Chapter 8 LOAN ESCROWS Chapter Outline The Loan Escrow (REFI) Foreclosures Private Party Loans The Loan Assumption or Subject to Escrow Wrap around – (AITD) Buyer’s Acceptance of Loan Chapter 8 At the conclusion of this chapter, you will be able to: 1) Understand why the escrow officer must comply with lender requirements 2) Give a definition for each Request for used for a private party loan 3) List and explain the common forms used in a refinance loan escrow 4) Differentiate between loan assumption or subject to existing loan escrows 5) Explain the procedures for an escrow involving a foreclosure The Loan Escrow (REFI) Existing, loan may be at a higher interest Cash out loan Escrow is instructed to obtain a Deed of Trust, securing One Note, payable as per its terms, with an approximate unpaid balance of $_________, in favor of _____________ payable in _____ installments of $__________, including interest at the rate of _____% per annum. Borrower’s execution of the loan documents constitutes their full approval of all terms and conditions contained therein. Documents and Forms used Loan escrow instructions Federal Regulation Z: Truth-In-Lending (TIL) Disclosure annual percentage rate (APR) three day right of rescission Federal Regulation X: Real Estate Settlement Act estimate HUD good faith estimate of closing costs Federal Regulation B: Disclosure regarding settlement service provider RESPA Servicing disclosure statement. Documents and Forms used California Insurance Notice Notice of Right to Copy of Appraisal Report Quitclaim Deed (if title is held in a Trust) Preliminary Change of Ownership Report Hardship Loan Servicing Disclosure statement Important Notice regarding California property taxes – supplemental tax bill Request for Copy or Transcript of Tax Form – IRC Form 4506 Privacy Notice Documents and Forms used Hazard Insurance Disclosure California Consumer Credit Score Disclosure Address certification Borrower’s Certification Flood Zone Notification Notice to Borrower – Impound/Escrow Account Fair Lending Notice W-9, Request for Taxpayer Identification Number and Certification Specific Closing Instructions Escrow procedures for a refinance escrow Print copies of escrow computer generated instructions Fax a copy of the demand to the seller/broker Fax copy of Statement of Information (SI) to the title officer Enter the terms of the loan into computer Fax the order for loan documents to the lender Fax a request to receive the lender’s closing instructions Deliver the estimated closing statement, amendments and any deeds requiring signatures Fax the order for the insurance Escrow procedures for a refinance escrow Have the borrower(s) sign loan documents. Return the signed loan documents to the lender Send the original documents that are being recorded, along with attachments and the original PCOR to the title officer and instruct the set up for recording. Instruct the title company to forward the final funding figures Create the final closing statement, HUD-1 and checks Foreclosure A default on a loan Law prescribes the foreclosure procedure Judge determines how the assets of the borrower will be allocated and applied towards debts right to redeem the property up to 5 days prior to the date of the foreclosure sale During the last five days prior to the sale, the debtor must deliver all funds due: unpaid loan balance, late fees, trustee fees Repossession unsecured loan is one made on the good faith promise to repay the loan collaterized loan is based on the value of the asset pledged, called a secured loan A default action Written notice: On what constitutes default The number of days for grace period or remedy to default Stating a ―demand‖ for the payment that is past due The beneficiary notifies the Trustee of Trustor’s default and instruction default action Stating a written notice by recording a Notice of Default 3 month period Reinstatement Period 21 days to place three ads for the Publishing Period All sales final and no period of redemption Real Estate Owned (REO). Not be immediately available for sale to the public A Cloud on the title Deed in Lieu of Foreclosure HUD/VA REO Lender accepts the offer that nets the highest NET amount after all income and all expenses The Short Sale: To sell the property for less than the amount that would retire the debt Trustee’s costs Federal income tax lien, then State taxes Property taxes Home Owner Association (HOA) dues and assessment(s) Trust Deed (TD) lien(s). Mechanic’s lien(s) Homestead Judgment creditor Homeowner/Trustor The HUD-9548 form is shown in Figure 8-5 as the sales contract to be prepared by a HUD approved broker and electronically transmitted Purchaser’s names and complete property address Manner in which the buyer will take title to the property Bid amount and initial deposit Occupancy information Disclosure and release regarding mold Letter of Commitment on Lender’s Letterhead Photocopy of earnest money deposit—Cashier’s check payable to HUD or the buyer’s name HUD Addendum § Appraisal fee § Credit report § Flood certification § Home inspection § Homeowner’s warranty § Loan discount points § Loan origination fee § Prepaid and escrow items for owner-occupied purchasers § Recording fees and transfer tax § Survey § Title insurance Allowable closing costs paid by HUD/seller § Brokerage commission § Proration of property taxes, special assessments, HOA fees, utility bills § Escrow fee § Recording fees § HOA transfer fee § HOA documents cost HUD requirements Seller disclosure Walk-thru inspection Buyer certification Lead-based paint addendum – property built before 1978 Private Party Loans an owner carry-back second trust deed secured against the property they are selling terms are usually more favorable You shall not be responsible in any way whatsoever nor are you to be concerned with any question of usury in any loan or encumbrance, whether new or of record, which may arise during the processing of this escrow. buyer benefits due to lower closing costs 80-15-5 versus 85-15 loan comparison The escrow officer would need to obtain from the seller the terms for the interest rate monthly payment due date for monthly payment late fee and date when due ending date on the term of the loan notice requirements in case of default document clauses in the note Alienation Clause Late Charge Request for Notice of Default due-on-sale clause Loan Assumption or Subject to requires that the existing lender be notified a written assumption agreement is executed between the lender and a prospective purchaser demand, or beneficiary statement, often called a statement of condition beneficiaries charge a fee assumption fee Subject to: primary liability rests with the original Trustor Wrap around – (AITD) used when no acceleration clause and alienation clause is contained in the trust note AITD-All-Inclusive Trust Deed AITD-Installment Note-Interest Included AITD-Installment Note—Interest Extra the loan wraps around the existing loan and adds additional debt on the property an alternative to having two separate payments All parties should seek legal council when entering into an AITA agreement Buyer’s Acceptance of Loan Loan documents executed by the buyer Title insurance (ALTA) in an amount equal to the loan amount Each exception on the title insurance policy must have the prior approval of the lender Policy of hazard insurance endorsement for the loan amount Think About It! A home is sold on a land contract with the buyer to pay $3500 a month for 15 years. After the 60th payment, the buyer stops making payments. What are the remedies available for the seller? Think About It! Answer: The seller could rescind the contract by returning all the payments made of $3500 a month, minus the fair rental value of $2500 a month for the 60 months if the buyer agrees to relinquish the property. The seller could sue for monetary damages to get a judgment ordering the buyer to pay the seller what is owed under the contact and the buyer would keep the house. The buyer would sell the house and the seller would collect from the sale proceeds. The land contract terms might declare a forfeiture if the buyer defaults. In this case the buyer could lose all payments and the right to possession. The escrow officer must establish that the parties have sought legal counsel covering the principals’ rights under a land contract.
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