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FDIC issues FACT Act guidelines

Jun 05, 2005

Tales from the closing tableRichard H. Lovell Esq.closing, procedures, fraud Most mortgage loan closings are uneventfulall the parties show up, sign a stack of loan documents, and with any luck, they are on their way in an hour or so. In the thousands of closings that I have attended, the vast majority go without a hitch. Sometimes, however, all does not go according to plan. Someone misunderstands instructions (not the lawyers, of course), shows up late (or not at all), brings the wrong documents (or the wrong girlfriend) or simply causes a "distraction" (to quote Jason Giambi). The real estate/mortgage closing should be nothing more than a ministerial affair. All issues should be resolved prior to the scheduling of the closing and everyone's schedule will be confirmed. Final instructions are given and everyone should arrive at the appointed time. What is too often not taken into account is the phenomenon of Closing Standard Time. Those of us who operate in the regular world might schedule a closing for, say, 10:00 a.m. EST. However, there is always some party (borrower, attorney, title closer) who operates in a different dimension. This dimension is controlled by the rules of Closing Standard Time. Under these rules, the party is free to arrive at the closing at virtually any time they choose. It doesn't matter that seven other people might be waiting at the closing table for themusually with other schedules to keep. They will arrive at their closing whenever they pleaseno apologies offered (out looking for those elusive WMDs perhaps). Prior to coming to a recent purchase transaction, the borrower's attorney carefully instructed their client as to what certified or official checks to bring to the closing to cover the balance of the purchase price due to the seller. At the closing table, I asked the borrower/purchaser if I could see the certified checks. She promptly took her checkbook from her pocketbook and started to write a check in the appropriate amount from her stack of personal checks. When I advised her that we could only accept a certified check, she promptly wrote "certified" on the top of her check above her name. "There," she said, "it is now certified." Needless to say, the closing had to be adjourned for several hours while the borrower traveled around to three different banks in order to obtain the proper funds. (You simply can't make this stuff up!) As we all know, it is important (and required) for the borrowers and the sellers to not only come to the closing but also bring government-issued identification with them. At one closing, upon asking a male borrower to produce his ID, he promptly produced a New York state driver's license. Unfortunately, the picture on the driver's license was clearly not of the person who handed it to me and, in fact, the person indicated on the identifying document was not even a male. The response by the borrower was that he couldn't find his driver's license that morning so he figured that it would be acceptable if he brought his wife's license. On a similar note, a title closer who represented a title company at a closing properly notarized all of the documents that required such an acknowledgement. However, at the end of the closing when it came time to complete the list of checks that were to be prepared from the mortgage loan proceeds, a check for the title closer's "attendance fee" was to be made payable to a name other than that of the name on the closer's notary stamp. I inquired as to the reason for the discrepancy. The explanation was quite surprising (and led to the voiding of the notarization of the documents). While the attendance fee check was to be made payable to the closer actually in attendance, as the closer was "training" and did not as yet have her notary license, she borrowed someone else's! (This was more of a head-scratcher than trying to figure out how the Yankees blew a three-game lead in the 2004 American League Championship Series.) My office conducted a refinance transaction a few years ago on a Monday. Accordingly, the loan was scheduled to disburse on the subsequent Friday. The loan was a cash-out refinance and the borrowers, a husband and wife, were to receive about $40,000 upon disbursement day. As the husband was planning to go to work on that Friday and the wife wasn't, they agreed that the wife would pick up the check on Friday afternoon. The check was payable to both parties and was picked up by the wife on Friday as scheduled. The following Tuesday, several days after the wife picked up the proceeds check, I received a phone call from the husband. "Did my wife pick up the check on Friday?" he inquired. When the answer was in the affirmative, he asked if the check had been paid by my bank. It had been. Apparently, his wife had somehow negotiated the check and chose not to return home that weekend. I heard later that she did eventually come home, sans the money (a weekend in Las Vegas "on the house" is always a good reason for a refinance). We have all had instances where the parties come to the closing table and the buyer states that the home being purchased requires some repairssmall hole in the roof, dishwasher not working, etc. While it would certainly be helpful if these matters were taken care of before coming to the closing table, sometimes this just isn't possible. Usually, the open items are small ones and can be easily addressed in a matter of minutes. However, what happens when the buyer comes to the table with pictures of the roof or lack thereof? That's right--not a hole in the roof--the entire roof had been removed. Another issue that sometimes arises at a closing is the issue of occupancy. Most buyers would prefer that the house be "vacant and broom clean" at the closing. As with repairs, however, this isn't always possible. The seller often needs the proceeds from the sale in order to purchase their new house, and therefore, must stay a few days beyond the closing of the sale transaction. Sometimes there is a recalcitrant tenant who just does not want to leave and the closing either has to be adjourned or the buyer has to take title subject to that tenancy. These are situations that any good real estate attorney knows how to handle. What can be more difficult is dealing with the following actual situations: •Everyone shows up at the closing table and, naturally, the buyer's attorney inquires as to when the seller will be vacating the premises. The seller, looking slightly surprised by the question, states that now that their house is sold, they will start looking for their new home. They estimate being ready to move out in about three months! In the meantime, the buyers have their movers waiting so that they can move in. Clearly, the attorneys representing the parties dropped the ball here and the closing was adjourned. •A pre-closing inspection by the purchaser reveals that a drug dealer has taken up residence on the premises and is apparently doing a booming businessagain, closing adjourned. Finally, as the lender's attorney on the closing of a cooperative apartment purchase transaction, I attended the closing at the office of the managing agent for the cooperative corporation. As the transaction drew to a close, the agent for the managing agent inquired of the purchasers as to when they planned to move in to the unit. Their mouths dropped. "Move in!" they exclaimed. Their real estate broker told them that the apartment being purchased was "perfect for an investment property" and that they did not have to live in the unit. "Wrong," the managing agent quickly pointed out. This building requires that all apartments be owner-occupied for the first year after the purchase. As the purchasers could not afford to maintain the unit without a rental income from a tenant, they were about to cancel the transaction. Luckily for them, they decided that since the unit had appreciated in value so much since the execution of the contract of sale, they would purchase the unit and possibly sell it for a nice profit. While most closings are of the more mundane variety, the experience can become much more interesting when the sparks start to fly. When the soon-to-be-ex spouse jumps across the conference table to grab at the throat of the new significant other (whose sole purpose at the closing is to add fuel to the flames), the show can be better than something seen on the Soap network. For those mortgage brokers who choose not to attend their closings, you are missing all of the fun! Richard H. Lovell Esq. is the founder of the Ozone Park, N.Y.-based law firm of Richard H. Lovell PC. He was a member of the New York Association of Mortgage Brokers Board of Directors for more than 14 years. He may be reached at (718) 835-9300 or e-mail [email protected].
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Jun 05, 2005
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