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
I doubt that your state law addresses this issue. However, I suspect that your bylaws state that owners can lease, subject to rules and regulations promulgated by the board.
Assuming this new policy was legally and properly adopted by the board, I believe it has the right to impose such a charge.
What do I mean by "legally and properly"? Was a vote taken by the board of directors at a meeting that was called pursuant to the provisions of your legal documents? Typically, there is a notice provisions that requires all board members be given "X" number of days’ advance notice of a scheduled meeting (although if all board members show up at the meeting, notice is presumed to have been given). Was there a quorum of the board? Did the board keep minutes of the meeting?
These are all technical and procedural requirements, but if the board did not follow its own rules then the fee can be challenged. Otherwise, you will either have to pay the fee yourself or pass it on to your tenants.
DEAR BENNY: How do I go about selling a second home when I have both homes under the same mortgage? –Daphne
DEAR DAPHNE: You — or preferably your attorney — should immediately review the mortgage documents (which I suspect is a deed of trust). Hopefully, you will find language that permits what is called a "partial release." This means that the lender will release home No. 1 from the security of the mortgage if, and only if, the lender is satisfied that the second home will provide adequate security for the balance of the loan.
When you sell home No. 1, depending on the amount of the then-existing loan balance, your lender will probably require that all net proceeds from the sale be used to reduce the loan.
However, if there is no partial release clause in your mortgage documents, you will have to discuss the situation with your lender. Try to convince the lender that it is in everyone’s best interest to allow the release of the first home since the overall loan obligation will be significantly reduced.
The final decision, unfortunately, rests with the lender, and as we all know, lenders are unpredictable.
DEAR BENNY: Should I pay for an inspection on a house before I am approved? I need a little help/direction before I can start. Any nuggets of wisdom would be very much appreciated. –Terry
DEAR TERRY: Opinions differ on this subject. Some people want to have a house inspected first, before they spend time and effort moving forward with a sales contract, financing and settlement (escrow). …CONTINUED
I prefer what I call the "good old-fashioned way," which is reaching agreement with your seller on the price and other terms and conditions relating to the purchase and sale. Your contract contains an inspection contingency: "I have ‘X’ days in which to have an inspector of my choice — and at my expense — inspect the house. If I am not satisfied for any reason, and provide notice to the seller within the time limit, this contract is null and void and my earnest money is immediately refunded."
Why do I like this approach? I have had too many clients who lost the house because they did not tie down the seller with a binding real estate contract. They spent time and money on the inspection, only to learn that the seller did not agree to the price — or else had already signed a contract with someone else.
That’s my opinion, and my little "nugget of wisdom."
DEAR BENNY: I read your comments about the lowballing appraiser. This is only the start of the problem. You are going to see more problematic appraisals because only the second-tier, inexperienced appraisers will be willing to take assignments from appraisal management companies. These firms, many of them former mortgage bankers, are taking 50 percent of the gross fees for virtually doing nothing.
If a fee should be charged, it should be the responsibility of the person or company ordering the appraisal, not the appraiser. So if you pay a discounted price you usually get an inferior product. The appraiser works faster and does a lesser job. I predict the quality of the appraisals will further deteriorate and once again we, the appraiser, will be blamed.
I am a member of the Appraisal Institute and have been an appraiser for 35 years. I refuse to take any more work from appraisal management companies. I know for a fact that they are having a hard time finding appraisers to work for these minimal wages/fees. –Rob
DEAR ROB: You didn’t really send me a question, but your thoughtful comments should be shared with my readers. As a result of new policies regarding appraisals, lenders are prohibited from arranging their own appraisals and now go through "appraisal management companies" instead. The theory behind the new rules was to make sure that appraisals were independent and not "made as instructed" — which is what some of us used to call an MAI (member of the Appraisal Institute).
Instead, the industry is now finding that appraisals sometimes take too long, are too expensive, and in some cases are totally inaccurate.
I do know that folks here in Washington, D.C., are aware of these problems; what they will do about them, however, is anyone’s guess.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to email@example.com.
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