Refi hit with extra interest charges

DEAR BENNY: Recently we refinanced our California home with one of the major U.S. banks. After five months we finally received a notice that the loan documents were ready to sign at a local title company. I requested a preliminary copy of the HUD-1 statement in order to look at the numbers before we signed. On the statement I noticed that the short-period interest on the new loan paid through escrow covered the same five-day period as the payoff interest on the old loan. Both lenders charged us interest for the period July 27 though Aug. 1.

When I asked the loan officer about this, she told me that this was due to timing differences between the funding of the new loan proceeds and the payoff of the old loan. I can understand one day, but doesn't five days seem excessive in light of electronic banking? --Walter

DEAR WALTER: My first question is whether your refinance should have triggered the three-day rescission right under the Truth in Lending laws. If you are refinancing with a new lender and the loan is to be secured on your principal residence, you must be provided with a three-day "cooling off" period. This means that you have until midnight on the third business day in which to cancel the loan. (Different lenders treat "business days" differently; some consider Saturday such a day, while others do not.)

If you are entitled to the right to cancel, your new lender cannot charge you interest until the fourth day -- i.e., after your rights have expired.

However, your existing loan will not be paid off until the new one is funded, and title (and escrow) companies typically collect 5-10 days' additional interest, just in case there are problems with getting the old mortgage paid off.

And the same situation would apply even if you are not eligible for the right to rescind.

I am confused, however, as to why your new lender is charging you five additional days of interest. The only thing I can think of is this scenario: You settled on Monday, July 27, and the new loan was funded on that day. Your first mortgage payment will be Sept. 1 (keep in mind that interest is always charged in arrears). When you make the September payment, that will cover interest for the month of August. But since you borrowed the money five days before the end of July, you have to pay interest on those five days.

You should sit down with both the title (escrow) company and your new lender and have them clarify this to your complete satisfaction.

DEAR BENNY: We own a rental condominium unit. The development has 200 units and has an on-site leasing/property manager. Recently, our community manager sent a letter to all the owners that the board of directors has instituted a new tenant registration fee. The fee is $50 for every new lease for units in the association and will be implemented on all new leases commencing on Sept. 1, 2009.

Can the board of directors legally implement such a fee without prior approval from the homeowners? --Al

DEAR AL: In order to determine if something a board of directors does is legal, you first have to look to your state condominium statute, and then to your legal documents (the declaration and then the bylaws.) ...CONTINUED

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