Managing the Risks in your Filing Cabinet We build strength, stability and self-reliance through shelter.
This Photo by Unknown Author is licensed under CC BY Presented by: Sonia Lee, Director of Affiliate Financial Services, HFHI Gina Leckron, State Director, HFH of Indiana
Today s Goal Gain a basic understanding of the risks that may be lurking in your file cabinet. Learn how to identify and remedy them so that your affiliate is compliant.
Agenda Understanding what files must be maintained Record Keeping Legal Requirements Identifying key risks Incomplete or Incorrect Mortgage Files Land Contracts and Rent to Own Agreements Deed and Title Insurance Issues Discrepancies in Mortgage Histories Escrow Account Issues Remedies for any issues Questions and Answers
Mistakes Happen Often inherit them from previous leaders at the affiliate Often unintentional because they were unaware Take a deep breath and dig in to correct any issues Costs may be incurred - legal fees, overtime, but far less than alternative Your duty as responsible lender - correct them and adjust policy and procedures to prevent future occurrences Educate affiliate personnel Reminder to Board: Directors & Officers or Errors & Omissions insurance does not cover breaking the law - ignorance to the laws is no excuse
Record Keeping Some laws have record keeping requirements ECOA 25 months from the date of notice of action taken RESPA HUD-1 and related documents for 5 years after settlement or until it is sold / assigned GFE is a related document. TILA - TIL Statement 2 years after disclosures are required to be made of action is required to be taken TRID LE and all evidence of compliance for 3 years after the date of consummation. CD 5 years after consummation RESPA Servicing file 1 year after loan is satisfied or servicing of a mortgage loan is transferred by the servicer to a transferee servicer BSA records are to be keep for 5 years after the record has been made.
RISK: Incomplete Mortgage Files Habitat Mortgage File Checklist Copy of Appraisal Loan Estimate (LE) or Good Faith Estimate (GFE) Closing Disclosure (CD) or Settlement Statement 1 st Mortgage signed and recorded 2 nd Mortgage-signed and recorded (if applicable) 1 st Promissory Note-signed original 2 nd Promissory Note-signed original (if applicable) Other Restrictive Covenants or liens (if applicable) Title Report Title Insurance Information Homeowner s Insurance Information Property Tax Bills Modifications or Changes in Payment Correspondence with Homeowner Delinquency Notices
Document Review Read EVERY piece of paper in the mortgage file Find mortgages, notes, insurance and tax info Read notes about modifications or changes in payment Is there a late fee? (how much and date it is applied) Are the dates, address and homeowner names correct? Check the legal description-is it accurate? Were the mortgages recorded? Are all closing docs in the file? Find out how the payment is collected Principal, escrow, late payment etc.
List of Issues/Missing Items Mortgage is more delinquent than we thought Escrow accounts are in arrears Can t find original notes or mortgages Insurance has changed or lapsed We have excess in the escrow account Fixed mortgage payments that include escrow (does not adjust with increase/decrease in escrow payments)
Remediation of Problems Some mistakes can be fixed by signing an addendum Some mistakes will require a modification and attorney Some missing items the homeowner may have Some items can be recovered at the courthouse Some household changes (divorce, death in family) Consider forgiving escrow in arrears it may be our fault
RISK: Land Contracts
What is a Land Contract A rent-to-own contract Seller retains the title until fully paid Buyer doesn t have any equity until paid in full. Commonly used with buyers with bad credit Early HFH affiliates used these- so check your files It s against current HFHI policy to have a land contract Land contracts must be converted to a mortgage An attorney will be needed Known as a PREDITORY LENDING practice
RISK: Lease with Option
RISK: Lease with Option Habitat policy prohibits rental agreements, unless Temporary until closing issues are cleared No rental agreement should extend beyond 6 months Like land contracts these can be predatory Give homeowner s credit for rent paid to date Set temporary payment based on income like the mortgage Affiliate carries homeowners insurance until converted to a mortgage and pays taxes due.
RISK: Quit Claim Deeds Warranty Deed Promises grantee no title defects If no title policy, can only sue grantor Special Warranty Deed Quit Claim Deed Promises grantee no title defects during grantor s ownership Banks oftentimes convey sheriff sale properties with SWD Grantee receives property how Grantor had it Here you go. No warranties/promises about clear title Sheriff Deed After foreclosure and sale, buyer gets a Sheriff Deed So long as foreclosure was done properly, this is a good deed Tax Deed Conveys legal title to property sold by County for unpaid taxes If proper notice was not given, the Tax Deed can be reversed
RISK: Quit Claim Deeds Quit claim deeds will need to be perfected with the help of your title company If accepting quit claims for donated land, immediately work title company to clear title before sale Additional insurance can be purchased if the title is clouded Never transfer a home/land to a homeowner on a quit claim deed This is why working with a title company is imperative
RISK: No Title Insurance Owner s Title Insurance Protects the homeowner. Called an Owner s Policy Is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as along as you or your heirs have an interest in the property. Lenders Title Insurance Protects the Lender. Also called a Loan Policy Is issued for the life of a loan. Of additional note, the secondary mortgage market will not purchase loans without the title insurance guarantee.
RISK: Not Using IN Standard Docs
RISK: Incomplete Mortgage History Servicers must retain records that document any actions taken to a borrower s mortgage loan account until one year after the loan is discharged or the servicer transfers servicing for the mortgage loan. If no proof in history or file-missed payments forgiven Meet with homeowner and agree on new balance Both need to sign/date agreement for restart of balance If modification is necessary, record at the courthouse After a restart, may be time to outsource servicing Complete history and agreed balance required before boarding with a servicer Consider forgiving escrow in arrears its our fault and can be used to bring homeowner to the table to sign modification
RISK: Escrow Accounts Escrow Analysis must be completed at initiation of escrow account and each year thereafter Only 2 months cushion can be held in escrow in addition to the required monthly payment Insurance and tax payments must be paid on or before due date Escrow funds cannot be comingled with other funds or borrowed Escrow arrears, three choices (must be in policy) Forgive Set repayment arrangement Combination depending on reason
Ultimate Cost - Risks BCFP / state regulator not biggest threatforeclosure judge is Can t enforce the note Could lose the asset Damage our reputation Loss of trust with our homeowners / donors / volunteers etc. Habitat must hold the highest standard
Thank you! Sonia Lee slee@habitat.org Gina Leckron gina@habitatindiana.org Disclaimer: This material is for informational purposes only. I am not a lawyer and this should not be considered legal advice. You should seek appropriate counsel to obtain advice for your own situation. We build strength, stability and self-reliance through shelter.