As a Senior Advisory Escrow Officer and Escrow Manager, as well as someone who has worked in this industry for more than a quarter of a century, I can’t say I’ve seen it all, but I can say I’ve seen a lot! If you as a loan originator haven’t found that very special someone who drives your transactions from open to close, pay special attention over the next few months as I share six tips with you to help you close on time, every time. The first two—avoiding pitfalls and communicating with your closer—follow, and I’ll be sharing the rest in future issues of the Originate Report. Stay tuned!
Avoiding pitfalls that will delay the closing.
Being prepared for the absolute worst on any file is the best way to make sure that file-ending occurrences are kept to a minimum. For example:
• Don’t let mechanics liens delay your closing. Contractors, subcontractors and suppliers can file what is called a mechanics lien on a homeowner’s property if they are not paid. These liens will have priority over your mortgage, so you’ll want to make sure these are taken care off well in advance to your closing date.
• Update your property report for recorded documents during escrow; not just at the time of closing.
• Request that your escrow officer have your preliminary title report dated down at least ten days prior to your estimated closing date.
As a loan originator, always gather as much information about your borrower and its affiliates as possible to have on file. Even if your borrower is an LLC or other entity, have information on the principals of those entities on file (i.e., address, SSN, and full legal name). This will greatly help your escrow officer to clear all liens on title.
The mechanics lien process is worth understanding in order to avoid potential financial and legal pitfalls that can occur. One of the best resources to explain the intricacies of mechanics liens is the California Department of Consumer Affairs.
Each state has its own checklist (as do their various divisions/departments), but if a lien pops up, below is a sample checklist of lien requirements pulled from the California Department of Consumer Affairs, Contractors State
License Board site:
Lien Requirements Checklist
Check to see if a preliminary notice was given to you within the specific timeframes. Direct contractors and laborers do not have to file preliminary notices. A subcontractor or material supplier has 20 days after beginning work or delivering materials to serve you a preliminary notice. If the notice is late, the claimant loses lien rights for work done or materials delivered more than 20 days before the notice. The claim against the property is only valid for work done or supplies delivered 20 days before notice was given and anytime thereafter. P Be sure the notice of mechanics lien accompanies the lien claim. The claim should include the amount owed, the service or products provided, the employer, the property owner, the address or description of where the work was done or products were delivered, the claimant’s address, and a proof of service affidavit (completed and signed by the person serving the notice and the claim). P Have your counsel verify if the potential lien claimant filed the mechanics lien within the legal time frame. If the potential lien claimant fails to record the mechanics lien within the appropriate timeframe, the lien isn’t valid. The potential lien claimant must record the mechanics lien within 90 days of:
• Completion of work;
• When the property owner began using the improvement; or
• When the property owner accepted the improvement.
The commencement of using the improvement is sometimes hard to verify, because the homeowner often occupies the residence during construction. Contact your counsel for assistance on this point. P Have your counsel check with your local superior court to see if the subcontractor or material supplier filed a timely lien foreclosure action. A lien foreclosure action is a lawsuit to foreclose the mechanics lien. The lien claimant must file a lien foreclosure action within 90 days of the date that he/she recorded the mechanics lien. Often, a lien claimant with a valid claim will fail to follow through, making the lien invalid.
Make sure your client knows the difference between signing vs.closing escrow. When people talk about a real estate purchase, they sometimes use the terms “signing” and “closing” interchangeably in reference to the event when the buyers sign documents with Escrow. There are several events, however, that take place between the buyer’s signing appointment and the actual closing of the real estate transaction. Let’s take a moment and review that process:
• Signing of documents. Escrow receives the loan documents (if applicable) from the loan originator and prepares them for the buyer to sign, along with final statement and any other required documents. Upon receipt of the loan documents from the loan originator, the escrow closer prepares the HUD-1 settlement statement and all other legal documents required for the transfer of title into the buyer’s name.
• Loan originator reviews documents and funds the loan. Once the loan documents have been signed, the escrow officer delivers them back to the loan originator for review. When the loan originator is satisfied that all required documents have been signed and all outstanding loan conditions have been met, the loan originator will notify escrow that it is ready to disburse the loan funds to escrow. Upon receipt of the wire from the loan originator, the escrow officer is authorized to send the transfer documents to the county for recording. The timeframe for review is normally 24 to 48 hours.
• Released to record. Once recording is authorized by the loan originator, documents are carried (in most cases) to the county recorder’s office by the title insurance company. The transfer documents are recorded first, showing the transfer of the property to the buyer, with the deed of trust recorded next. Recording the deed of trust just after transfer documents insures the loan originator’s first lien position on the property. Once the deeds have been recorded and the funds are available to the seller, we can say that we have “closed” and the new owner may take possession of the property (as set forth in the purchase and sale agreement).
Many pitfalls in a closing are avoidable if you prepare for the worst, but sometimes it’s just being aware of a situation that’s already occurred that can save you the headache of a delay. And that brings us to Part Two…it may sound like the simplest thing in the world, but:
Communicate with your closer.
Make sure your settlement agent has all the information you can give them. For example:
I had a file where a refinance was funding a purchase, but not one party in either transaction thought to tell me that the borrowers were going through a bitter divorce. Had I known this was the situation, I might not have scheduled both husband and wife to come to my office at the same time on Friday afternoon! She brought the kids and he brought his new girlfriend…and this led to all sorts of drama (a screaming match in the lobby that took two officers to break up) and delays (refusal to execute purchase loan documents) that could have been avoided with a short e-mail or phone call.
If there is anything going on that you as the loan originator have knowledge of, the settlement agents also need to know. That includes deaths in the family, sick children or relatives, divorces, etc. The aforementioned items are not deal killers; however, they do ensure your settlement agent prioritizes the file.
You may be thinking, “Why do I care?” Or, “ This is escrows’ problem,” and you are right…sort of. Your escrow holder can only prepare for what they know about. It may not be a bad plan to tap out an email that lets your escrow holder know, “Hey, by the way, they are going through a divorce,” or, “They inherited the property.”
When we send out seller closing packages on a “high maintenance” file vs. a standard file, there is a completely separate timeline. Generally, if we know that a delay can occur, we can generate an amendment to state that all parties are aware that the final amount can change and that no further instruction is required. If we don’t know that this is on the table, then it won’t be in our previous amendments.
But what if there is some kind of outside circumstance where someone dragged their feet, made things slow down on purpose, wasted time, refused to cooperate, etc.? That is a mitigating factor in how much time needs to be given to close. As you can see, there are as many reasons an escrow could delay as there are jelly beans in a jar.
What if the unthinkable happens and there is an uncontrollable delay? If both buyer and seller (or borrower and loan originator) still want to complete the transaction, then everyone continues on their merry way and you close the escrow as quickly as you can. If the delay is only going to be a few days, there should be no problem and an extension amendment is added to a sale. On a refinance, no additional paperwork is needed, and it just closes late. Remember, in this situation, all parties still want to proceed, so the solution is fairly simple – close in a few days or extend with an amendment to cover the additional time needed.
In short, the final days just before the closing of escrow are by far the busiest for the settlement agent and all other parties. At this point, all property disclosures have been delivered, any contingencies to the sale should have been satisfied, and the settlement agent has gathered most of the documents required to meet all closing requirements.
The nicest thing you can do for your settlement agent at this point is to remind your borrower to remain available for the last few days while they put the file to bed. This is not the time for a vacation where there is no phone reception. If there is a funding condition that needs the borrower’s signature, they need to be available. Again, keep in mind that each time you avert disaster – aka, a delay in closing – it gets easier to manage the next transaction the same way, until it becomes habit and each transaction runs smoothly…closing on time, every time.
Keep watching Originate Report for the rest of Kasey’s tips to close on time! In the meantime, if you have any questions, reach out to Kasey Stevens at firstname.lastname@example.org.