FDIC issues FACT Act guidelines

FDIC issues FACT Act guidelines

June 5, 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
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
•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