Zero Demand Statements & Why We Utilize Them

Recently, one of our sister offices opened a For Sale by Owner transaction with a sale price of $495,000. The escrow assistant, Debbie N., ordered a title report. The title report reflected two deeds of trust on title, each with a reconveyance recorded with a side note that read, “Said deed of trust appears to be reconveyed by the above recorded instrument. An inquiry must be made with the lender confirming payment prior to close.”

Debbie requested loan numbers from the seller, an unmarried woman. The seller responded that the loans were paid in full and she had a new loan that just recorded. Debbie requested payoff information for the new loan as well as the prior two loans. The seller reluctantly provided the loan numbers and contact information for all three lenders. Debbie then ordered an updated title report to reflect the new deed of trust, which had recently recorded.

A private lender was used

The new loan was through a private lender, Ronald V. Cupp. Debbie ordered the payoff information and at the same time contacted the former lien holders to verify they had, in fact, received payment in full. Neither lender would confirm payment in full to Debbie without a signed third–party authorization from the seller.

Debbie tried another tactic; she ordered payoff statements from both lenders in writing. Neither lender responded immediately to her request. Debbie printed copies of the recorded reconveyances and found they were signed by none other than the new private lender Ronald V. Cupp!

Cupp signed as attorney–in–fact on both reconveyances. The documents were notarized. Debbie looked up the notary information only to discover the notary worked at a Mail Boxes, Etc., not at the financial institution purportedly releasing the lien.

“Debbie looked up the notary information only to discover the notary worked at a Mail Boxes, Etc.”

Debbie tried calling the first lienholder one more time. Lo and behold the first lien holder confirmed their loan had been fully paid and stated it would take 21 days to research the validity of the reconveyance. In the meantime the second lienholder finally responded to Debbie’s payoff request and faxed a demand for more than $95,000.

Buyers and seller had been waiting for loan documents to arrive for closing. There had been a long delay due to appraisal issues and both were very anxious to sign, especially the seller. Debbie allowed the signing to proceed with payoff to the second lien holder in the amount of $95,000 showing, as well as the payoff to Ronald V. Cupp in the amount of $137,000.

For the first lienholder, Debbie estimated reconveyance fees and explained to the seller the Company would not close until the first lienholder provided a zero demand and/or a reconveyance executed by one of their corporate officers.

THE MORAL OF THE STORY

When a lien is extinguished with no new money or conveyance, title examiners are trained to add the note requiring verification of an actual payoff. It is imperative the settlement agent exhausts all avenues to obtain proof of payment in full through a zero demand or other lender–provided statement.

The industry can no longer rely solely on the recorded release document, since so many of them have been forged and recorded. The proof of payment in full must be provided to the title officer prior to closing the new transaction. If proof cannot be obtained, then the transaction should not close.

Surprise! Another lienholder was found

After much persistence, Debbie learned the first lienholder’s loan number the seller had provided was for a previous loan that was paid in full. However, there was a current loan with an outstanding balance of more than $358,000.

The escrow officer called the seller and asked her about the loans, but the seller quickly got off the phone and said she was going to talk to her attorney. The file was put on hold, since there were not enough sale proceeds to pay all three loans:

1st Loan Payoff = $358,000
2nd Loan Payoff = $ 95,000
3rd Loan Payoff = $137,000
TOTAL $590,000

No sale…

The buyer was devastated to learn they were not going to be moving into their dream home. They were holding out for some reasonable explanation from the seller, but the seller refused to talk to them or anyone else involved in the transaction.

Debbie’s diligence in following Company procedures is commendable. Had she not unraveled the mystery of the forged reconveyances, the buyer would have closed and most certainly the 1st and 2nd lienholders would be foreclosing for the prior owner’s unpaid loans.

The Company’s potential liability would have been $453,000 plus legal fees. For her expertise and effort Debbie was rewarded and recognized by our company.

Questions or comments? Please share below!

Top 10 ways TicorAgent 2.0 can help you close more business

Ticor Agent 2.0 Real Estate App

It’s been four months since we kicked off our TicorAgent 2.0 app for iOS, Droid, Mac and PC.  And in that time we have heard rave reviews from across the greater Puget Sound area.  The feedback from Brokers and Loan Officers tells us that the app is intuitive to use, saves time, and helps to quickly answer the tough payment and net proceeds questions on the fly.  We are also receiving feedback that the app helps Brokers to better inform sellers and potential clients during listing presentations.

Interested?
Contact us for a demonstration.

  • Contact your Ticor Sales Executive for a demonstration and setup.
    Ticor Agent 2.0 Real Estate App

With such positive feedback coming in, we decided it’s time to share the top ten tough questions that this powerful little app can answer in the hands of a real estate professional.

Top 10 questions that TicorAgent 2.0 can answer on the fly:

  1. What will I net at closing when my house sells?
  2. How much house can I buy for a specific payment?
  3. What will my closing costs be?
  4. How will a change in interest rates impact my buying power?
  5. When will I break even if I refinance now?
  6. How does renting vs. buying compare, given my budget?
  7. What will my home have to sell for if I want to net a specific amount at closing?
  8. How will my net proceeds change if my home sells for less than the listing price?
  9. What is my current loan balance?
  10. What estimated house payment/price do I qualify for?

How to get the TicorAgent 2.0 app

The TicorAgent 2.0 app works on Android, Apple, and Blackberry mobile devices as well as PCs and Macs.  Here’s a breakdown on where to get it:

Android devices – Visit the Google Play store and search for TicorAgent 2.0
Apple iPhone, iPad and iPod devices – Visit the App Store from your device and search for TicorAgent 2.0
PC and Mac users – Visit http://ticoragent.com/2/ and click the button that says “Get the App”.  Download and install the program.

Questions or comments?  Please share below!

Alert Escrow Officer Foils Forgery

signature examination in escrow

signature examination in escrowTraci F., an escrow officer out of our sister office in Vancouver, Wash. was handling a short sale transaction. According to the listing agent, the property owner was unavailable to sign his closing documents because he was in the Ukraine.

The agent also said the owner was not going to be able to come back to the U.S. to sign his documents, so Traci began making preparations to have the documents executed internationally. Days later the agent called to tell Traci the seller was suddenly able to catch a flight back to the U.S. and was on his way to her office to sign a Power of Attorney (POA), giving his brother the power to sign on his behalf. The agent was extremely excited and insisted the owner would be at her office in the next 15 minutes.

Synopsis

A seller located in the Ukraine suddenly appears in our Vancouver, Wash. office to sign a Power of Attorney, granting his brother the authority to sign on his behalf. A few days later, the supposed brother appears for the signing as attorney-in-fact. Guess what – it’s the same guy, and no, these guys are not twins!

Something seems fishy…

Traci thought it odd the seller was able to find a flight to the U.S. so quickly, however. She drew the POA document as instructed and it was executed, thus granting the ability for the owner’s brother to sign. A few days later the brother came in to sign on behalf of the owner. Something didn’t seem right, as Traci was fairly sure this was the same gentleman who had come in to sign the POA – representing himself as the seller – a few days before. The two were said to be brothers, so Traci thought similarities seemed possible and the “brother’s” ID photo matched his appearance. After the signing, Traci asked the opinion of the office receptionist, who also thought it was the same individual who had come in to sign a few days previously.

After further examination…

Traci had a gut feeling something was wrong with the situation and conducted more research. The printing and signature from the POA and seller’s newly signed closing documents appeared to be very similar. Traci examined the copy of the ID she had taken from the individual who signed the POA (representing himself as the seller) and the signature did not appear to match the one she had received on the POA. Traci brought the signed documents and ID copies first to her branch manager and then the county manager. The signatures on the seller’s ID did not appear to match up with the seller’s signature on the POA. But Traci was still certain that the seller and the brother were the same individual, posing as separate individuals.

As a result of her suspicions, Traci and her manager contacted the listing agent to let him know we would not be able to accept the POA. Traci expected the agent would be at least slightly irritated, however no questions were asked and no arguments were made. Traci made arrangements to contact the seller directly to execute the documents in the Ukraine.

Moral of the story

Traci did the right thing by not confronting the parties with her suspicions. Instead, she contacted her manager and together they denied the use of the POA, thus protecting the Company from insuring a deed with a possible forgery. If we had accepted and insured a forged deed, the owner could have come back to the buyer laying claim to the property. We are expected to protect the buyer’s ownership interest under the owner’s policy of title insurance issued through this transaction, since protection against forgery is the cornerstone of any of our policies.

A Big Notary No-No

A mobile notary failed to have an Occupancy Affidavit signed by the borrower. The escrow officer gave the mobile notary the affidavit and asked her to go back to the borrower to have it signed. Instead of returning to the borrower’s residence to have the document signed, the notary signed it herself!

James S., an escrow officer from one of our sister branches, requested a mobile notary from Bancserv to perform a signing at a borrower’s residence. The transaction was a $610,000 refinance that involved the signing of many loan documents. The notary assigned to the case was Kimberly G.

Kimberly performed the signing and promptly returned the documents to James. James reviewed the documents while packaging them to return to the lender. During his review he found an unsigned Occupancy Affidavit and sent it to Kimberly with instructions to return to the borrower’s residence to have it signed. Kimberly apologized for her oversight and agreed to have the affidavit signed.

Anything to Meet the Deadline…

Kimberly later faxed a copy of the signed and notarized affidavit to James in an attempt to help meet the rate lock deadline. Apparently, she didn’t have time to get it signed the previous night when James originally made the request and had to fax it to him the following day to expedite funding.

“Unbeknownst to Kimberly, she had just forged the signature of a superior court judge as well as his wife’s!”

James reviewed the affidavit and recognized it as a clear forgery. The borrowers were a married couple and their signatures on the affidavit looked nothing like the signatures on the other loan documents. Unbeknownst to Kimberly, she had just forged the signature of a superior court judge as well as his wife’s!

The Real Signatures Were Obtained

James ordered another notary from Bancserv and had the affidavit signed by the real borrowers. Then he went one step further and contacted his escrow administrator who reported the incident to Bancserv. The management team at Bancserv immediately removed Kimberly from its list of registered notaries and reported the incident to the Secretary of State, the regulator of notaries.

When the swift acting management team at Bancserv questioned Kimberly about her actions she claimed it was always her intent to get the true signatures before sending the original document and that she even went as far as to call the borrower for an appointment the evening after the forged document was faxed. Of course at that point another notary had already been assigned.

Then the administrator notified the Company’s field compliance team who promptly removed Kimberly from the Company’s approved notary list.

Integrity Was Rewarded

For James’ attention to detail and for not turning a blind eye to the forgery, the Company has rewarded him. His detection of the forgery was nothing short of heroic, and the fact that he had the fortitude to do something about it to save the Company from a future claim is impressive. We all know it would have been easier and faster to accept the affidavit and forward it on to the lender, but he didn’t. The Company admires James for his integrity.

Questions or comments? Please share below!

TicorDashboard Replaced by SmartView on Feb 11

We are delighted to announce that our current transaction dashboard will be replaced with a more functional and accessible system called SmartView.

SmartView Real Estate Transaction Dashboard

SmartView will enable you to keep your finger on the pulse of every transaction.

Smartview will enable you to keep your finger on the pulse of every transaction!

The benefits to you and your clients include:

  • Document accessibility
  • User friendly email links to transaction documents
  • Compatability with the most popular internet browsers
  • Decreased delivery times and reduced consumption
  • E-mail or print single documents or entire packets from the Web
  • Clearer communication throughout each transaction

SmartView will be live on Febrary 11.

How to take advantage of SmartView

There’s nothing you need to do at this point.  Send us your next order and you will automatically receive SmartView transaction summaries once per week via email.

If you have questions, please contact your Ticor escrow officer.

Two HUDs Are Not Better Than One…

Short Sale HUD-1 Settlement Statement

Marta D., escrow officer for one of our sister branches, knows the importance of adhering to the RESPA Rules. When the third party negotiator asked her to prepare two different HUD–1 statements for the same transaction she refused. Read on for all the details.

Short Sale HUD-1 Settlement StatementShort sale transactions can be quite challenging. Settlement agents act as a neutral third party working diligently to ensure all the terms of the transaction match up and the instructions of the parties are mutual. This is even more complicated in a short sale where there are multiple lien holders agreeing to take a shortage.

All Lienholders Must Agree…

In a short sale, the first lienholder regularly specifies the terms of their approval. The letter often includes the minimum amount due to them, approved closing costs, buyer’s name, commission and the amount which may be applied to subordinate lien holders. If the second or third lien holder requires more than the approved amount, the settlement agent must ensure the terms of the first lien holder’s approval letter are not violated.

In some cases, depending on the loan program, the buyer or real estate agents may contribute towards the short fall amount due the subordinate lender. In other instances the seller or their representative must negotiate with the second lender to settle for the amount permitted by the first lien holder. Regardless, everyone has to agree before the file can close and it all must be properly disclosed on the HUD–1 Settlement Statement.

Section 4 of RESPA dictates proper HUD–1 preparation. Appendix A to Part 3500 of RESPA states:

“This form is to be used as a statement of actual charges and adjustments paid by the borrower and the seller, to be given to the parties in connection with the settlement.”

A Request for Two HUDs

When closing a RESPA Regulated transaction, whether it is a sale or refinance, the HUD–1 must be a true reflection of all receipts and disbursements made as a part of the transaction. Marta knew the RESPA Regulations quite well, which is why she was shocked by the request she received. This transaction was being negotiated by a third party negotiator, who sent her an email which read:

“This HUD is to 1st mortgage for now. That is all 1st mortgage is going to pay to 2nd: $4,649.91. We will need another separate HUD to 2nd, which the buyer will contribute the difference for payoff to 2nd total: $12,000.”

Marta was shocked and offended. The negotiator even went as far as to tell her other settlement agents have done it for her. This is when Marta decided to report the incident to her manager who reported it to settlement@fnf.com. She refused to accommodate the request, forcing the negotiator to do her job and negotiate with the second lender. The file successfully closed, without deceiving anyone by using only one HUD–1 settlement statement which properly disclosed all charges and adjustments.

The Moral of the Story

When an escrow and title company closes and insures a new buyer, in some cases a new lender as a part of a short sale, they must ensure all terms and conditions of the short pay lender are met so they will release their lien. If the terms are not met, the short payoff may be rejected, resulting in the insured buyer and lender filing a claim on their title policy.

In some instances the title insurer ends up having to pay the difference between the loan balance and shortfall in order to obtain a release of lien from the short pay lender and protect their insured. Marta knew of this risk and her obligation to ensure her HUD–1 settlement statement was correct and accurate.

Questions or comments? Please share below!

A Tale of Short Sale Smoke and Mirrors

Short Sale Smoke and Mirrors

What do you do when the first lien holder’s statement requires no more than $1,000 to be paid at closing to the second lien holder on a short sale and the real estate brokers offer to pitch in?

Chasing Down the Loan Servicers

Short Sale Smoke and MirrorsMalou G., an escrow officer at one of our sister branches, opened a short sale on April 5. The listing agent had started negotiating with both the first and second lenders on the property. The first lender, Chase, had accepted a short sale payoff in the amount of $604,908.42, per their demand dated April 16, which was only valid until April 25. Chase had a payoff deadline of April 25, as the servicing of the loan was to be transferred to Litton on April 28. According to a Chase representative, there was no assurance Litton would accept the same short sale terms the sellers had made with Chase. If the escrow had not closed by the deadline, the sellers would have to re-negotiate the short sale with Litton.

At the same time, the listing agent was negotiating with the second lender, HSBC, to accept $1,000 as a short sale payoff. According to the listing agent, HSBC had verbally accepted the offer. However, they had not faxed a demand to escrow despite diligent follow ups by the listing agent and escrow officer. By April 26 the listing agent informed Malou he had spoken to someone at HSBC and they would NOT accept the $1,000 short sale offer after all. Instead they demanded $10,000!

Negotiating and Re-Negotiating

At this point, Chase had withdrawn their offer as the first loan and it was being transferred to Litton. On April 30, Malou finally received a fax from HSBC agreeing to the short pay for $10,000. The listing agent started re-negotiating the offer of the short sale with Litton.

It took a while for the listing agent to get Litton to accept the short sale. Finally on June 6, Litton faxed Malou a short sale statement for $604,323.74. The statement called for HSBC to receive only $1,000 at closing. The listing agent continued to negotiate with both lenders and kept reassuring Malou there was a way to satisfy all parties. Malou’s response was to have everyone agree to the terms of the short sale, including both payoff lenders.

Payment to the Lender Outside of Closing?

To make matters worse, Malou received another short sale statement from HSBC, this time requiring $15,000 as payment in full. Malou forwarded the information to the listing agent who immediately called HSBC for clarification. According to the listing agent, he spoke to HSBC and they agreed to adjust the short sale statement to $1,000 at closing, with an additional $14,000 to be paid by the listing broker directly to HSBC outside of closing.

The listing agent e-mailed Malou the HSBC demand, which agreed to $1,000, but on the cover letter it stipulated HSBC was to receive $1,000 at closing and $14,000 from the listing broker. This additional stipulation was NOT noted on the actual short sale statement, but only on a fax cover page. The actual short sale statement still called for payment of $15,000.

The listing agent insisted the escrow could close on the $1,000 fax cover letter from HSBC and that he would handle the $14,000 payment after closing.

Malou suggested showing a credit to the seller of $14,000 from the listing agent and escrow sending the entire $15,000 to HSBC at closing. He stated that Litton would NOT accept the final settlement statement reflecting a credit from the listing broker and a higher payment to the second lien holder.

Malou decided to call HSBC to see if they really had agreed to accept the balance of $14,000 post-closing from the listing agent. The agent Malou spoke to said they would have to investigate and call her back.

In the meantime, Malou contacted Litton to find out if they would amend their statement to allow for the listing agent to credit the $14,000 to the seller and for HSBC to ultimately receive $15,000. Litton flat-out refused. They would not agree for HSBC to get any funds in an amount more than $1,000, and stated that if there were more funds in the transaction they should be paid toward their shortage.

A Request for Two Settlement Statements…

The listing agent asked Malou to prepare two settlement statements – one showing HSBC getting $1,000 to fax to Litton and another showing HSBC getting $15,000 for all other parties. Malou was appalled and told the listing agent that she could only prepare one settlement statement reflecting the actual terms of the transaction. She patiently reiterated to the listing agent that ALL PARTIES will have to provide escrow a mutually agreed acceptance of short sale before we can close.

On July 9 Malou received cancellation instructions. She cancelled her transaction, but kept track of the property address and parties’ names only to find out the transaction was closed by a competitor company on July 18.

The Moral of the Story

Four years ago the FBI announced its launch of a Mortgage Fraud Task Force. The government task force is charged with the research and discovery of impropriety during a short sale. Anyone involved in deception is investigated and prosecuted.

Beware! When lenders negotiate short sales on government-backed loans, the lender looks to the loan sponsor (FHA, VA, FNMA, GNMA) for full or partial reimbursement of their losses. The government reviews the transaction before issuing the reimbursement funds to the lender. However, they have the right to refuse payment if during the government’s investigation they uncover any of the following items:

  • More paid to the underlying lien holders than called for in the original payoff statement.
  • Property flipping when the original payoff statement prohibited the property from being sold in a double-escrow or assignment escrow.
  • Broker or buyer contributions toward the seller’s prohibited costs – such as moving allowances.

We all know how important it is that we adhere to the new lender’s closing instructions. It is equally important that we adhere to the short sale lender’s payoff instructions.

Questions or comments?  Please share below!

Math Made Easy With TicorAgent 2.0

Ticor Agent 2.0 Real Estate App

We are so excited to announce the launch of TicorAgent 2.0, a tool that makes doing the math easy!

 

How to get TicorAgent 2.0

  • Contact your Ticor Sales Executive for a demonstration and setup.
    Ticor Agent 2.0 Real Estate App

With TicorAgent 2.0 you will be able to answer the following questions with absolute speed and confidence:

  • How much will my payment be?
  • How much house can I buy if my payment is $2,200?
  • How much will I save if I pay an extra $200 per month?
  • How will a change in interest rates affect my buying power?
  • How much will I save if I refinance?

TicorAgent 2.0 will truly give you the power to close more business!

Features

  • Net Sheets
  • Quick Estimates
  • Closing Costs
  • Prorated Taxes
  • Much more.

Platforms

  • iPhone/iPad
  • Android
  • Blackberry
  • PC
  • Mac

Price
$13 – One time fee that covers five devices.

Contact your Ticor sales executive today for a demonstration and set up.

Refi drama and the importance of document execution guidelines

Refinance Drama and the importance of document execution guidelines

It is amazing how a divorce can affect a closing. Many people believe their domestic problems become the settlement agent’s problem and often look to the settlement agent to be the tie–breaker for them. It is important for a settlement agent to take a step back, stay out of the drama and never lose sight of the proper escrow procedures and underwriting requirements.

Refinance Drama and the importance of document execution guidelinesThis story illustrates how a simple refinance turned into a whole lot of drama — other people’s drama — and our Company was continually asked to take on unnecessary risks. Read on to find out why it is crucial settlement agents do not abandon policy and procedures.

It all started as a refinance

The transaction was opened as a refinance. The new loan amount was approximately $5,500,000. Per the title report there were two existing deed of trusts recorded against the property. The first lien was for the benefit of Chase and the original loan amount of $5,230,000. The second lien was for the benefit of a private beneficiary.

Per the deed of trust the beneficiary was two individuals, Jim Smith and John Smith, with an original loan amount of $2,000,000. The loan officer told the settlement agent she would receive a zero demand for payment from the second lien holder and fully executed release.

The settlement agent requested the contact information for the Smiths and sent them a request for a payoff demand, the original note and a Substitution of Trustee and Full Reconveyance (Recon). Shortly after the request, she received a payoff demand and the original Promissory Note.

Who should the funds go to?

Unlike the deed of trust, the promissory note indicated Jim Smith or John Smith or XYZ Books were the payees. The payoff demand instructed the settlement agent to pay all funds to XYZ Books and was signed only by Jim Smith.

A few days later, the Company received a Notice of Motion and Court Order stating our Company must hold all funds due John “Jim” Smith and/or ABC Novels, Inc. DBA XYZ Books pending further order of the court. It was then the settlement agent realized Jim and John were one in the same. The Order was issued because Mr. Smith was in the process of getting divorced.

Mrs. Smith claimed the funds due to payoff the Note were community funds. Mr. Smith claimed the funds belonged to XYZ Books. Since the funds were in dispute, the court ordered the Company to hold the funds until it was determined who the funds belonged to. The Order did not prohibit the borrower from closing on her refinance, but the payoff funds for the second lien would have to be escrowed post–closing.

A change was requested

The Company was still in need of an executed Recon. Originally, the settlement agent completed the document listing only the beneficiaries named on the Deed of Trust; Jim Smith and John Smith. Mr. Smith did not want to sign anything which could be construed as his admittance the funds were due him individually. His attorney called asking if the Company would be willing to modify the Recon. They requested the following change:

The undersigned, Jim Smith or John Smith, present Beneficiary as owner and holder of the Note secured by Deed of Trust dated June 15, 2009 made by Roberta Jones.

Rather than modify the language (and in light of the new information she had received) it was agreed the settlement agent would add XYZ Books, since she had a demand instructing her to pay the full amount to XYZ Books and was informed the note had been assigned to XYZ Books. The settlement agent agreed to add the other beneficiary, pending the corporate documents to ensure she was accepting the Recon from the authorized person. The Recon was changed to:

The undersigned, Jim Smith AKA John Smith or XYZ Books, present Beneficiary as owner and holder of the Note secured by Deed of Trust dated June 15, 2009 made by Roberta Jones.

Mr. Smith’s attorney agreed this modification would work. The settlement agent sent the revised Recon along with an AKA statement to be signed by Mr. Smith and requested the corporate documents and a Corporate Resolution from XYZ Books as she was told it was a corporation.

The attorneys representing Mr. and Mrs. Smith in their divorce went back into court to ask the judge to issue an Order allowing the Clerk of the Court to sign the Recon, since Mr. Smith did not want to sign it and imply in any way the funds were his personally. The settlement agent received a fax of an Order allowing the Clerk to sign the Recon and copy of the executed Recon.

Reconstructed recon

Unfortunately, the Recon signed was not the proper Recon as it did not include a signature line for XYZ Books, which the settlement agent later found out is actually ABC Novels, Inc. DBA XYZ Books. Since the Company had been put on notice the note was assigned to XYZ Books, they explained the Recon would have to be executed by an authorized officer of ABC Novels, Inc. DBA XYZ Books.

A few days later an executed Recon, along with an amended demand for payment, was delivered via messenger to the settlement agent. The revised demand was conditional. It stated the Recon could only be recorded if the funds were paid in accordance with the original demand stating all funds were to be paid to XYZ Books. Clearly the settlement agent would not be able to comply because the previously issued Court Order required the Company to hold all funds.

Mr. Smith had been notified of these requirements and that the Recon was not executed in a manner which complied with the Company’s Document Execution Guidelines. Escrow notified Mr. Smith’s attorney the document would have to be re–executed to meet the Company’s underwriting requirements — and they were still in need of the AKA statement and corporate resolution.

Then the IRS showed up

What happened next? Only one week later the IRS issued a Notice of Levy to the Company and one to the borrower, Ms. Jones. The levy covered any funds due Mr. Smith and had a copy of the Promissory Note attached indicating the IRS was aware Mr. Smith may have been due a payment of $2,000,000. The full amount of the Levy exceeded this amount.

Then, Ms. Jones’ attorney contacted the settlement agent to find out what could be done to enable the transaction to close. The attorney was informed the deal could not close until they received the outstanding Recon, the AKA statement and corporate resolution from Mr. Smith. Upon receipt of those items the funds would have to remain in escrow until it was determined who the funds belonged to and how they would be disbursed. The attorney contacted Mr. Smith’s attorney and the IRS.

The Moral of the Story

In 2005 our Company implemented Document Execution Guidelines as a result of a dramatic rise in fraud and forgery claims. Since then fraud and forgery claims have dropped from the number one reason down to number three. The policy works — which only reinforces why settlement agents should not veer from, or make exception to, the policy.

Our Company has the right to implement policy, procedure and sound underwriting requirements even though statutory requirements are stronger. We owe this to our shareholders. We are never afraid to stand by Company policies. Abandoning these only opens the Company to additional liability.

Ms. Jones’ attorney called the settlement agent almost daily with a new scenario inquiring as to whether the Company would be willing to insure based on the different scenarios. He asked the Company if they would close and insure without receiving any of the documents due from Mr. Smith and send the funds to the court to decide. He then asked the Company to close and file an action to interplead the funds without receiving the pending documents. He even asked if the Company would close and insure if the IRS issued a Notice of Seizure, taking possession of the Note and requiring all funds be paid to the IRS.

And in the end…

The answer was always the same. The Company could close and hold the funds, send the funds to the court, file an action to interplead the funds — but not until it received the required documents from Mr. Smith.

In the end the Company received word the new lender decided to withdraw their loan and not proceed with the refinance. It was at this point the settlement agent resigned from the transaction and returned the original documents to Mr. Smith.

A Wrap-Around Mortgage Gone Bad…

HUD Seal

Early on in Allen Clussive’s career he agreed to close a transaction wrapping around an existing loan. The sale price on the transaction was $185,000. The buyer could not qualify for new financing and asked the seller to carryback a new loan in the amount of $180,000. The seller agreed, with the understanding that without the buyer obtaining a new loan he would not have the financial means to pay off his existing first loan in the amount of $157,000. The buyer and seller agreed to wrap the existing $157,000 loan with the new seller carryback loan. The underlying loan was an FHA loan originated after 1989.

Then the payments stopped

HUD SealAt closing, the buyer brought in $5,000 for his down payment plus his closing costs. Allen closed the transaction. After closing, the buyer paid the seller and the seller paid the FHA loan on time every month. Upon receipt of the buyer’s payment the seller paid the monthly principal, interest, taxes and insurance (PITI) payments to the lender servicing his FHA loan, and pocketed the balance. Everything was working perfectly until the 13th month when the buyer suddenly stopped making his monthly payments and abandoned the property.

The seller panicked and started to look for an attorney to start foreclosure in order to take the property back and put a renter in the house. In the meantime, the seller kept fronting the payments to the FHA loan to keep the payments current. The seller was making two house payments — one on his old home and one on his new home. Eventually the seller ran out of money and stopped making payments on the FHA loan.

The lender servicing the FHA loan started foreclosure and took the property back. The lender listed the property as an REO — bank–owned property – and resold it. They resold the property for $107,000, which was $50,000 less than they were owed. The lender filed a claim with FHA to be reimbursed the loss of $50,000. FHA sent the lender the $50,000 to cover their claim and the loan file was turned over to an investigator at the U.S. Department of Housing and Urban Development (HUD), the agency who regulates FHA loans.

An unlawful act was found

The new owner was not qualified

The HUD investigator discovered Clussive had facilitated a closing where title was transferred – yet the new owner’s credit did not qualify for the existing FHA loan. The investigator deemed the act unlawful and debarred Clussive from closing another FHA or VA insured loan transaction.

The HUD investigator discovered the property was transferred to a new buyer, but the buyer’s funds were not used to pay off the FHA loan. The investigator was curious how that could happen and sent a subpoena for Clussive’s file.

The HUD investigator discovered Clussive had facilitated a closing where title was transferred – yet the new owner’s credit did not qualify for the existing FHA loan. The investigator deemed the act unlawful and debarred Clussive from closing another FHA or VA insured loan transaction.

Now, to be honest with you, the action by HUD did not damage Clussive’s career. He lived and worked in an affluent community where FHA and VA loans were not prevalent due to their low loan limits. Sure, every once in a while one of Clussive’s customers would present a contract reflecting new FHA or VA financing and he would have to steer the customer to one of his associates to close the transaction, but for the most part it had little to no effect on his career. However, Clussive would be the first to tell you it definitely had a psychological effect on him.

Never again

Had Clussive known HUD issued a directive in 1990 (see below) banning the wrap of an FHA loan by any means — a land contract, a deed of trust, mortgage — he would have never accepted the transaction and agreed to close it. Unfortunately Clussive’s ignorance of the HUD rules did not exempt him from action by HUD.

In order to ensure Clussive never closed another FHA or VA loan, they placed his name on the Excluded Parties List System (EPLS) and Limited Denial Participation list. By placing his name on the list it ensured Clussive would never be able to close another FHA or VA loan or any other transaction involving the Federal Government, such as a HUD or VA REO sale.

Below is a letter from the U.S. Department of Urban Development issued back in 1990 addressing the ramifications of circumventing the credit qualifying process.

HUD letter

 

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