The 90-Day Condition…
Short pay lenders are serious about the principals upholding the terms and conditions placed on them by the short sale agreement. One of the most common conditions reads, “The property will not be sold within 90 days of the closing date of the subject real estate purchase contract.” Short pay lenders enforce this condition by checking the chain of title post–closing to verify the property owner matches the buyer shown on the settlement statement provided them at closing.
When the title to the property is in the name of someone other than the buyer, they immediately ban the closing agent from closing any further short sale transactions involving the lender or from closing any new loans originated by the lender. The ban on the closing agent is personal and it is serious.
An escrow officer at one of our sister companies closed a transaction July 31, 2012. The Realtor® completed a Short Sale Affidavit spelling out the above condition not to resale the property for 90 days. The seller signed the affidavit, as did the real estate agents – but not the settlement agent or the buyer. Their information was printed on the affidavit but their signatures were never rendered. On September 27, 2012 (just 57 days later) the same escrow officer closed a subsequent sale of the subject property to a new buyer.
Months later the escrow officer was working on another unrelated short sale transaction with the same lender. The agent was notified by the short sale processor of the following message, “All of our files are sent through quality review and the settlement company and agent do not meet our quality review guidelines. You will need to submit documents with an alternative settlement agency. Thank you.”
The agent did not have a clue why the short payoff lender needed to have the closing moved to another settlement agent. The settlement agent did not know either, so she reached out to the lender to find out why and this was their response:
We approved a short sale for a loan that was secured by the property located at 7519 Paradise Drive, Anytown, USA. The HUD–1 shows that this transaction was closed by an escrow officer of FN Title on July 31, 2012. All parties to the transaction, including the escrow officer, signed a Short Sale Affidavit in which the parties agree not to sell the subject property within 90 days of the close of the short sale.
However, public records show that the buyer from the short sale sold the property to another entity on September 27, 2012. A copy of the Grant Deed from the September sale was notarized by the escrow officer.
Wells Fargo Home Mortgage has concerns with business practices that may place us, our customers and/or investors at greater risk of loss in connection with short sales – whether we are the servicer on the loan being paid off short, the lender on a new loan for the property or both.
The following business practices are unacceptable:
- Allowing a sale to close when the seller has not yet acquired title and paid off all liens that are not assumed (with the approval of the lender).
- Producing a HUD–1 where the parties to the transaction are listed differently than the deed transferring the property shows.
- Allowing a short sale to close without following all the requirements of the lender(s) being paid off for less than the full amount owed. This includes but is not limited to fee specifications, parties to the transaction and execution of all related documents.
- Knowledge that the parties to the transaction are using a trust and/or transfer of beneficial interest that may mislead the current or new lender(s) as to the true identities of the parties involved.
- Allowing a short sale to occur between parties that are related or affiliated by family, marriage or commercial enterprise.
- Allowing a short sale to occur with an agreement or understanding between the parties that the Seller will remain in the subject property as a tenant, or will later obtain title or ownership of the subject property.
- Allowing a short sale to occur without disclosing all agreements, understandings or contracts relating to the current sale, or subsequent sale, of the subject property of the short pay lender.
- Allowing a short sale to close in which any of the parties to the short sale, including the settlement agent, will receive any proceeds or other remuneration from the short sale transaction except as set forth in the related settlement statement.
- Allowing a short sale to close in which any of the parties to the short sale have any knowledge of any offer to purchase the subject property for a higher purchase price than contained in the short sale purchase contract that has not been presented to the short pay lender.
- Allowing a short sale to close with any knowledge that the subject property will be sold again within 90 days of the date of the short sale.
Wells Fargo expects that settlement agents closing its transaction will not engage in this type of conduct. For this reason, Wells Fargo has declined to use your services at this time.
The escrow officer is appealing the decision of the lender banning her from closing any further short sale transactions or new loans, since she did not sign the Short Sale Affidavit containing the condition not to re–sale the property for at least 90 days. In response to the escrow officer’s appeal, the transaction has been reviewed in greater detail only to discover additional discrepancies as follows:
- The 1st lienholder’s short pay agreement only allowed $2,000 to be paid to the second. The second lienholder demanded $4,700. The buyer paid the additional $2,700 at closing. She closed without the 1st lienholder’s approval of the additional amount being paid.
- Payment of the additional $2,700 was not reflected in the 500 section of the HUD as a payoff, it was disclosed as a buyer charge in the 1300 section of the HUD.
- After adjusting the prorations at time of disbursement there was an additional $46.48 in favor of the seller. The escrow officer paid the overage to the 2nd lienholder, instead of the first who was only allowed to receive $2,000.
- Post–closing, the buyer received a refund of $564.55 even though the short pay agreement indicated, “Neither the seller nor any other party may receive any sale proceeds nor any funds as a result of this transaction except as noted in this Demand Statement.”
- The borrower on the short pay letter does not match the seller on the HUD. The borrower was a single woman who is now married. She and her new husband signed the closing documents without reference to her maiden name.
When questioned, the escrow officer’s response to the additional discrepancies were that she felt the short pay lender’s approval of the HUD was sufficient approval for the changes.
MORAL OF THE STORY
Taking the measures listed below will prevent the settlement agent and their Company from being banned from providing settlement services.
If the settlement agent is closing a second transaction on the same property, they should demand to see the short pay agreement and all other documents to ensure the property can be re–sold within the timeframe of the new contract.
- If there is more money to be paid to a junior lienholder than the 1st lienholder, the transaction cannot close without an amended agreement from the short pay lender. An approval of the settlement statement does not constitute a change in terms of the agreement.
- If the agreement states that no one in the transaction is to receive “proceeds or any funds” that means “refunds” too. No post–closing funds should be given to any party. Instead, the refunds should be sent to the short pay lender to apply toward their shortage – even if the borrower overpaid at closing.
- The seller on the settlement statement and the borrower named on the short pay agreement must match. If the borrower on the short pay agreement was later married, the settlement statement should reference her maiden name as well as her married name. The seller on the settlement statement and the borrower named on the short pay agreement must match. If the borrower on the short pay agreement was later married, the settlement statement should reference her maiden name as well as her married name.