Our fellow blogger colleague “Peckhammer” will get credit for this post whether Peckhammer intended for that to happen or not. Hat tip to him/her for inspiring this post.
Regarding consumers capacity to understand loan documents, Peckhammer remarked :
“The loan documents they signed could have been reviewed by an attorney and explained if there were questions.”
Here’s the problem when looking under the hood at the transaction work flow. May I present you the true world of real estate and high finance:
The facts
- It is Friday, January 11th, at 4:00 pm, about 1hour prior to the escrow office closing.
- Escrow has been promised loan documents on a transaction since early in the week.
- By law, borrowers refinancing have a three day right of rescission (meaning 3 days, not including holidays or Sundays) after signing loan documents to cancel prior to closing.
- The wrinkle: loan documents can be time sensitive. For example, if you are refinancing, you may have an interest rate lock (a term used in the industry where a borrower is guaranteed a specific loan interest rate for a specific loan program) that may expire very soon. Therefore, the loan documents must be signed within the 3 day rescission period and the transaction must close prior to the interest rate lock expiring.
- Escrow receives loan documents at 4:30pm. What in the world?!…..says escrow staff.
- Escrow is “expected” to drop all other transaction work (escrow is very time stressed due to a lot of other things going on “under the hood” for other people) and work up the loan documents, prepare a settlement statement (HUD-1 Form for those unfamiliar which is a detailed itemization of fees and credits associated with the transaction) and schedule the clients to sign their paperwork.
- Are the clients at work? Have an evening planned? Guess who gets to call the clients with the urgent message which will more than likely put the borrowers into a, how shall I say, grumpy mood. And yes, it’s escrow’s fault; after all, escrow just pays the water bills (sacrcasm & humor on).
- To escrow, this is a frequent and absurd scenario that plays out all too commonly.
How does it impact you as a borrower?
- It is inconvenient as !#!*%!! for the borrower to be called at 5:30pm on a Friday to tell the borrower they MUST sign their loan docs or…. dominoes start falling.
- Or, worse, if this is a purchase, you have the pressure of signing because this little thing called losing earnest money is eating you up in the back of your mind, never mind the fact your belongings are in boxes and the seller is nearly moved out, and your newborn child has started crying in the office where you are trying to sign loan papers.
- Call an attorney to review your loan documents? Not going to happen.
- How can you have time to digest the loan docs when the only time you’ve seen them is when I show up with them? Remember, escrow tells you the facts, we don’t dispense legal advice or advice about how the loan will impact you financially.
- Thankfully, in a refinance transaction you have a 3-day right of rescission. For purchases, you get NOTHING. Zippo.
Solution?
- Enforce RESPA (Real Estate Settlement & Procedures Act) to include a provision for a borrower to receive loan documents 3-5 full business days prior to closing when PURCHASING. If they don’t, fine the lender. Currently, as it stands, borrowers are required to have 24hrs review of their Settlement Statement (HUD -1 Form) prior to closing. That’s a joke IMHO. In Washington State, generally, closing occurs when funds are available for disbursement and recording of documents (Deed of Trust, Statutory Warranty Deed) have been completed.
- Ask your loan officer that you would like a full week prior to closing to review loan documents and your Settlement Statement. This puts the transaction management squarely where it should be, on the “Conductor of your Orchestra:” loan officer and or agent. If the loan officer waffles at getting loan documents to escrow to prepare for you well before closing you should ask them, why not?
- Also, never forget to go shopping, even for third party providers such as escrow.
Is this scenario based upon a real transaction (s) ?
True or False. I’ll give you a hint. It starts with a “T.”
S-Crow
PS. I’ve seen rates today at 5.375% for a 30 yr fixed.