LOAN ESCROW AND BUYER ESCROW

1
Chapter 7

• LOAN ESCROW AND BUYER ESCROW

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Chapter Outline

• Types of lenders and Types of loans
• Lender personnel and the loan process
• Loan Pre-qualification
• Sending preliminary title report and certified
  escrow instructions
• Keep in Touch Using the Conversation Log
• Loan Fees
• Private mortgage insurance (PMI)(MMI)(MIP)
• Loan conditions prior to loan docs
• Loan approval
• Preparing Loan Docs
• Good Faith Estimate and Reg. X and Z
• Funding
• Trust Deed(s)
• Buyer affidavit, Contingencies
• Buyer-caused escrow fall out

3
Chapter 7

• At the conclusion of this chapter, you will be
  able to
• 1)   Understand the relationship between escrow
  and the buyers new lender.
• 2)   List the components of a Trust Deed.
• 3)   Outline the steps for escrow to take to meet
  the requirements of the buyers new loan.
• 4)   Differentiate between various types of buyer
  loans for the requirements for escrow.
• 5)   Explain the loan process from buyer
  pre-qualification to funding and recordation of
  the documents evidencing the new loan on the
  property.

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Types of lenders

• Institutional lenders
• Loan brokers and loan bankers
• Private lenders

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Types of loans Government LoansFHA loans

• Ø    No secondary financing at the time of the
  original first trust deed loan.
• Ø    Minimum 3 from the buyer, of their own
  funds, to close the escrow.
• Ø    MIP (Mortgage insurance premium) is always
  required, requiring a MIP disclosure.
• Ø    The seller may pay anything above the 3
  required of the total funds from the buyer.
• Ø    The FHA loan amount may not exceed the FHA
  appraisal.
• Ø    The maximum loan amount varies in each
  county in California and current information
  may be found at http//www.hud.gov/fha/shf/.
• Ø    FHA loans charge the buyer a one-time
  up-front premium (UFMIP).
• Ø   FHA loans charge the buyer an annual renewal
  premium, payable monthly.
• Ø    The lender requires Certified Escrow
  Instructions from escrow.
• Ø    Requires impound account for taxes, hazard
  and mortgage insurance.

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Types of loans Government Loans DVA loan

• Ø DVA allows 100 financing with zero cash down
  payment.
• Ø DVA loans have a Funding Fee that is determined
  by the type of loan and down payment.
• Ø DVA allows a second trust deed with a DVA loan,
  so long as the total of all loans does not exceed
  the CRV and the interest rates on the second does
  not exceed the interest rate on the first trust
  deed.
• Ø  The seller may pay all of the veterans normal
  closing costs.
• Ø  The veteran cannot be charged an escrow fee.
• Ø  Requires impound account for taxes and hazard
  insurance.
• Ø Closing costs are regulated for what a veteran
  may pay for

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Types of loans Government Loans Cal Vet

• California Department of Veterans Affairs
• http//www.cdva.ca.gov.

8
Conventional loans

• Ø CHFA, SCHFA, HOPE, HOME HOP, PERS and jumbo
• Ø Residential, commercial, industrial
• Ø LTV up to 95 of appraised value with only 5
  down payment.
• Ø Impound account for taxes and insurance
  required only if loan is greater than 80 LTV.
• Ø Interest rates may be fixed, variable, biweekly
  or tied to an independent index.
• Ø Private mortgage insurance (PMI) required for
  loans greater than 80 LTV.

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Finance Terms

• Jumbo
• Fixed
• Variable
• Adjustable

10
Lender personnel

• loan originator
• loan processor
• loan servicing

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Loan Prequalification

• Ø  Is the transaction contingent upon the
  appraisal? If so, is it in?
• Ø  Was the buyer pre-qualified for this
  particular loan? If so, is another loan
  available as a back up should the lender change
  the loan at the terms stated?
• Ø  Does the buyer have adequate reserves for
  additional closing costs required? Or, for
  additional down payment should the original loan
  desired not be approved?
• Ø  Does the buyer in this transaction have
  another property that must close escrow prior to
  the close of this transaction?
• Ø  Are tax exchange benefits important to any
  party to the transaction?

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original escrow instructions

• (1) copy for buyer to sign and return to escrow
  with an original signature
• (2) copy for the buyer to retain as a copy for
  their records
• (3) copy for the seller to sign and return to
  escrow with an original signature
• (4) copy for the seller to retain as a copy for
  their records
• (5) copy for the real estate brokerage office
  that handles the buyer
• (6) copy for the real estate brokerage office
  that handles the seller.

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The lenders underwriter looks at

• Prior to loan approval
• The escrow officer certifies that they have a
  copy of original signatures
• Is the transaction involving
• An owner-occupied loan ?
• A Veterans loan ?
• Tenant deposits to transfer?

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PRELIMINARY TITLE REPORT

• Ø     General policy provisions Offer to insure,
  Exceptions, Exclusions.
• Ø     Schedule A Existing title, Sellers
  name(s), Legal description of the real property,
  and exceptions.
• Ø     Schedule A-1 wire transfer information,
  beneficiary sign off for loan payoff, Statement
  of Information (SI) required from all parties,
  Existing real property taxes Prorations, No
  conveyance within past six (6) months, The
  physical property address and type of property,
  The title insurance rate that is offered.
• Ø     Schedule B Taxes, easements, utilities,
  CCRs

15
The conversation log

• the paper trail
• communications skills
• follow up

16
Loan fees

• Cash payment of any loan fees through escrow
• Financed added into the unpaid loan balance
• one point equals one percent of the loan amount

17
Private mortgage insurance (PMI)(MMI)(MIP)

• LTV is greater than 80 of the appraised value
• lender will require mortgage insurance
• up-front mortgage insurance premium (UFMIP)
  premium
• insurance premium is payable monthly together
  with the loan payment
• monthly premium payment is one-half of one
  percent, or 0.50

18
FHA loan

• FHA mortgage insurance premium (MIP)
• (UFMIP) is 1.5 of the loan amount
• monthly premium of ½ of 1 of the loan amount,
  divided by 12
• UFMIP premium, the mortgage insurance is
  calculated at 2.25 of the loan amount.
• FHA MIP may be financed

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conventional loan

• private mortgage insurance (PMI).
• 80.01 to 85 Insurance coverage is the top 12
• 85.01 to 90 Insurance coverage is the top 25
• 90.01 to 95 Insurance coverage is the top 30

20
Loan conditions prior to loan docs

• Ø     Termite clearance final report
• Ø     Title insurance policy
• Ø     Flood insurance endorsement
• Ø     Mortgage insurance policy
• Ø     Re-inspection by appraiser or lender that
  work requirements have been met
• Ø     Hazard insurance endorsement

21
Loan approval

• handled by the lenders loan committee
• Notification to escrow of loan approval

22
Preparing Loan Docs

• Ø     Retain loan docs, Trustor will come to the
  lender to sign docs
• Ø     Loan docs go to the mortgage loan broker
  for signature(s)
• Ø     Title company picks up loan docs Trustor
  signs loan docs at the title company
• Ø     Title company picks up loan docs Trustor
  signs loan docs at the title company escrow
  company
• Ø     Loan docs go to the escrow company for
  signature(s)
• Ø     Loan docs go to the real estate
  broker/escrow for signature(s)
• Ø     Traveling notary delivers loan docs to the
  Trustor for signature(s)

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Reg. X

• Ø     A good-faith estimate of closing costs on a
  prescribed settlement statement form
• Ø     Servicing disclosure statement indicating
  if the lender plans to collect the ongoing loan
  payments after the close of escrow or if someone
  else will likely perform this job
• Ø     Related business between the lender and
  affiliated business partners (escrow, title, real
  estate sales office, builder/developer,
  insurance, etc.)
• Ø     HUD-1(A) FINAL settlement cost statement
  (Reg Z)
• Ø     Impound account statement showing the first
  year projected income and expenses

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Regulation ZHUD-1 form

• Real Estate Settlement Procedures Act (RESPA)
• Summary of totals for the borrowers side of the
  transaction
• Ø     Summary of totals for the sellers side of
  the transaction
• Ø     Total gross amount of funds that are due
  from the borrower to close the escrow
• Ø     Total funds paid by or for the borrower
• Ø     Total gross amount of funds due to the
  seller at the close of escrow
• Ø     Total expenses paid by or for the seller
  that reduce the amount due to the seller

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Funding

• Ø     Is every signature signed exactly as it is
  typed?
• Ø     Have all the places indicated been
  initialed by the Trustor?
• Ø     Has a date been placed on all documents?
• Ø     Will all liens be cleared for taxes,
  judgments and other unpaid items as shown on the
  prelim?
• Ø     Has the borrower instructed escrow on
  vesting?
• Ø     Are all required places properly notarized
  with a notary seal that is current?
• Ø     Has the source of funds been verified and
  delivered to escrow?
• Ø     Are all required inspections, maintenance
  and repairs been completed?
• Ø     Is the final credit check report in the
  file and checked against the original credit
  report?
• Is the desk/review appraisal information in the
  file?

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loan docs

• Ø     Escrow instructions and title insurance
  company copy
• Ø     Insurance requirements
• Ø     Title wire instruction
• Ø     HUD-1 Settlement Statement and TIL, Reg Z
• Ø     Interest rate disclosure (ARM, Fixed rate,
  Balloon, etc.)
• Ø     Riders Second home, condominium, 1-4
  family, PUD
• Ø     Occupancy affidavit
• Ø     Borrowers certification
• Ø     Notice Fair housing, flood
• Ø     Tax forms W-9, IRS Form 4506, 1099
• Ø     Loan service disclosure, impound account,
  assignment of deed of trust
• Ø     Deed of Trust and Trust Note

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Trust Deed(s)

• Recordation information
• County Recorder information
• Document title
• Specific wording to convey transfer

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Buyer affidavit

• FIRPTA, (Foreign Investment in Real Property Tax
  Act).
• Internal Revenue Service under IRC 1445.

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Contingencies

• Ø      Loan commitment from the lender
• Ø      Increase in the amount of the initial
  deposit and the placing the additional funds into
  the escrow by a specific date
• Ø      Approval of the termite report,
  inspections, roof certification, etc.
• Ø      Obtaining of a city permit, occupancy
  permit or construction plans
• Ø      Delivery of the insurance policies
  (hazard, earthquake, flood, mortgage)
  endorsements
• Ø      Closing statement on the property the
  buyer is selling to have the funds to close this
  escrow
• Ø      Lease agreements on rental properties and
  security deposit information

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Buyer caused escrow fall out

• o       The buyer backs out because of lack of
  funds
• o       A defect in the property is disclosed to
  the buyer after escrow opened
• o       Failure to disclose hidden costs
• o       Buyer dissatisfaction due to poor
  treatment by the agent, lender or others
• o       Failure of agreement by the parties on
  certain terms, such as points and closing costs
• o       The lender fails to approve the property
• o       The lender fails to approve the
  borrower(s)
• Buyer frustration in the purchase process and
  lack of understanding on the normal events in
  closing an escrow

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Think About It!

• A buyer purchased a new home directly from a
  builder, which closed escrow on January 2, 2004.
  The contract required the buyer to pay all
  closing costs. To reduce costs, the buyer did not
  purchase title insurance.
• On September 15, 2004, a mechanics lien was
  filed in connection for work on the property in
  conjunction with the construction. The buyer
  tried to contact the builder who could not be
  located. Upon checking the records, the buyer
  found that the July 1 to June 30, 2003 property
  taxes had not been paid.
• What does the buyer owe?

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Think About It! Answer

• The buyer bought the property subject to ALL
  existing liens, whether aware of any specific
  lien, or not, and whether or not disclosed to the
  buyer. The buyer has primary responsibility for
  paying both the lien holder for the mechanics
  lien and for the property taxes.
• By September, however, all of the mechanics
  liens for the construction period would have
  expired. Over nine months later the buyer is
  notified of the mechanics lien. The unpaid
  worker would have had a maximum of 90 days after
  construction was completed to file on the
  property and notify the owner, which would have
  been no later than April 30, 2004. This assumes
  that the builder did not file a Notice of
  Completion. By September the legal period had
  expired and the buyer owes nothing.
• The buyer does owe the property taxes, but not
  the mechanics liens because the house was
  purchased subject to all existing liens, and real
  property taxes never go away until they are paid
  in full, including the late fee penalty.