I'll get back to my Top 10 List soon, but I want to address something that seems to be happening all too often right now with property taxes. Specifically, with transactions that closed from October-December 2011.
Here in Texas, property taxes become due & payable October 1 for the current tax year. So 2011 tax bills came out in October. We, the title company, are required to guarantee on most title policies that property taxes are paid current and no tax bill is outstanding. In October we started collecting for those 2011 bills and mailing tax payment checks to the tax offices after funding. If it's a sale transaction we are collecting from the seller, and on a refinance we collect from the owner/borrower.
At the same time, lenders (the ones originating the new loan for the borrowers) are putting about three months (sometimes more, sometimes less) of tax escrows into the reserve account in anticipation of the 2012 tax bill later this year. They state in their closing instructions to us (the instructions that give us their requirements for closing the loan and issuing the lender's title policy) that they want the taxes guaranteed through 2011 (for loans closed October 1, 2011, or later). We are obligated to pay them and guarantee them as paid in full.
What has happened on some of my files is the new lender (the one who only put +/-3 months of tax escrows in the borrower's reserve account) is paying the 2011 tax bill out of that escrow account, causing a significant escrow shortage. This is the same tax bill we just paid at closing. Now the borrower is going to get a bill from their lender because the escrow account was overdrawn, and I'm getting a document from the tax office to apply for a refund. Frustrating!
I'm sure this is causing people panic when they open a letter from their current mortgage servicer and find out they owe a few thousand dollars because there wasn't enough money in their escrow account to pay the taxes. Of course there wasn't--the lender only escrowed a few months and expected that we would pay the entire tax bill that was due.
Why this is happening is beyond me. But if you get a letter about an escrow shortage and you just purchased or refinanced your property in the last few months, verify with the title company before you panic.
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Thursday
Top Ten: #9 What is an R8 credit and how is it calculated?
It is often hard for a borrower to stomach the fact of having to pay closing costs again to refinance their property when they just purchased it a couple of years ago. They probably already paid a loan origination fee, appraisal fee, flood certificate, and title insurance premiums, so it is not fun to think about having to put out money for those things again. Fortunately, in Texas, there is one rate rule available to us that allows for a reduction in the premium for the title insurance policy that the new lender will require.
The R8 credit rule states that a discount is to be given on the Mortgagee's Title Policy (MTP) premium if the new loan is to fully renew and extend an existing lien for which a title policy was already provided, and that loan was less than seven years ago. The credit decreases as time passes, and after seven years no credit is allowed to be given. So basically, if a loan was originated, closed and funded less than seven years ago, and it's being refinanced and fully paid off by a new loan now, a credit should be given.
The credit amount is a sliding-scale:
If old loan is less than 2 years old the discount is 40%;
If old loan is more than 2 years but less than 3 years old, the discount is 35%;
If old loan is more than 3 years but less than 4 years old, the discount is 30%;
If old loan is more than 4 years but less than 5 years old, the discount is 25%;
If old loan is more than 5 years but less than 6 years old, the discount is 20%; and
If old loan is more than 6 years but less than 7 years old, the discount is 15%.
But a common misconception is that the credit is based on the new loan amount. Many people think that if a loan amount is $100,000 (base premium being $843) and the loan being paid off is between 3 and 4 years old, that the 30% discount is off calculated on the $843. That's not the case. The discount is based on what the premium would be for a policy issued in the amount of the payoff of the old loan. Here's a breakdown:
New loan amount is $100,000.
MTP Premium (before endorsements) for a $100,000 policy is $843
Loan payoff is $95,000 (MTP premium for a $95,000 loan would be $811)
Old loan originated more than 3 years ago, but less than 4 years ago, so discount is 30%
Take the $811 x 30% = $252.90 <<< this is the amount of the discount given
Now you take the $843 and reduce it by the $252.90
So new policy premium, before endorsements, is $590.10
This worksheet has been helpful to me whenever I've had to calculate R8 credits by hand. By the way, the credit is even available when doing a home equity loan.
So now you know!
The R8 credit rule states that a discount is to be given on the Mortgagee's Title Policy (MTP) premium if the new loan is to fully renew and extend an existing lien for which a title policy was already provided, and that loan was less than seven years ago. The credit decreases as time passes, and after seven years no credit is allowed to be given. So basically, if a loan was originated, closed and funded less than seven years ago, and it's being refinanced and fully paid off by a new loan now, a credit should be given.
The credit amount is a sliding-scale:
If old loan is less than 2 years old the discount is 40%;
If old loan is more than 2 years but less than 3 years old, the discount is 35%;
If old loan is more than 3 years but less than 4 years old, the discount is 30%;
If old loan is more than 4 years but less than 5 years old, the discount is 25%;
If old loan is more than 5 years but less than 6 years old, the discount is 20%; and
If old loan is more than 6 years but less than 7 years old, the discount is 15%.
But a common misconception is that the credit is based on the new loan amount. Many people think that if a loan amount is $100,000 (base premium being $843) and the loan being paid off is between 3 and 4 years old, that the 30% discount is off calculated on the $843. That's not the case. The discount is based on what the premium would be for a policy issued in the amount of the payoff of the old loan. Here's a breakdown:
New loan amount is $100,000.
MTP Premium (before endorsements) for a $100,000 policy is $843
Loan payoff is $95,000 (MTP premium for a $95,000 loan would be $811)
Old loan originated more than 3 years ago, but less than 4 years ago, so discount is 30%
Take the $811 x 30% = $252.90 <<< this is the amount of the discount given
Now you take the $843 and reduce it by the $252.90
So new policy premium, before endorsements, is $590.10
This worksheet has been helpful to me whenever I've had to calculate R8 credits by hand. By the way, the credit is even available when doing a home equity loan.
So now you know!
Monday
Top Ten: #10 My buyer/seller won't be in town for closing--how can we handle that?
Of course, we'd always prefer the customers sign their documents for closing here in our office, but sometimes it just isn't logistically possible. There are a few options for closing a transaction when your buyer or seller (or refinance borrower) won't be able to be present at the title company to sign the documents, so don't panic...this won't be the first time we've dealt with this scenario.
The first option is what we call a mail-out. Once the loan documents are received from the lender (assuming there is financing involved) and we are able to work up and get approved the HUD1 Settlement Statement, we can overnight the documents to your customer. What I do is divide the documents into 2 sets--one set that needs to be signed in front of a Notary Public, and a second set that does not. I use 'Sign Here,' 'Initial Here,' and 'Notarize Here' tabs to draw attention to the places the customer needs to sign, initial, or have notarized. The customer would either need to line up a Notary Public or we can order one for them--yes, there is a fee for a mobile notary, but it's most likely cheaper than a plane ticket! Then once the documents are completed, the customer will overnight them back to us using the pre-paid air bill and envelope we've provided. They can either drop it in the carrier's drop box or call them to arrange pickup. This process can take about three business days, more if there are unforeseen delays (i.e. weather delaying delivery).
The second option is an email-out where we email the entire package to the customer and they print it out. It's pretty much the same as a mail-out except there are no 'Sign Here,' etc, tabs, and we obviously can't include an envelope for return. However, I do send an air bill for return and the customer can get an envelope from the carrier (most drop boxes have a supply of them as well). This option typically can cut one day out of the equation since we're not waiting on an overnight package to get to the customer.
If your customer is out of the country it can still work. Email is usually the best option to get the documents to them. The Notary requirements can vary depending on where the customer is at the time of closing, so let us know as soon as you can so we can discuss it. Then the process for them to 'overnight' them back is never overnight, so allow ample time for that. In some countries express delivery service is not available at all, so snail mail is our only option for getting the documents back.
In the above scenarios we do need to have the customer's original signed documents back before we can fund. We are only able to record original documents, so a fax/email back doesn't work. They can always email or fax them to us so we can review them before they send them back.
If the transaction is a Texas Home Equity Loan that changes the equation. Due to the Texas Constitution (Article XVI, Section 50, Subsection (a)(6)(N)) these loans must be closed in the office of a Texas title company or attorney, or the lender.
Another option is for the customer to give a Power of Attorney to someone to close on their behalf. I'll discuss POAs more fully in a subsequent post.
So there are ways to go about closing when your customer is not going to be in town for closing. Just takes a few more steps and a little extra time.
The first option is what we call a mail-out. Once the loan documents are received from the lender (assuming there is financing involved) and we are able to work up and get approved the HUD1 Settlement Statement, we can overnight the documents to your customer. What I do is divide the documents into 2 sets--one set that needs to be signed in front of a Notary Public, and a second set that does not. I use 'Sign Here,' 'Initial Here,' and 'Notarize Here' tabs to draw attention to the places the customer needs to sign, initial, or have notarized. The customer would either need to line up a Notary Public or we can order one for them--yes, there is a fee for a mobile notary, but it's most likely cheaper than a plane ticket! Then once the documents are completed, the customer will overnight them back to us using the pre-paid air bill and envelope we've provided. They can either drop it in the carrier's drop box or call them to arrange pickup. This process can take about three business days, more if there are unforeseen delays (i.e. weather delaying delivery).
The second option is an email-out where we email the entire package to the customer and they print it out. It's pretty much the same as a mail-out except there are no 'Sign Here,' etc, tabs, and we obviously can't include an envelope for return. However, I do send an air bill for return and the customer can get an envelope from the carrier (most drop boxes have a supply of them as well). This option typically can cut one day out of the equation since we're not waiting on an overnight package to get to the customer.
If your customer is out of the country it can still work. Email is usually the best option to get the documents to them. The Notary requirements can vary depending on where the customer is at the time of closing, so let us know as soon as you can so we can discuss it. Then the process for them to 'overnight' them back is never overnight, so allow ample time for that. In some countries express delivery service is not available at all, so snail mail is our only option for getting the documents back.
In the above scenarios we do need to have the customer's original signed documents back before we can fund. We are only able to record original documents, so a fax/email back doesn't work. They can always email or fax them to us so we can review them before they send them back.
If the transaction is a Texas Home Equity Loan that changes the equation. Due to the Texas Constitution (Article XVI, Section 50, Subsection (a)(6)(N)) these loans must be closed in the office of a Texas title company or attorney, or the lender.
Another option is for the customer to give a Power of Attorney to someone to close on their behalf. I'll discuss POAs more fully in a subsequent post.
So there are ways to go about closing when your customer is not going to be in town for closing. Just takes a few more steps and a little extra time.
My Top Ten Title Questions
As an escrow officer I field countless questions from Realtors, lenders, and consumers, so I thought I'd put together a list of the top ten questions I get on a regular basis and address them through a series of blog posts.
Here are my top ten:
10. My buyer/seller won't be in town for closing--how can we handle that?
9. What is an R8 credit and how is it calculated?
8. Why do I need an owner's title insurance policy when the property was recently purchased (i.e. a flip)?
7. Can I add my spouse or someone else to title after closing?
6. Can my seller/buyer give someone Power of Attorney to facilitate the closing on their behalf?
5. There is a deceased person in title--what do we do?
4. Why can't we just do a Quitclaim Deed?
3. Why does the title company care about the marital status of the seller/buyer?
2. Property taxes--how are they prorated?
1. Can we use this prior survey?
So keep checking back!
Here are my top ten:
10. My buyer/seller won't be in town for closing--how can we handle that?
9. What is an R8 credit and how is it calculated?
8. Why do I need an owner's title insurance policy when the property was recently purchased (i.e. a flip)?
7. Can I add my spouse or someone else to title after closing?
6. Can my seller/buyer give someone Power of Attorney to facilitate the closing on their behalf?
5. There is a deceased person in title--what do we do?
4. Why can't we just do a Quitclaim Deed?
3. Why does the title company care about the marital status of the seller/buyer?
2. Property taxes--how are they prorated?
1. Can we use this prior survey?
So keep checking back!
Thursday
I love my Title Department!
I'm not kidding--they are the best in the business!
I got a call 2 days ago from a woman who, along with her husband, is trying to refinance her house. The lender had opened a title order with another title company who has been dragging their feet on a Probate issue. She explained the issue to me as she understood it, then she wanted to know if we'd look at it and see if we could close it...quickly. Their interest rate lock is set to expire in a few days so I needed to get it moved through on a major rush.
Got in touch with her lender and they sent over the paperwork so I could get the ball rolling. I entered the order on a rush and included what little information I had regarding the Probate. About 24 hours later I had a commitment ready to print, but there was still a requirement for review of the full Probate documents, which I soon found out they'd already ordered (ball still rolling!). Then this morning I got an email from the examiner that there is one document I need to file a certified copy of in the real property records and I'm good to go! I called to talk it over with him a little and he said the certified copy I needed had already been ordered and would be sent directly to me. Wow! I'm thrilled with the service I get from our title department.
I called the borrower and told her the good news and she is ecstatic. We should be able to close her tomorrow. I love this stuff! It's such a great feeling to have a team behind you that can help you pull things together for your customers.
I got a call 2 days ago from a woman who, along with her husband, is trying to refinance her house. The lender had opened a title order with another title company who has been dragging their feet on a Probate issue. She explained the issue to me as she understood it, then she wanted to know if we'd look at it and see if we could close it...quickly. Their interest rate lock is set to expire in a few days so I needed to get it moved through on a major rush.
Got in touch with her lender and they sent over the paperwork so I could get the ball rolling. I entered the order on a rush and included what little information I had regarding the Probate. About 24 hours later I had a commitment ready to print, but there was still a requirement for review of the full Probate documents, which I soon found out they'd already ordered (ball still rolling!). Then this morning I got an email from the examiner that there is one document I need to file a certified copy of in the real property records and I'm good to go! I called to talk it over with him a little and he said the certified copy I needed had already been ordered and would be sent directly to me. Wow! I'm thrilled with the service I get from our title department.
I called the borrower and told her the good news and she is ecstatic. We should be able to close her tomorrow. I love this stuff! It's such a great feeling to have a team behind you that can help you pull things together for your customers.
Monday
Back to it!
Looks like I'm finally getting back into the running routine. I've not really run since the San Antonio Rock & Roll half back in November. It was my first half and an amazing experience; however, shortly before that my running partner (A.M.) hurt her ankle and had to take some time off. It is so hard to get myself motivated to get up in the wee hours of the morning and go run when there's not someone meeting me (not to mention, a bit scary!). I have some sweet friends who were so diligent about inviting me on their weekly long runs in anticipation of running the Austin half yesterday, but with my husband's schedule through the winter I just couldn't make the times. It became way too easy to just not go at all. Yesterday hit and I was watching the facebook posts and pics from my friends running the half in Austin (some for the first time and I'm so excited for them). I was really sad that I was not there to participate with them and cheer for them. I do not want to miss it again!
Last week A.M. was ready to hit the streets. I'm so excited to be running with her again. Have another friend I am running with one morning a week, which is nice. A.M. and I are really going to build slow this time to help prevent reinjury for her. Seriously, we're not even up to a mile yet! But in the next month and an half we're going to work toward a 5k, then a 10k in June with some other girl friends--I cannot wait!!!
Last week A.M. was ready to hit the streets. I'm so excited to be running with her again. Have another friend I am running with one morning a week, which is nice. A.M. and I are really going to build slow this time to help prevent reinjury for her. Seriously, we're not even up to a mile yet! But in the next month and an half we're going to work toward a 5k, then a 10k in June with some other girl friends--I cannot wait!!!
Wednesday
Updates to Texas Real Property Contracts
Just when we get used to things they go and change them, right? We all were so used to the old HUD1 version, then they threw the 2010 HUD at us. Wow! That was a learning curve. But, thankfully, we are all mostly over that now and the new format no longer scares us. Well, now TREC has revised contract forms and addenda. The changes all look to be pretty straight-forward, some will just take a little getting used to. Here's a summary:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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One to Four Family Contract (TREC No. 20-9)
o Paragraph 2.B. Improvements
- Added "mounts and brackets for televisions and speakers”
- Added catch all for controls "controls for….and (iv) other improvements and accessories”
- Property contingency runs all the way to closing
- Previous version of contract would automatically terminate if property does not appraise. Now it is the buyer’s right based on lender’s underwriting but not automatic.
- "Financing Approval” changed to "Credit Approval”
- Financing and/or credit approval is not the same as loan approval (loan includes property)
- Inserted form # of Affidavit (T-47)
- Rearranged paragraph to reinforce Seller’s obligation
- Added multiple HOA language for properties that lie within more than one HOA
- Clarified the need for separate addendum for each association
- Added language to help clarify the intent of 7D
- Added language that requires Seller to:
- Provide Buyer copy of the lease
- Provide Buyer copy of move-in condition form
- Transfer security deposits to Buyer
- Added language that requires Buyer to provide written notice to tenant
- Account for security deposit
- Changed language from loan fees to "adjusted origination charges”
- Right to remedy of specific performance is waived by either party if petition is not filed within 45 days after the specified Closing Date
- Revised to clarify escrow agent’s right to deduct expenses before releasing earnest money
- Added Addenda
- No signatures required
Third Party Financing Addendum now known as Third Party Financing Addendum for Credit Approval (TREC NO. 40-4)
o Added language to match new Good Faith Estimate Disclosures
Addendum for Property Subject to Mandatory Membership in A Property Owners Association (TREC NO. 36-6)
o Added language under Paragraph A.2. Allowing for updates to Subdivision Information
o New Paragraph C obligates Buyer to pay any deposits for reserves required
o New Paragraph C obligates Buyer to pay any deposits for reserves required
Disclosure of Relationship with Residential Service Company (TREC NO. RCS-1)
o New form to be used when compensation is being received by Broker/Salesperson
Non-Realty Items Addendum (TREC NO. OP-M)
o New form for use when conveying non-realty items
--Courtesy, Independence Title Company
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