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Visit http://www.gocondo.nyc for a free copy of my book, “How to buy a condo in NYC” in exchange for an honest review on Amazon. – Thanks
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 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.
It depends on your comfort level. The reason why you get an inspector when purchasing a coop or a condo is to try to determine, not only the current physical condition of the unit but also the general condition of the building’s structure, mechanical systems and common area. Problems with any of which, could potentially lead to future increases in monthly common charges/maintenance or assessments. These issues may not come up when reviewing the minutes of the board (if a cooperative) and may not be in the offering plan if not the initial offering from the building’s sponsor. Even then, you never know. If you decide to forego an inspection, assume a worst case scenario when contemplating to buy a unit. Even then, you can never anticipate everything.
I admit it. I’m a sucker for watching those shows where people buy properties in different places around the world. It can be in any country. Alaska, Hawaii or the Caribbean. It doesn’t matter. I’m not picky. I have to watch it. It’s not only limited to television nor does it have to be very exotic or far away. It can be another town or another block. If I am in an area that I am not familiar with, I often will take a side trip or purposely get lost, just to see houses. One of my closest friends lives in a very affluent area located on the North Shore of Long Island. The road to go to his house is very winding and passes a number of huge beautiful Victorian homes and large estates. I find myself (much to my wife Laura’s angst) drifting to one side of the road or the other to get a better look. She does’t let me drive there anymore. If there is a private road leading to some mysterious grand estate, I have to become “lost” trying to find a through street. Especially if there is a sign that says “PRIVATE”. How dare they keep me from seeing what is in there. I know, I have a problem.
It is not that I’m unhappy what I have or where I live. I am quite happy where I live and with the house I live in. Realistically, I have absolutely no use for a house with 8 bedrooms and 5 bathrooms. Nor does anyone in my family want to clean them. Whether or not I want it, my wife is a grounding force. On more than one occasion I have heard to the effect, “no Phil we do not need a house with a boat slip”. I don’t own a boat. In the back of my head I am thinking “but I might get a boat”. As I sit here writing, I am trying to figure out why I do this. I don’t get the sense I am jealous or want what other people have. I am quite happy for friends and family who may have a larger house or a more expensive car.
I think it’s what houses/homes/real estate represents. When I was younger, (not that long ago) I guess owning property represented financial security, wealth, continuity and permanency. Growing up, our family moved a lot. As a child, I daydreamed about owning office buildings and maybe even my very own island some day. . . My wife still kids me about the island. As I got older, the need and desire developed a sense of urgency as I needed a home of my own to raise a family. I got the house but that need for continuity continued as I often thought about buying a building to have an office to run a law practice. While traveling, my family often heard the phrase “that building would be a great place for a law office”. Over the years, law school loans, mortgages and college tuition tempered my motivation to get that building. Now that I am planning for my golden years (very far off in the future), my thoughts have once again turned to real estate as a way in which to provide investments as a means to generate income in which to retire. There is a good chance that social security may not be a viable option when the need for it comes. I don’t see me receiving the same kinds of returns from the stock market or lotto as I could get from real estate.
I guess I practice real estate law because of what real estate means to me. That paired with the sense of accomplishment and satisfaction I feel when I put together (and close, most of the time) a complicated transaction or the purchase of a person’s first home. There is a feeling of pride that I have provided my clients (with what I hope is) a valuable service in achieving their goals and/or dreams. Very similar to the ones I’ve had throughout my life.
My Mom was a real estate broker back in the 80’s. A prospective buyer, whom she met at her office, tied her up and placed her in the closet of a house she was showing after taking the ring off her finger. We later found out that there was a rash of similar robberies where the agent was shot after being tied up and robbed. My Mother was lucky. Maybe if an agent sees this video, they can avoid being robbed.
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.
I recently represented a couple at a closing of the purchase of a cooperative apartment. My clients are legally married but have different last names. The attorney, representing the Cooperative Corporation who was issuing the new proprietary lease and stock certificate (evidencing ownership of the apartment) presented the stock certificate for review and the proprietary lease for signature. Upon review, the documents indicated that title was being taken by my clients as “Joint Tenants with the Rights of Survivorship”. I requested that ownership to the apartment be taken as “Tenants-By-The-Entirety”. Both forms of title, upon the death of an owner, provide the surviving owner the absolute right to receive title to the entire apartment. The coop attorney was annoyed that I was requesting that he make this change. After unsuccessfully bluffing that there was a “recent change in the law” he questioned the significance of a married couple taking title to a coop apartment as Tenants-By-The-Entirety rather than Joint Tenants with the Rights of Survivorship.
Under a Tenancy-By-The-Entirety, married spouses (and who remain married) are viewed as a single person each owning an undivided 100% ownership (and a right of survivorship) that cannot be diminished by the other tenant or a creditor. What this means is while a creditor of one Tenant-By-The Entirety can obtain a lien on that spouse’s interest in the apartment, the lien will only survive if that particular spouse is the surviving spouse. If the debtor/tenant dies prior to his or her spouse, the creditor’s interest in the apartment is extinguished and the surviving spouse takes the apartment free of all liens. Married couples who take title as “Tenants-By-the-Entirety” prevent creditors from reaching, attaching and possibly selling the joint marital property. Similarly, New York cases have held that a receiver in bankruptcy cannot reach or sever ownership when it is by the entirety.
A Joint Tenancy with the Right of Survivorship is subject to actions of the Bankruptcy Court, the possible attachment and sale of a joint tenant’s interest. A joint tenant can transfer their ownership interest without the other tenant’s consent, which may interfere with any estate planning in place.
Tenants-By-the-Entirety who divorce automatically change their ownership to Tenants In Common.
Joint Tenants with the Rights of Survivorship who wish to change title in an apartment to a Tenancy-By-the-Entirety may have to get permission of the Coop and any lender using the apartment as collateral.
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.