rCRMS Essential Skill for a Successful Closing

Unit 1: Choosing a Lender

Risks – Failing to Understand Buyers’ failure to obtain financing Failure to provide adequate guidance for a buyer with low to moderate income or less than perfect credit history Others…

Banker vs. Broker A mortgage banker originates, underwrites and funds the loan. A mortgage broker originates the loan and handles the application but doesn’t underwrite or fund the loan.

Predatory Lending Red Flags Offers of cash back after closing Loan terms much less favorable than advertised Loans offered for more than the property is worth Large prepayment penalties Interest rates much higher than the market average Exorbitant fees or points due at closing Lenders failing to fully explain loan terms Pressure to close quickly Pressure to inflate income or asset value Pressure to sign over the deed to a home Loan documents that differ from what the client was told

Scenario – Altering the Purchase Price Question: What are the risks associated with this situation

Scenario – Altering the Purchase Price The risks: Any cash to the buyer at closing must be specified in the loan documents and the HUD statement (only allowed in rare cases) If the actual lender (NOT the mortgage broker but the entity providing the funds) is not aware of this or does not agree, this would constitute mortgage fraud against the lender

Privacy Act The risks: Failing to understand the allowed disclosures Failing to make required disclosures regarding the buyer’s ability to obtain financing

Unit 2: The Loan Process

Pre-Qualification Form Purpose Explain to Seller-clients Advantages for the buyer

Loan Status Update Risks – failing to use Benefit to buyer-clients Significance

Roundtable Discussion Take 5 minutes to discuss the questions on page 11 of your manual

Risks – Alternative Financing Failure to adhere to the seller financing restrictions contained in the Dodd-Frank Act Failure to adhere to an existing due-on-sale clause Liability related to the failure to include all material terms and conditions related Failure to adequately explain buyers’ and sellers’ concerns related to wraparound financing Any other risks?

Wraparound Financing Risks for Sellers Buyers failing to make required payments Failure to verify appropriate financial information Failure to seek appropriate legal and tax advice Inadequate record keeping Liability with failing to honor due-on-sale clause

Wraparound Financing Risks for Buyers Sellers failing to timely pay the first loan Foreclosure due to sellers’ failure to pay Failure to review sellers’ loan documents Failure to recognize due-on sale clause Failure to seek legal and tax advice

Lease Option Risks: Ambiguous terms Failure to include all terms agreed upon by the parties Failure of parties to understand obligations and time constraints Disputes over purchase price Disputes over occupancy if option not exercised Others…

Lease Purchase Risks: Buyer’s inability to obtain financing Failure to properly execute both the lease agreement and the purchase contract Failure to include cross default clauses Failure of buyer and seller to understand their rights under the agreement Others…

Unit 3: Escrow Instructions

Higgins v. Kittleson Decision The Escrow Company was dismissed prior to the appeal, however the decision included some discussion of the Escrow Company The court cited existing case law in clarifying that the escrow instructions and purchase contract are not interchangeable; a binding contract must exist for the escrow instructions to be enforceable. The court stated that because the Escrow Agent fraudulently recorded the deed (all conditions were not met), the deed conveyed no title.

Young v. Bishop Decision In summary. . . . “A contract of sale of real estate and an escrow agreement are not interchangeable entities.” The court summarized escrow as “a conveyancing device designed to carry out the terms of a binding contract of sale previously entered into by the parties.” The court did not find that the contract of sale “was expressly conditioned upon the completion of escrow instructions.” In summary. . . .

The court stated that while the escrow agreement itself had not been completed due to the failure of the parties to agree upon and submit the necessary supplemental instructions, the contract itself did not set forth the requirement of these supplemental instructions as a condition of the binding agreement between the parties.

Allan v. Martin Decision The court, citing Young v. Bishop, noted that the sales contract and the escrow arrangement are two separate agreements, the escrow agreement being subject to an enforceable contract. Although terms within the contract may alter the escrow agreement, the escrow agreement may not alter the underlying contract unless it is explicitly spelled out and agreed upon within the language of the contract.

The court noted the presence of a “time is of the essence” clause within the contract as well as Martin’s statement that the closing date was important. Because of Allan’s failure to perform by the latest date agreed upon by the parties (August 15th) the Martin’s had the right to treat the contract as canceled. The court held that when the contract was canceled “the escrow instructions became enforceable.” The court stated that “nothing in the escrow instructions can revive an already dead underlying contract.”

Tucson Title Insurance Co. v. D’Ascoli Decision The court found the escrow company clearly violated the escrow instructions. By failing to adhere to the escrow instructions, the escrow company breached its fiduciary duty to D’Ascoli. The court also stated that any deed secured without complying with the escrow instructions is of no effect.

Burkons v. Ticor Title Ins. Co. Decision The court held that Ticor violated the escrow instructions by recording the lien holder of the construction loan in first position. The court cited Tucson v. D’Ascoli, in that “an escrow agent which fails to follow the escrow instructions breaches its contract, and the parties to the escrow may recover ‘all damages resulting from any deviation’ from the escrow instructions.: The court further stated that an escrow agent should be aware of all provisions contained in the escrow documents and, in the case of any ambiguity, should seek clarification from the parties.

Unit 4: Title Commitment

Take 5 minutes to complete as a group Quiz Take 5 minutes to complete as a group

Title Commitment Sections Schedule A Schedule B Requirements Exclusions

Title Commitment Issues Easements CC&Rs and Other Deed Restrictions Access Judgments, Liens, and Bankruptcy

5 minute Roundtable Discussion

Forms of Holding Title Any others? Risks Failure to advise buyers to seek appropriate advice (legal, tax, estate planning) Seller’s inability to convey title Delayed closing Enforceability issues Any others?

Deeds Any others? Risks Mistakes and omissions Improper form Failure to meet legal requirements Going unrecorded Any others?

Take 3 minutes to complete as a group Quiz Take 3 minutes to complete as a group

Unit 5: Post-Closing

Title Insurance Policies Standard Plain Language ALTA Extended Endorsements

Title Insurance Policies Protect Against Defects that occurred prior to the policy date Defects in liens and encumbrances Unmarketability of title Lack of a right of legal access

What is the significance of the different types of title policies? Under what circumstances would you recommend a buyer obtain additional coverage through endorsements?

Trustee’s Sales Under what conditions can a property be sold in a trustee’s sale? Owner has defaulted on payments Notice of the sale has been recorded 90 days have passed since the recording of the notice

Risks associated with a Trustee’s Sale Property Condition Condition of Title Inability to inspect the property beforehand

Baker v. Gardner Decision The court held that at the core of the anti-deficiency statutes was the desire to protect homeowners from losing everything. Because the property was subject to the anti-deficiency statutes, Gardner’s other personal property was exempt. The court stated that the only remedy creditors could pursue was the property itself and any proceeds of the forced sale.

Bank One v. Beauvais Decision The court held that the refinanced loan was still considered purchase money and was subject to the anti-deficiency statutes.

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