We are expecting the book to be finalized in the next day or so and will be sending out copies shortly. If you wish to receive a free copy and have not already done so, please go to www.gocondo.nyc and sign up (providing us with your email). I really appreciate everyone’s support.-Thanks, Phil
Growing up, my brother, cousins, nephew and I would play Monopoly all night. We would stay up until the wee hours of the morning playing, building our pretend empires, arguing over who was cheating (Dan . . . ).
This past week, I played Monopoly for real. A year in the making, we closed on the sale of a $21,000,000 hotel. One of the more intense projects I’ve been involved with. In the days (really months) leading up to it there were countless things that had to be accounted for, prepared and crossed off huge checklists which seemingly got longer as we got closer to the day we were working towards. Even though the deal was done and we were close to the end there were last-minute side deals that had to be thought out, negotiated and documented as parties jockeyed for position. I found myself up late the night before sitting in my dining room answering emails, proofreading documents and much like the Monopoly marathons I had as a kid, making sure no one was cheating. The morning of the closing was bright, sunny and not as hot as it could have been for an August day on Wall Street. Surely a good sign as we arrived from that far off land called Brooklyn.We came armed with accordion files, computers and cell phone chargers, The room was filled with paper. Lots of paper. Lawyers on phone arguing with other lawyers. Others leaning over laptop spreadsheets mulling over numbers; Title closers running back and forth from a huge copy machine down the hall from this glass cubicle which seemed to hold a hundred people. Everyone in my office worked incredibly hard. It started at 10:00 in the morning and broke up at 5:30 p.m. Business finally concluded 1:00 the next day.
This (The Closing by Jimmy Dyer) is what it looked like:
There is no rest for the weary as we are on to multiple replacement deals spanning from Manhattan to the Hamptons.
As to complexity and magnitude there was a big sense of accomplishment, satisfaction and relief that we got it done. Still not as fun as Monopoly as a kid . . . .
Loan officers, attorneys and borrowers alike should take notice when loan document notice requirements change. Loan officers and attorneys need to know to appropriately advise and guide their clients. Borrowers should know the rules of the process to be, well, smart informed consumers.
Federal Law has required for many years disclosure forms be provided to consumers by lenders. In an effort to eliminate inconsistency, overlapping language and confusion to consumers, lenders and settlement agents, the Consumer Financial Protection Bureau was directed to integrate longstanding loan mortgage disclosure forms under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z) (78 FR 7973, Dec. 31, 2013) (TILA-RESPA rule), into two understandable (hopefully) consolidated forms. They are the Loan Estimate and Closing Disclosure.
The Loan Estimate is designed to give disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying.
Timing: Upon receipt of an application by a mortgage broker or a lender (referred to in the rule as a “creditor”), this form will be provided to consumers within three business days after they submit a mortgage loan application. An “application” for these purposes consists of the consumer’s name, income, social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought.
Even if the mortgage broker provides the Loan Estimate, the actual lender remains responsible for complying with the all requirements concerning provision of the form.
What’s in it? This document provides you with the general terms of your loan. Things like loan amount, interest rate, if it is a fixed or adjustable rate loan and the sales price if the loan is financing the purchase of a property or apartment. It clearly identifies what the monthly principal and interest payments are, if there is a prepayment penalty and if a balloon payment is due at the end of the loan term. It clearly provides the monthly payments of property and hazard insurance being collected by the lender which when combined with the monthly installments of principal and interest, comprise your total monthly payment.
On another section of the form, it itemizes a borrower/purchaser’s closing costs and informs the consumer the amount of money that a consumer needs to close that particular transaction.
The form further provides the consumer a five (5) year comparison on the amount of principal, interest, mortgage interest and loan costs that will be paid. It also discloses how much of the original principal is paid down during the first five years. As previously disclosed in the TIL, the APR * (see below) is identified and the borrower is told the amount of interest paid over the life of the loan.
* APR (annual percentage rate) is the interest rate of your loan after deducting certain closing costs (points, mortgage broker fees, and other charges that you have to pay to get the loan). Because the APR is calculated based on a smaller amount of money, all other things being constant, the interest rate contained in the note is usually higher.
Replaces: The Good Faith Estimate (AKA, GFE) designed by the Department of Housing and Urban Development (HUD) under RESPA & the “early” Truth-in-Lending disclosure designed by the Board of Governors of the Federal Reserve System (Board) under TILA.
Fee limitation: Generally, consumers cannot be charged any fees until after they have been given the Loan Estimate and have communicated their intent to proceed with the transaction. One exception to that is that consumers can be charged fees to obtain their credit reports prior to the issuance to the Loan Estimate.
Early estimates and disclaimers: Consumers can be provided written estimates prior to application as long as there is a disclaimer provided to prevent any confusion with the Loan Estimate. Disclaimers are required for advertisements as well.
The following disclaimer needs to be clearly and conspicuously placed at the top of the front of the first page of the estimate in a font size that is no smaller than 12-point font: “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.” (12 CFR Part 1026 § 1026.19(e)(2)(ii)).
Below is a sample of a Loan Estimate:
The Closing Disclosure is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction.
What’s in it? Like the Loan Estimate, it provides the consumer with the general terms of your loan, the loan amount, interest rate, if it is a fixed or an adjustable rate loan and the sales price if the loan is financing the purchase of a property or an apartment.
It sets forth the monthly principal and interest payments, if there is a prepayment penalty and if a balloon payment is due at the end of the loan term.
The document discloses monthly payments (projected calculations in years 1-7 and in years 8-30 of the loan term) of property and hazard insurance being collected by the lender which when combined with the monthly installments of principal and interest, comprise your total monthly payment.
Much like its predecessor the Hud-1 Settlement Statement, the Closing Disclosure itemizes in separate columns, the costs of both the purchaser and seller and identifies between costs that are paid at and before closing. What differs from the Hud-1 is that this form has a separate column for costs paid by others (i.e. bank paid mortgage tax).
Similar to its predecessor, the Truth In Lending Disclosure Statement as well as the Loan Estimate, it provides the consumer the APR of the loan, the amount of the loan after deducting the payment of upfront loan closing costs as well as the total amount of the interest paid over the life of the loan.
At the end of the loan, it provides a contact sheet for the names of the lender, its loan officer and the settlement agent. I think this is very useful.
This is a link to a Guide to the Loan Estimate and Closing Disclosure forms: (http://goo.gl/vu1eF9) which sets forth the content of the Loan Estimate and Closing Disclosure forms.
Timing: This form will need to be provided three (3) business days before consumers are to close on a mortgage loan.
Replaces: The current form used to close a loan, the HUD-1, which was designed by HUD under RESPA.
It also replaces the revised Truth in Lending disclosure designed by the Board under TILA.
Changes: If between the date the Closing Disclosure is given and the date of Closing significant changes occur to:
- the APR (above 1/8 of a percent for most loans & 1/4 of a percent for loans with irregular payments or periods);
- to the loan product, or
- if a prepayment is added to the loan-
the consumer must be provided a new form and an additional three (3) -business-day waiting period after receipt of the new form.
A revised Closing Disclosure form can be issued at or before closing showing less significant changes, without actually delaying the closing.
Unless an exception applies, charges for the following services cannot increase: (1) the lender’s or mortgage broker’s charges for its own services; (2) charges for services provided by an affiliate of the lender or mortgage broker; and (3) charges for services for which the lender or mortgage broker does not permit the consumer to shop. Charges for other services can increase, but generally not by more than 10%, unless an exception applies.
The exceptions include, for example, situations when: (1) the consumer asks for a change; (2) the consumer chooses a service provider that was not identified by the lender; (3) information provided at application was inaccurate or becomes inaccurate; or (4) the Loan Estimate expires. When an exception applies, the lender generally must provide an updated Loan Estimate form within three business days.
Following is a sample form Closing Disclosure Form:
The TILA-RESPA rule applies to most closed-end consumer mortgages. It does not apply to all cash transactions (no financing is involved), commercial purpose loans, home equity lines of credit (HELOCs), reverse mortgages, mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). The final rule also does not apply to loans made by individuals, estates or trusts lending five or fewer mortgage loans per year. The new disclosures are used when a mortgage loan application is taken on the implementation date of October 3, 2015.
A wealth of information and forms on this topic is located on the Consumer Financial Protection Bureau website located at:
Compliance guide (link): A plain-language guide to the new rules in a FAQ format which makes the content more accessible for industry constituents, especially smaller businesses with limited legal and compliance staff.
Guide to forms (link): Provides detailed, illustrated instructions on completing the Loan Estimate and Closing Disclosure.
Closing Fact Sheet (link): An overview of the limited circumstances when changes to the loan require a new three-day review.
Disclosure Timeline (link): Illustrates the process and timing of disclosures for a sample real estate purchase transaction.
Integrated loan disclosure forms & samples (Link): Downloadable Loan Estimate and Closing Disclosure forms in both English & Spanish and samples for different loan types.
A Seller stepping into the shoes of an institutional lender is a creative way to ensure that a Purchaser will be able to buy a home. For Seller it can be a very attractive option. Sellers taking back a mortgage (referred to as a “purchase money mortgage”) are able to obtain a secure investment collateralized by the home being sold and earn an interest rate higher that a lot of other investments that are currently available. Additionally, a Seller can defer a portion of the gain from the sale of a property to the extent that loan principal is paid back to the Seller over the term of the loan. This is also a very attractive alternative for a purchaser in that they would be assured of obtaining financing and would save on the cost of fees typically charged by an institutional lender. Customarily the Purchaser will pay the cost of the legal fees associated with drafting the mortgage and note prepared by the Seller’s attorney. The cost of such preparation should really be agreed upon under the terms of the contract if contemplated at the time the agreement was executed by the parties. The downside for the Seller is that sale proceeds incorporated into the loan principal cannot be received until the expiration of the loan term. If a Seller does not wish to tie up the sales proceeds for an unusually long time, the purchase money loan term may only be a year or two. This means the Purchaser who enters into a purchase money loan will need to refinance the mortgage at the end of this period. The attorney who represents Purchasers entering into a purchase money loan should review the proposed loan terms and ensure that the Seller will agree to assign the mortgage to a subsequent institutional lender to save mortgage recording tax utilizing a CEMA (consolidation, extension and modification agreement). Please be advised that some institutional lenders will not accept an assignment from a private lender or an individual.
What is a CEMA mortgage? Under New York State law, a borrower of mortgage loan secured by real estate can be exempt from the payment of mortgage recording tax by utilizing mortgage recording tax previously paid on account of a mortgage previously recorded against the property.
What does CEMA stand for? CEMA stands for Consolidation Extension and Modification Agreement. It is a document that modifies the terms of a mortgage recorded against a property and under certain circumstances merges it with another mortgage recorded against the same property to form a single consolidated mortgage to secure a loan. This can be utilized when refinancing a mortgage or under certain circumstances when purchasing a house, townhouse, commercial building or condominium unit.
How does a CEMA work? A CEMA most commonly works by combining the unpaid principal balance of a mortgage loan recorded against a property (commonly called “old money”) by assignment with a new money mortgage and note representing any additional loan proceeds advanced by a lender (commonly called “New Money”) to form a consolidated mortgage and note equaling the total combined amount being loaned by a lender.
Example: As for an example for a total loan amount of $200,000, the unpaid principal balance of an existing recorded mortgage held by Lender “X” in the amount of $125,000 (Old Money) is assigned (with its note) to Lender “Y”. The borrower will execute a mortgage and note to Lender “Y” representing the additional money advanced in the amount of $75,000 (New Money). Both sets of notes and mortgages ($125,000 and $75,000) are consolidated under the CEMA to form a consolidated mortgage and note to Lender “Y” totaling $200,000. The borrower will pay the mortgage recording tax on the New Money but will be exempt from paying the mortgage recording tax previously paid as a result of the recording of the Old Money Mortgage.
Why doesn’t everyone utilize a CEMA? When considering whether or not to use a CEMA, a borrower needs to weigh the cost of processing a CEMA mortgage with the savings resulting from its use. Many lenders will charge an assignment fee in exchange for signing an assignment of a mortgage as part of a purchase or refinance transaction. Banks will also charge document preparation, processing and legal fees when attempting a CEMA loan transaction. Lenders are not required to assign their mortgage and may refuse to issue such an assignment. Lenders are not required to participate in a CEMA mortgage or accept an assignment when lending money to its borrowers. This is particularly true when the Old Money Lender is a private corporation or individual.
You should consult with your mortgage professional and/or attorney when deciding to use a CEMA mortgage. If the savings on mortgage recording tax exceed the costs of processing a CEMA mortgage, the decision to use one is easy.
I received an email from Stewart Title Insurance Company concerning a bill that was recently signed into a law to allow borrowers in a foreclosure proceeding access to legal representation by providing that mortgage agreements which allow a prevailing lender to recover attorneys fees in a foreclosure proceeding shall be read to allow prevailing borrowers to recover attorneys fees as well, thereby enabling borrowers with meritorious defenses to foreclosure to obtain the legal representation necessary to assert those defenses, similar to the reciprocal attorneys fees rights given tenants by Real Property Law Section 234.
It takes effect 60 days after it becomes a law (December 20, 2010) and apply to all real property mortgages that are in existence on or after such date to all actions and proceedings
commenced on or after such date.
The effect of this law could be to cause banks who are foreclosing to think twice before advancing an action where the loan was improperly underwritten. This in turn may prompt banks to settle foreclosure suits where they not only risk being unable to collect on their loan but be responsible for a borrower’s legal fees as well.
The real estate economy is slowly picking up encouraged by an abundance of condominium units on the market, Sellers motivated to move them, historically low mortgage interest rates and the first time home buyer tax credit due to expire (unless extended) at the end of April, 2010. I feel the need to revisit certain items of due diligence a prospective purchaser must look at when buying a condo.
As posted on this blog on September 17, 2007: There are currently a great number of sponsor sold condominium units in the New York City market place. A sponsor is the person or entity who is developing a building as a condominium (or cooperative). Like everything else, there are condominium developments that have been built well and others that have been built poorly. Prior to entering into contract, the offering plan and all amendments should be reviewed. The offering plan is a full disclosure of a project to the public that is filed through the New York State Attorney General’s Office. The offering plan lists the name of the sponsor of a condominium building, its principals and other developments built by them. Research the names of the principals and their other developments on the internet. You may find references to any of the above and if the buildings and the units are built well or poorly. Even if the price is right, the carrying charges low and the location of the building prime, you do not want to invest in a building or unit that is poorly constructed. It is more likely that you will have problems in the future. Even if a warranty is given by the Sponsor, if a history of poorly constructed buildings exists, you may still need to go to court to enforce your warranty behind other disgruntled purchasers.
Another thing a potential purchaser of a condominium unit can do is speak with the current occupants of a condominium building. Unlike real estate brokers who have an underlying motivation to sell a condo unit, an existing owner of a condo unit in a building typically does not have an agenda to hide the truth from anyone who asks. People love to complain. If there are problems you will hear about it. I would ask more than one person just to make sure that the complaint spoken of, is not the exception and but the rule. One complaining unit owner may have a particular set of circumstances that do not necessarily apply to the entire condominium building and taint one’s decision to buy.
It may be beneficial for the prospective purchaser of a condominium unit (whether a resale or a Sponsor sold-newly constructed Unit) to engage the services of an engineer or home inspector before purchasing a condominium unit. It is not only good to know what the physical condition of the unit you are purchasing, but it is important to know the overall condition of the condominium building. The need for repairs to the common elements and infrastructure of a condominium building may result in unplanned assessments that may not fit into a prospective purchaser’s budget.
One of the things prospective purchasers need to look at is the number of the units in a particular condominium building that are sold or in contract. If the number of unsold units is too great, banks will refuse to give mortgages in that particular building and prevent a person from buying a unit in a building despite good credit. Some developments are able to get a building “pre-approved” by a particular lender and may even require a purchaser obtain a pre-approval letter from a particular lender who has already consented to providing mortgages in a particular building.
I came across a recent New York Times article written by Elizabeth Harris that highlighted certain things a prospective purchaser must look at prior to signing on the dotted line. I thought it was informative and encourage you to read it.
I do not do this very often but I will tell you that I have worked a number of times with Tom Le of the Corcoran Group who was quoted in the article. I have found him to be very knowledgeable in the field of condominiums. He is a very savvy customer orientated broker. All of my clients who have used him (developer and consumer alike) have been very happy with the services provided.
Obama’s loan modification plan, which has so far granted permanent mortgage payment adjustments to only a small fraction of those who received temporary relief, may soon get a boost. The administration is expected to announce a new initiative today that will help make more of that aid a long-term fix for troubled borrowers. The new additions to the $75 billion plan, which launched in April, include partnerships with organizations to offer homeowners assistance and a push for more transparency from loan servicers. In an effort to stave off rising foreclosures and to get more temporary modification recipients into permanent plans, the administration also recently loosened its requirements for documentation, which some said were hindering the process. [CNN Money]
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