender could call the loan if the new owners have not moved in within the required timeframe. Most lenders would probably be reasonable on this point if there was a minor delay, but not all lenders are reasonable — think of predatory lenders.
Syndicated originally by Content That Works and posted with permission.
A survey is very important. It shows the amount of property purchased, the location of improvements on the lot (such as the house), and the location of the lot itself.
A new survey is needed each time a property is sold not because a house might move, but because of encroachments, easements, and such. For instance, the neighbors put up a fence last year and the fence is actually on the property you want to buy. If the fence remains in place, you have less property and perhaps your parcel is worth less. Or, the current owners built a garage which extends over the property line. Your neighbors will allow it to remain in place, but only if you pay them $27,000 for the use of their land.