. . . Real Estate Law Lecture Notes: Closings. . . . ..
. . . . .
The mortgage loan
commitment:
Parties: Prospective borrower, that is, the buyer, and the lender.
Amount: Check, so that the amount of the loan is used throughout all
the loan documents.
Rate: note that the specific rate is fixed or floating.
Terms: Exact years and months of scheduled payments, and the date of
the first payment. Interest should start on the date of the closing or whatever
other date the loan funds are made available to the borrower. Monthly payments
should be indicated, and note if that does or does not include any tax or
insurance excrow. Note also if there is a balloon payment at the end of the
life of the loan.
Prepayment: The right to prepayment before the expiration of the mortgage
is not automatic. Sometimes there will be a "premium" and sometimes
there will be a period of years or months, at the beginning of the loan, where
prepayment isn't permitted, or is permitted for a premium. The lenders want
to make money.
Security: Usually this will be a valid first lien on the property,
where the loan is being used to acquire the property. The lender wants fee
simple title to the land.
Appraisal: Most committments will require the lender receive a formal
written appraisal of the property before the closing and before making the
loan funds available.
Insurance: At or before the closing, there needs to be an insurance
policy with fire and with extended coverage and additional extended coverage.
The insurance policy needs "mortgage pay" endorsements, so that
if the property is totalled, the insurance pays off the mortgage. The lender
will require the minimum amount of insurance and will require that the insurance
should always be for full replacement of the improvements or for the original
amount of the loan.
Escrow: Most home lenders require an escrow account be set up, so the
borrower will be contributing monthly to an account which will accumulate
money to pay for taxes and insurance. The lender will see to it that they
always have more money than is currently needed. The borrower doesn't get
interest on the escrow deposits and the deposits are not held in trust, so
the lender has no fiduciary obligation with reference to the escrow funds.
The terms of the escrow, and even if there will be an escrow, are negotiable.
So, the committment letter must be reviewed to see what, if any, provision
is made.
Title insurance: Most loan committments require the borrower to buy
title insurance to assure that the loan will be a valid first lien on the
property.
Survey: Most will require an "as built" survey, not a mere
boundary line survey.
Financial documents: Many loan committments will requrie the borrower
to "recertify" the financial documents that the borrower provided
to the lender to get the loan. Frequently,this is accomplished by the borrower
signing an affidavit that there has been no material change of financial circumstnances.
Defaults: Most default provisions will provide for notice and grace
periods, and rights to cure defaults in the grace periods. There may late
fees charged, as specified in the documents.
Commitment
fee:
Many require the payment of a committment fee, for making the committment,
before the loan is actually disbursed at the closing. The committment fee
may be variously called a deposit, or a standby fee, or earnest money.
Loan
expenses: The borrower pays the lender's expenses, such as the lender's
attorney fees, survey costs, recording of document costs, mortgage taxes,
appraisals, note taxes, etc.
Closing
date/ commitment expiration date: Make sure the closing is done in time,
before the committment expires. The closing will be conditioned on the borrower
doing everything the borrower has been told to do.
Disbursement:
The loan committment will specify how the loan funds are to be paid for the
closing. Typically, the lender deposits the funds into the closing agent's
escrow account, and the closing agent will disburse from that account.
Acceptance
of commitment: The loan committment is not effective until accepted by
the buyer.
Assignment:
The loan committment is not assignable without consent of the lender.
Words
and Phrases to Know:
appraisal,
escrow, title insurance, disbursement, loan committment
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