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Ohio Abstractors, Beware the Terminating Homestead Exemption
by Robert Franco  | 2018/01/21
In Ohio, the disabled and elderly can receive a break on their real estate taxes by applying for a homestead exemption. The exemption is generally available to Ohio residents who are disabled or at least 65 years old, who own and occupy their home and meet certain income thresholds. For a title abstractor, it is important to note on the search that the taxes have been reduced by a homestead exemption so that the escrow agent can calculate taxes properly for a new owner - who may not qualify for the exemption. It is also important to note when homestead may be ending without a transfer of title, such as may happen when a homeowner passes away but their estate has not conveyed the real estate.
Read on for more information about homestead, and an example that can catch an abstractor and escrow agent off guard.
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Categories: Abstractors, Escrow/Funding, Ohio Legislation, Title Problems
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Someone Please Explain The Double Standard
by Robert Franco | 2008/12/08
As a title agent, I am required to keep client funds in a special Interest On Trust Account ("IOTA"). Funds in the IOTA account are kept segregated from our operating account. The logic is simple - its not my money; it belongs to the clients. Commingling client funds with company funds is expressly prohibited. As a fiduciary, I owe the clients a duty to protect their money.
Assume for the sake of argument that I get a hot stock tip, or Archie, at the local racetrack tells me that "Easy Money" in the fifth race is a "sure thing." What do you assume would happen if I "borrowed" money from my IOTA account to make the investment, or place the para-mutual wager, and I lose it? (Would it even make a difference if I made money?) I am guessing that I would not "pass go" and I would not collect $200 as I proceed straight to jail.
So, explain to me why a national underwriter, like LandAmerica, was allowed to put about $400 million of client money, held for 1031 exchange transactions, into commingled accounts that invested in auction-rate securities. It sounds like LandAmerica was gambling with client funds. When the securities became illiquid, the company collapsed and filed bankruptcy. LandAmerica's agents could certainly never get away with commingling escrow funds - so why would LandAmerica do such a thing?
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Categories: Escrow/Funding, Ethics
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The Seller's Concessions Ruse
by Robert Franco | 2008/05/29
I think HUD needs to address the abuse of seller's concessions. It has become nothing more than a joke. Why don't they just call it what it really is... borrower financed closing costs. In many of these transactions, the seller really isn't giving any concessions, it's merely a game of showing the seller paying the borrower's fees and adding more money to the loan amount.
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Categories: Escrow/Funding, RESPA
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Closing Without Funds
by Robert Franco | 2008/04/04
I received an interesting email regarding Closing Protection Coverage (CPC) in Ohio. A buyer wanted to know if "Closing Protection Coverage covers a case where a purchase closes but the lender fails to fund the loan." Funding seems to be a bigger problem these days. Usually, the funding is just late... but I have heard reports of lenders who have lost their sources of capital and have been unable to fund. From the email I received, it sounds as though this lender was in the latter category.
The lender was a small broker/lender who was also the mortgagee. The closing was moved from 10:30am to 1:30pm because the wire was originating from California. The wire, however, was never received. Apparently the lender blamed it on a "credit exception" and said that they would need 24 to 48 hours to clear it up and send the wire.
It was at this point that I received the email asking if the CPC provided any protections if the loan was never funded. "Do you know if there is anything I can do if it doesn't fund?" He asked. His settlement agent seemed to think that the CPC would provide some protection if the lender did not fund.
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Categories: Escrow/Funding, Risk, Liability and Claims, Small Agents, Title Industry
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Mr. Smith Gets A Home
by Robert Franco | 2007/10/30
Let's take a walk through a fictional home purchase scenario and see if we can spot all the problems with the process. Mr. Smith, our fictional buyer, wants a to buy his first home so he calls Ricky, the Realtor. Ricky shows Mr. Smith a few homes until he finds one he wants to make an offer on. The listing price is $150,000. Mr. Smith then calls his local bank and is told that he will need at least 3% down, or $4,500, which Mr. Smith doesn't have. Ricky explains to Mr. Smith that he can still buy the home, but he needs to call Max, the mortgage broker.
Max, tells him that he can get him approved, but the 30-year fixed rate will be higher. "But, don't worry," explains Max. "Your payment won't go up because we will get you a variable rate." Because Mr. Smith doesn't have enough money for closing costs, Max and Ricky devise a plan to allow Mr. Smith to borrow more money than the actual purchase price.
Ricky talks Sam, the seller, into increasing the purchase price to $155,000 and paying up to $5,000 of Mr. Smith's closing costs. "But, don't worry Sam," explains Ricky. "We will still base your commission on the $150,000 so it won't really cost you anything."
Max calls his friend Andy, the appraiser, and tells him that they need the appraisal to come back at $170,000. That way, Mr. Smith will have some equity in the home and the down-payment can be avoided by running it through as a refinance. How does that work? Max and Ricky get Sam and Mr. Smith to back-date a phony land contract. Now instead of a purchase, this transaction has been miraculously transformed into a refinance of a land contract.
Tammy, the title agent, gets ready for the closing. She notices the land contract was never recorded, but doesn't say anything to the lender. At the closing, the interest rate and Mr. Smith's payment are a little higher than he expected. Fortunately, Max is there to help explain that. "I know it's a little higher than you expected Mr. Smith, but that is because you are buying this house with no money down and we couldn't verify enough income for the program we wanted to put you in." Rather than verify Mr. Smith's actual income, which was insufficient, Max put him in a stated-income program. "But, don't worry about it - you make your payments on-time for a year and we will refinance you into a lower fixed-rate mortgage."
"But, what about the prepayment penalty?" Asked Mr. Smith. The loan has a three year prepayment penalty. "Yes, but it's only 1%. It will be worth paying for the savings we are going to get you," says Max.
Then Mr. Smith notices another "funny" fee on the settlement statement. A "yield spread premium" of $2,325 to the broker marked as "POC" on the HUD-1. "The little 'l' after the amount indicates that the lender is paying that fee. You aren't paying it, so you don't have to worry about it." Nobody explains to Mr. Smith that the lender is willing to pay Max more than $2,000 because he sold Mr. Smith a loan with a higher rate than he could have gotten. This, of course, is in addition to the 1% Max had already charged him.
By this time, Mr. Smith is thinking he may be in over his head. Who is supposed to be looking out for his best interest? His Realtor, his mortgage broker, the title agent? Nope. Mr. Smith is realizing that he is unrepresented.
Tammy, in an effort to get Mr. Smith to close the loan, explains to him that because of the land contract, this is technically a refinance. "In a refinance transaction, you have a three day rescission period to think about the terms. And, if you don't like any of them, you can cancel the loan." But, nobody mentions to him that if he cancels the transaction he may be in breach of the sales contract. "You can even have your attorney review the documents during the next three days if you like," says Tammy.
Mr. Smith reluctantly signs and Ricky, Max and Tammy all cross their fingers and hope that the loan doesn't rescind so they can get their checks in three days. Ricky will get $9,000, Max will get about $4,000, and Tammy will make about $1,000 and has the potential of getting more business from Ricky and Max, who are impressed that she was able to convince Mr. Smith to close.
Fast forward one year... Mr. Smith's loan adjusts upward by 2% and his payment went from $1,031.22 to $1,247.17. Unfortunately, he cannot refinance into a lower fixed rate because he wasn't able to make all of his payments on-time and he still cannot verify enough income to qualify for a traditional mortgage.
Now that Mr. Smith's payments are even higher, he will be seeing an attorney about bankruptcy and foreclosure. Like millions of other homeowners who thought that their Realtor, mortgage broker, and title agent were looking out for them, Mr. Smith has learned a lesson the hard way. And, that is how Mr. Smith gets... and loses... his home.
Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com
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Categories: Appraisals, Escrow/Funding, Ethics, Foreclosures, Mortgage Fraud, Title Industry
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