closing the real estate · pdf fileclosing the real estate transaction ... 2) buyer’s...

Closing the Real Estate Transaction

LEARNING OBJECTIVES

Upon completion of this chapter, the student should be able to:

• Define closing as it relates to a real estate transaction. • Explain why the buyer should check the premises before the closing. • Outline the title procedures. • Describe the participants to a closing and where it takes place. • Define escrow and describe the escrow procedure. • List and describe the RESPA requirements. • Describe the items in a closing statement. • Solve proration problems. • Prepare the sample closing statement.

Closing the Real Estate Transaction What does it mean?

Closing a real estate transaction means the conclusion of the transaction. It is alsocalled settlement. Closing statements and other documents have been prepared.

owner (recorded) in exchange for payment of the purchase price.

In Nevada, closing is usually handled by an escrow agent. Escrow is a method of losing in which a disinterested third party is authorized to act as an escrow agent o coordinate closing activities, usually without attorneys. The escrow agent

facilitates the transaction and makes sure that all contract conditions have been met and all papers have been signed. Opposing parties sign documents separately, usually at the Title/Escrow Company. This is a process known as ‘closing escrow’.

Promises made in the sales contract have been fulfilled. Cash or mortgage loan funds have been distributed to the buyer. The title of real estate is transferredto the new

ct

ABC Real Estate School 3st ed National Workbook August 2010 Page 338

Escrow The process: Sellers:

The buyer…

during week

eated by the title

Nevada ey to escrow agent unless he/she has a trust

st of all contracts and personal information

(addresses, phone and fax numbers, social security number of buyer, etc.) about parties including lender, buyer, seller, buyer’s agent, and seller’s agent)

* the escrow agent examines the title * when marketable title is shown in the name of the buyer and all other conditions of

the escrow agreement have been met, the escrow agent disburses the purchase price to the seller, minus all charges and expenses

* the escrow agent liens and

real estate transaction to the IRS

* need to be paid for the property

* title must be delivered * buyer makes sure property is in promised condition (walk-through

before closing) * financing must have been secured escrow instructions are cr

company * buyer or buyer’s agent usually selects in * licensee usually turns over earnest mon

account * escrow agent deposits the check into a special tru* licensee also gives the agent copies

records the deed and mortgage or deed of trust of the purchase price is withheld from the seller to pay the * if liens exist, part

clear the title closing agent or lender must report the *

* it is a good idea for licensees to attend the signing Licensees:

* check listing information against tax information and any other recorded documents * check for correct addresses (vacant lots) * have property surveyed if questioned

Property Inspection

* 4 things to look for: * necessary repairs have been made * property has been well maintained * all fixtures are in place * no removal or alterations of any part of the improvements


We have an accepted offer - Now what?

1) Buyers need to fill out a loan application and pay for credit reports.

2) Buyer’s agent obtains a copy of the Sellers Real Property m the seller’s agent and reviews it.

frequently buyer’s agent) opens escrow with check, tion, and copies of contracts, within 1 ce.

ers inspections, home warranty, insurance, itle

s agent reviews CC & R’s and any other documents that

ocess.

(fixed broken windows, etc.).

t them in their name. 16) Lender sends loan documents to Title Company approximately 1

ys prior to closing date.

uments to lender.

closing (usually approx. 8 a.m.) title company ounty Clerks office and records the deed.(this

eys from the seller’s agent.

Disclosure Fo3) Either agent (

rm fro

client and agent informa day of acceptanbusiness

4) Buyer’s agent ordwork to be performed, etc. and gives copies of these items to tcompany.

5) Buyer’s agent reviews preliminary title report from Title Company.

6) Both agents review escrow instructions 7) Buyer’

come from the title company. 8) Buyer’s agent keeps in touch with lender through entire pr

- WE NEED LOAN APPROVAL! 9) We have loan approval! 10) Lender sends appraiser out to appraise the house for the loan. 11) All conditions on offer and acceptance have been met. 12) All appraisal conditions are met13) Walk-thru is held during the week before closing - both agents

and both buyers and sellers attend. 14) All conditions created by walk-thru are met. 15) Buyer contacts utility companies to pu

or 2 da17) Buyer and seller go to the title

doccompany to sign their papers.

18) Title Company returns loan 19) Lender funds the loan. 20)On the day of

runner goes to Cwas closing)

21) Buyer’s agent obtains the k

ABC Real Estate School 3st ed National Workbook August 2010 40

Usual Closing Costs Impound Accounts

Most lend e borrower to fund an impound account at settlement. An impound tax and ollected

the m

ays mortgage interest

ers require thaccount is an account established by a mortgage lender to pre-pay a borrower's property insurance costs. Mortgage payments are increased to include these costs, and the funds c

ed when the payments are due. Lenders prefer this arrangement, as it minimare disburs izes the possibility of a lapse in tax or insurance payments, which could potentially reduce the value of

ortgaged property.

Typical impounds include: 1. 12 months property taxes 2. 14 months hazard insurance premiums 3. 15 d4. 2 months monthly mortgage insurance

Prorations ions are prepaid or unpaid expenses tha Prorat

They happen when a seller and buyer bt both the buyer and seller share.

e

in

seller for these?

Seller

oth live in house during a time frame when If therexpenses or income overlap. The offer to purchase mentions prorations.

is a special assessment; should the seller pay the entire amount, will the buyer assume payment of the bill, or will they share according to their respective time the house? Were the taxes prepaid? Did the seller already pay the taxes beyond his stay in the house? Does the buyer need to reimburse the Those are prorations.

Accounting Treatment of Prorations

Method of Payment Buyer Prepaid Debit Credit Unpaid (in Arrears) Credit Debit Prepaid rent Credit Debit

his:

* buyers are usually responsible for costs from an (t t is a debit) * Most fees are negotiable, unless the lender or mortgage has requirements.

Do not memorize closing statement items and treatment. Just know t* sellers are usually responsible for costs from the house (that is a debit)

lo ha


(Debit = Due)

CLOSING STATEMENT ITEMS AND TREATMENT Seller Item Buyer

Sales Price Debit Credit Earnest Money Deposit Credit New 1st Loan Credit Seller Financing 2nd or AITD Credit Debit Assumption Credit Debit Existing liens, judgments, etc. Debit Loan Origination Fee Debit Garba /Warehouse Fee Debit VA Debit ge /Loan preparation fees/Loan ProcessingVA Fu Debit nding Fee MIP (Mortg r PMI (P

Debit Debit age Insurance Premium) FHA loans orivate Mortgage Insurance) Conventional loans

Credit Report Debit Recording Fees Debit Debit Notary Fees Debit VA Debit Legal Fees Debit VA Debit Escrow Fees Debit ½ VA Debit ½Deed Preparation Fee Debit Tax Service Debit VA Debit CLTA Title Insurance (Owner’s Policy) Debit ALTA Title Insurance (Lender’s Policy) Debit ALTA Inspection Fee Debit Transfer Fee Debit Loan Discount Points Debit Debit Appraisal Fee Debit Termite Inspection VA Debit Brokerage Commission Debit Debit Pre-Payment Penalty Debit Reconveyance Fee Debit Assumption Fee Debit H Deb Debit ome Warranty it Collection Account set-up Fees Deb Debit it Prepaid Tenant Rents Cred Debit it Security Deposits Cred Debit it Association Dues Proration if prepaid - arrears are opposite Debit Credit Property Tax Proration Debit Credit Sewer Pro Credit ration Debit MMI or PMI monthly Impound Debit Property Tax Impound Debit Hazard Insurance Impound Debit


BUYERS COST ANALYSIS Property Ad _______ Financing: FHA________Conv________Cash__________Assum ______

Base Loan___________Amount of Gross Loan______ _____PMI ___________Secondary Financing Am _______

dress___________________________ Price_____________ption_ _

Amount of ______ __ MIP/VA Funding Fee/ ount__

Type ITEM COSTCOSTyment

s))

onths)

xes/Sew er/Homeow ners Association (July/360 days/buyer pays day of closing

on other loans)A - buyer pays ALTA usually)

ection fee (for ALTA title insurance check w ith title company for rate)tion Fee (___% of Base Loan) (usually 1% of Base Loan)ty program (Buyer or Seller can Purchase/ approx. $300 - $600) )

l Fee: VA $300: FHA $350: Conv $300-$500iscount Points (___%) Subject to Change; Based on Gross Loan - buyer or seller can p

on (___%)e

All Dow n PaAll Interest Impound (usually f igure 15 day

ally 8-14 MonthsAll Taxes Impound (UsuAll Insurance Impound (14 MAll Recording Fee ($25)All Prorations - Ta )All Credit Report ($50 per couple usually)All Escrow Fee (Sellers Pay Total on VA - 50%/50% split in Nevada

Most ALTA Title Insurance Rider (Extended Coverage - seller pays CLTMost Home InspMost Loan Origina

arranMost Home WSome AppraisaSome Loan D aySome CommissiSome Flood Certif ication FeSome Miscellaneous Appraisal Conditions (paid by seller up to certain amount - often $500/house condition)Conv Private Mortgage Insurance (P.M.I.) impound 2 months usually f igured monthly-amount varies w

ow n (1.5%) 10%+ Dow n (1.25%)stimate $80 - required on VA

gage (M.M.I.) Insurance Impound (BaseLoan X .005/12X2=2 months)se Loan) 15-30 Year Loans

ith lenderConv Loan Processing Fee - Estimate $325 - 500Conv Tax Service - Estimate $80

9% Dow n (2%); 5-10% DVA VA Funding Fee: 0-4.VA Termite Inspection - EFHA FHA MortFHA FHA MIP: (.0225 x Ba

Assump Assumption Fee - 50%/50% splitAssump Collection Set-up-Fees ($50-100)

ESTIMATED TOTAL

needed to close escrow:_________________________ ly Payments:

nd Interest___________ Interest Rate __________ MMI/P _____________________________ Taxes__________________

_____

___________ ___________________ _

proximations only. This estimate is prepared in good fait the best ability, however, Pinecrest Realty, Inc., nor its’ agents, assume p

rs, nor do they guarantee them to be exact. We cannot guarantee anove estimate may vary per your impound balance, this is n construed a

s not take into consideration any delinquent payments on any loans or

REV 9/98 Approximate amount Approximate Month Principal a MI ___ InsuranceTOTAL______________

________Association Fee:_____ Buyer:________________________ Buyer: ______________

_____________________ Firm: ____D _ate: _ ___

Authorized Agent ____The above estimates are ap

______h and to of

our knowledge and ersonal responsibility for unintentional erro exact net proceed. The ab ot to be s an exact net proceed and it doe

ndisclosed liens. u


Nevada Property T* July 1 - June 30 fiscal year

axes

* buyer pays for, and gets credit for the day of closing * figure on 360-day year and 30 day month * taxes are prepaid (consider them prepaid annually unless told otherwise)

Tax Prorations • day of recording is paid by the buyer • based on 360-day year • Typical prorations

• homeowners association • sewer • taxes - paid in advance on July 1 in Nevada example: property taxes are $900 house closes on Feb. 12 900/360 = $2.50 per day seller lived in house: July (30) Aug (30) Sept (30) Oct (30) Nov (30) Dec (30) Jan (30)

Feb (11) = 222 days 360-222 days = 138 days buyer lived in house (prepaid by seller)

138 X 2.50 = $345 buyer owes seller on net sheet Debit Buyer $345 and Credit Seller $345


Tax Proration Problems – Answers given

. John Smith udwood Ave. Mr. Smith’s new tax bill will be ebruary 14. What does Mr. Smith’s closing statement

= 30 April May June

1 is buying a house at 3456 B$1,400 per year. The closing date is Fshow?

1400/360 = $3.89 per day Feb (30-14+1) = 17 March

= 30 = 30 = 30

137 days Mr. Smith will live in the house - of the amount the seller prepaid 137 X 3.89 = $532.78 Debit Mr. Smith $532.78 . Jamie is selling a house. Her sewer bill is $230 per year. It is due April 1 and paid in arrears.

What is the accounting statement show at closing if the houses closes on November 21?

30/360 = .64 per day

Jamie owes April (30) May (30) June (30) July (30) August (30) September (30) October (30) November (20)

2

2

230 days X $.64 Jamie debit $146.94; buyer credit $146.94


Settlement Terms What are public records? Public records give the public legal and constructive notice of written documents that affect the real estate. An individual may know information ‘first hand’, actual notice. An individual may be able to learn information because there was ‘constructive notice’, it was recorded at the county clerks office. Providing notice of interest:

A. Actual notice

3. express knowledge or fact B. Constructive notice

s notice to the world what a person is charged with knowing

1. direct knowledge 2. what a person actually knows

1. recording interest at county clerks office 2. give3.

Recording Recording is the act of placing documents in the public record. All documents must

catedtutes of that jurisdiction.

be recorded in the county (or in some states, town) where the real estate is . The documents must be drawn and executed according to the provisions lo

of the recording sta Chain of title The Title/Escrow company usually pulls a ‘preliminary title report’ escrow (the period of time after acceptance of an offer and before closing). This preliminary itle report may discover liens, encumbrances, previous owners, and C,C&R’s, etc.

ncovering any potential problems that could arise in the future.

f title (commitment to issue policy) issued describes policy to

tThis should help in u

oPreliminary report b ed and include issu es:

ed party ion of property rest covered

• ondit s

• Premium paid once, at closing

• Name of insur• tLegal descrip• Estate or inte

C ions and stipulation• Schedule of exceptions


Recording usually reveals the c ho previously recorded the previous owners (the chain)? This chain begins with

gap in tablish

wner ip.

s:

ondition of the title. Wdocuments? Who were thethe original source of ownership and links the passage of ownership to subsequentowners to form a chain. What if there are problems? What if one of the owners mistakenly did not record ownership? This is a gap in the chain of title. Athe chain would require a suit to quiet title or quitclaim deed to eso sh Title Evidence method

e Company in the history of the ownership of

ince original title was passed of the title

f title

2. discloses all liens, encumbrances, easements, conditions or restrictions that appear on the record

b) a ‘bring down’ is made immediately before the deed is recorded

e

A. Abstract 1. Seller must produce from Titl2. Summary of all title events

the property s3. an attorney looks at it and issues an opinion

B. Abstract and attorney’s opinion o1. statement of status of the seller’s title

C. Title Procedures 1. two searches of the public record

a) first shows the status of the title at the date of the first search

2. a payoff statement is created by the previous lender for thexisting mortgage on the property and any other existing liens on the property

Quieting Title: itle problems

* means fixing t


Title Insurance Title insurance is arranged during escrow and purchased before closing. This insurance insures the policyholder against loss due to defects in the title other than those exceptions identified in the policy. If the transaction involves a loan, usually the buyer purchases a policy for the lender (ALTA), and the seller purchases a policy to protect the buyer (CLTA) T fypes o title insurance policies:

cts a buyer for the price

A. Owner's policy A 1. CLT

2. prote3. usually paid for by the seller

B. Lender's policy 1. ALTA 2. protects a lender for the loan 3. usually paid for by the borrower

C. Leasehold policy 1. protects a tenant for leasehold investment 2. usually paid by the tenant

Types of Coverage include: I.

A. B. Forged doC. D. Incorrect marital statements

II. ExtenA. t by the standard coverage policy B. Property inspection, including unrecorded rights of persons in

possession C. Examination of survey D. Unrecorded liens not known of by the policyholder

Typic include:

Standard coverage policy Defects found in public records

cuments Incompetent grantors

E. Improperly delivered deeds ded coverage policy All perils insured agains

al Title Insurance Coverage Exclusions

• Defects and liens listed in the policy • Defects known to the buyer • Changes in land use brought about by changes in zoning ordinances


Potential Title defects: • unrecorded liens

Unacceptable Title in Nevada you can still convey with disclosure

• existing mortgages • spouse has ownership claim • Mineral Rights Claims • Unmarketable Title

• •

HUD

1 Closing Statement

The H dard form used to itemize services and fees c or broker.

Borro the HUD-1 Settlement State about any changes. Any small iscrepancies should be returned to the party who overpaid soon after closing.

ges.

UD-1 Settlement Statement is a stanharged to the borrower by the lender

wers should compare their Good Faith Estimate toment and ask their lender or broker

d

It can be found on the next 3 pa


Real Estate Settlement Procedures Act (RESPA) INTRODUCTION

The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The purposes of RESPA are:

1. to help consumers become better shoppers for settlement services and 2. to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain

settlement services.

Details about RESPA

Corresponding with the above purposes: 1. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers. 2. RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting anything of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company.

RESPA in general RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD's Office of Consumer and Regulatory Affairs, Interstate Land Sales/RESPA Division is responsible for enforcing RESPA.

RESPA REQUIRED DISCLOSURES: At the time of loan application When borrowers apply for a mortgage loan, mortgage brokers and/or lenders must give the borrowers:

• a Special Information Booklet, which contains consumer information regarding various real estate settlement services. (Required for purchase transactions only) and

• a Good Faith Estimate (GFE) of settlement costs, which lists the charges the buyer is likely to pay at settlement. This is only an estimate and the actual charges may differ. If a lender requires the borrower to use of a particular settlement provider, then the lender must disclose this requirement on the GFE.


• the

plaint resolution.

does not require

provide an explicit penalty for the failure to provide the Special Information Booklet, Good Faith Estimate or Mortgage Servicing Statement. However, bank

o impose penalties on lenders who fail to comply with federal law. Please read the section on RESPA enforcement for more information.

der with

e must describe the business arrangement that exists between the two roviders and give the borrower an estimate of the second provider's charges.

e a lender refers a borrower to an attorney, credit reporting agency or real

hows all charges imposed on borrowers and sellers in connection with the settlement. RESPA allows the borrower to request

day before the actual settlement. The settlement wers with a completed HUD-1 Settlement Statement based on

Disclosures at settlement

tion. at

d taxes, insurance premiums and other charges anticipated to be paid from the Escrow Account during the first twelve months of the

a Mortgage Servicing Disclosure Statement, which discloses to the borrower whetherlender intends to service the loan or transfer it to another lender. It also provides information about com

If the borrowers don't get these documents at the time of application, the lender must mail them within three business days of receiving the loan application.

If the lender turns down the loan within three days, however, then RESPA the lender to provide these documents.

The RESPA statute does not

regulators may choose t

Disclosures before settlement/closing occurs

The terms "settlement" and "closing" can be and are used interchangeably.

An Affiliated Business Arrangement (AfBA) Disclosure is required whenever a settlement service provider involved in a RESPA covered transaction refers the consumer to a proviwhom the referring party has an ownership or other beneficial interest.

The referring party must give the AfBA disclosure to the consumer at or prior to the time of referral. The disclosurp

Except in cases wherestate appraiser to represent the lender's interest in the transaction, the referring party may not require the consumer to use the particular provider being referred.

The HUD-1 Settlement Statement is a standard form that clearly s

to see the HUD-1 Settlement Statement oneagent must then provide the borroinformation known to the agent at that time.

The HUD-1 Settlement Statement shows the actual settlement costs of the loan transacSeparate forms may be prepared for the borrower and the seller. Where it is not the practice ththe borrower and the seller both attend the settlement, the HUD-1 should be mailed or delivered as soon as practicable after settlement.

The Initial Escrow Statement itemizes the estimate


loan. It lists the Escrow payment amount and any required cushion. Although the statement is usually given at settlement, the lender has 45 days from settlement to deliver it.

Disclosures after settlement

Loan servicers must deliver to borrowers an Annual Escrow Statement once a year. The annuaEscrow account statement summarizes all escrow account deposits

l and payments during the

new servicer, toll-free telephone in accepting payments.

nd PROHIBITED

ckback or any thing of

e

es vice an amount equal to three

ly, as a condition of sale. Buyers may sue a seller for an amount equal to three times all charges made for the title

g taxes, hazard insurance and other charges related to the ver,

servicer's twelve month computation year. It also notifies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken.

A Servicing Transfer Statement is required if the loan servicer sells or assigns the servicing rights to a borrower's loan to another loan servicer. Generally, the loan servicer must notify theborrower 15 days before the effective date of the loan transfer. As long the borrower makes a timely payment to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized. The notice must include the name and address of the numbers, and the date the new servicer will beg

RESPA'S STATUTES EXPLAINED: CONSUMER PROTECTIONS aPRACTICES

Section 8: Kickbacks, Fee-Splitting, Unearned Fees

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kivalue in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

Violations of Section 8's anti-kickback, referral fees and unearned fees provisions of RESPA arsubject to criminal and civil penalties. In a criminal case a person who violates Section 8 maybe fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violatSection 8 may be liable to the person charged for the settlement sertimes the amount of the charge paid for the service.

Section 9: Seller Required Title Insurance

Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectwho violates this provision insurance.

Section 10: Limits on Escrow Accounts

Section 10 of RESPA sets limits on the amounts that a lender may require a borrower to put into an escrow account for purposes of payinproperty. RESPA does not require lenders to impose an escrow account on borrowers; howe


certain government loan programs or lenders may require escrow accounts as a condition of theloan.

RESPA prohibits a lender from charging excessive amounts for the escrow account. Each month the lender may require a borrower to pay into the escrow

The lender must perform an escrow account analysis once during the year and notify borrowers

Individuals have one (1) year to bring a private law suit to enforce violations of Section 8 or 9. A

or 9 may be brought in any federal district court in the district in which the property is located or where the violation is alleged to have occurred.

HUD, a State Attorney General or State insurance commissioner may bring an injunctive action

Section 6 provides borrowers with important consumer protections relating to the servicing of

ving a statement of the reasons for its position. Until the complaint is resolved, borrowers should continue to make the servicer's

t,

nce.

Other Enforcement Actions

Under Section 10, HUD has authority to impose a civil penalty on loan servicers who do not

During the course of the loan,

account no more than 1/12 of the total of all disbursements payable during the year, plus an amount necessary to pay for any shortage in the account. In addition, the lender may require acushion, not to exceed an amount equal to 1/6 of the total disbursements for the year.

of any shortage. Any excess of $50 or more must be returned to the borrower.

RESPA ENFORCEMENT

Civil law suits

person may bring an action for violations of Section 6 within three years. Lawsuits for violationsof Section 6, 8,

to enforce violations of Section 6, 8 or 9 of RESPA within three (3) years.

Loan Servicing Complaints

their loans. Under Section 6 of RESPA, borrowers who have a problem with the servicing of their loan (including escrow account questions), should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint. Within 60 business days the servicer must resolve the complaint by correcting the account or gi

required payment.

A borrower may bring a private law suit, or a group of borrowers may bring a class action suiwithin three years, against a servicer who fails to comply with Section 6's provisions. Borrowersmay obtain actual damages, as well as additional damages if there is a pattern of noncomplia

submit initial or annual escrow account statements to borrowers. Borrowers should contact HUD's Office of Consumer and Regulatory Affairs to report servicers who fail to provide the required escrow account statements.



RESPA: • stands for Real Estate Settlement Procedures Act

* provide a copy of a special informational Housing and Urban Development (HUD) booklet to every person making loan application within 3-days of application * provide a good-faith estimate of settlement costs within 3 business days of application * provide Uniform Settlement Statement to borrower and seller at least 1 business day before closing * kickbacks, referral fees, or unearned fees not allowed * Requires controlled business arrangement disclosure.

“RESPA

Payment of Yield Spread Premium

Byars v. SCME Mortgage Bankers Inc, 109 Cal. App. 4th 1134 (2003) California Court of Appeals

Facts: In February 1997, Byars used a mortgage broker, Spectrum Financial GrouHousing Administration (FHA) loan to purchase a home. Byars did not investigate interest rates, but relie

p, to obtain a Federal d

rate. Byars paid a 1% loan origination fee which was paid to Spectrum. ME Mortgage Bankers, Inc. The HUD-1 Settlement State provided to

Byars included the statement “broker rebate paid by lender to Broker $1,685.58.” This rebate is a

ing

on Spectrum to obtain the going Spectrum placed the loan with SC

standard in the industry called a yield spread premium (YSP). The YSP reflects payment for goods, services, or facilities provided by the broker on behalf of the borrower for the transaction. After consultwith his attorneys, Byars felt that he could have received a better rate and that he was overcharged forthe loan.

Issue: Whether payment of a YSP by a lender to a mortgage broker violated The Real Estate SettlemenProcedures Act of 1974 (RESPA), and whether it violated the HUD regulation limiting loan originatioto 1% of the loan amount.

t n fees

Held: The court first looked at HUD’s policy statements which made it clear that YSPs are not per se legal

were actually performed. The court found that the YSP did not violate RESPA in this case. As for the urt found that the unambiguous language of the regulation itself limits

gagor by the mortgagee. Thus the YSP was not collected from Byars

or illegal, and that there must be an individualized examination of the particular transaction at issue. In examining the situation, HUD adopted a two prong test: 1) whether goods or facilities were actually furnished or services were actually performed for the compensation paid; and 2) whether the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that

origination fee of 1 percent, the coonly fees collected from the mortdirectly but rather from the lenders, Spectrum and Allstate, and therefore it did not violate HUD regulation.”68

68 https://www.arello.org/subscriptions/law/decision.cfm?id=266 Accessed January 27, 2009.

closing the real estate · pdf fileclosing the real estate transaction ... 2) buyer’s...

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