Financing: Contracts, Provisions, and Contingencies! (part 2)
Insights from Neil Kalin of C.A.R. Member Legal
Wednesday, April 11, 2018
10:00 a.m. – 11:00 a.m.
mortgage.car.org
(213) 739-8383
HTTP://Financeworkshops.car.org
For a full recording of webinar
Speaker slide deck
Speaker bios
www.car.org/knowledge/webinars/financehelpline
Mortgage Rescue fka Finance Helpline B2B Webinar:
Financing: Contracts, Provisions, and Contingencies!
6
Neil Kalin
Assistant General Counsel
CALIFORNIA ASSOCIATION of
REALTORS®
Marc Farfel
Lender Liaison
CALIFORNIA ASSOCIATION of
REALTORS®
Nathaniel Osollo
ZipForm® Product Coordinator
CALIFORNIA ASSOCIATION of
REALTORS®
Agenda
• Addendum & Advisories (Short Sale Amendment SSA) (RPA 5A)
• Government Requirements & Retrofit (RPA 7B)
• Escrow and Title & Other Costs Private Transfer Fee (RPA 7C(1&2) &7D(7))
• Items Included In & Excluded From Sale (RPA 8B)
• Closing & Possession (RPA 9A, B, C, D)
• Statutory & Other (FLD & ESD) (RPA 10A(1,4))
• Condominium & Planned Development (SPQ, ESD) (RPA 10F)
• Condition of Property (RPA 11)
Agenda (cont’d)
• Buyer Investigation of Property (RPA 12B)
• Title and Vesting (RPA 13B & 13D)
• Close of Escrow Extension of Time Addendum (RPA 14G)
• Repairs (RPA 16)
• Supplemental Property Tax Bill (SPT) (RPA 17)
• Broker Compensation (RPA 18A)
• Representative Capacity (RCSD, RCSD-B) (RPA 19)
• Liquidated Damages (RPA 21B)
• Assignment of Agreement Addendum (AOAA) (RPA 26)
Lender–Related Contract Clauses, Vol. II
How terms in the buyer-seller agreement (RPA) (pp. 2-10) can impact the buyer-lender relationship.
Neil Kalin Assistant General Counsel, California Association of REALTORS®
Addendum and Advisories, Short Sale Addendum
• Even though buyer contingencies and acceptance date delayed until Short Sale lender approval, prequal or preapproval letters due as specified in contract Default is 3 days after (seller) acceptance
• Closing date not established until S.S. lender approval
• Price could change depending on S.S. lender approval
• Closing date:
– Covenant to buyer and seller
– Seems like an aspiration to S.S. lender
x
Government Requirements and Retrofit
• Carbon monoxide device installation
– Requirement of ownership, not point of sale
– Anecdotally, many lenders make this an underwriting requirement
• (related issue)Water conserving plumbing fixtures – Requirement of ownership, not point of sale, pre-1994 only
– Anecdotally, most lenders ignoring
• Query … as between CO detector and plumbing, which one affects value of property?
Escrow and Title, Private Transfer Fees
• Payment needs to be consistent between loan estimate and closing disclosure
• Buyer-paid fees may impact underwriting
• Is lender policy included within owner’s policy?
• FNMA, FHLMC and FHA restrictions on PTFs
Items Included in Sale
• Too much high value personal property may affect lender valuation of real property
• Buyer assuming lease payments may effect buyer qualification for loan
• Liens, such as PACE or similar, have issues re: ability to subordinate, – GSE right to loan
– FHA to treat as property tax, escrow funds if required for property taxes
Closing and Possession
• Default is buyer occupancy as principal residence. [ ] for other.
• If seller to remain, how long before lender will not consider to be an owner-occupied property? Does any of this affect owner’s insurance?
• What about 2nd home? Vacation home? What if rented when owner is away? How long before lender will not consider to be an owner-occupied property? Effect on insurance?
• If tenant occupancy, is rental necessary to be considered as part of buyer’s income to qualify for loan? What if below market but not in rent control?
Statutory and Other Disclosures
• Some lenders ask for copies of TDS, SPQ, ESD, Subsequent disclosures
• If so, under what authority? If so, what if copies not provided?
• If in earthquake, fire or flood zone, lender additional insurance requirements
Condominium / Planned Development
• Does lender require a HOA certification? – % owner-occupied
– % rental
• Impact of dues on buyer income qualification for loan
• What if HOA provided documentation reveal litigation?
Condition of Property
• Seller not obligated to repair existing defects. May conflict with lender requirements, especially FHA or VA.
• Buyer should be careful about removing loan contingency before finding out if seller will agree to make repairs – Appraisal contingency default is 17 days
– Inspection contingency default is 17 days
– Loan contingency default is 21 days
• If agreement is other than repairs, disclose to lender – Credit (RPA paragraph 3J(5))
– Reduction in purchase price
– Delayed close of escrow to accommodate need to repair
Buyer Investigation of Property
• Like the seller disclosure potential requirement, does lender require buyer to provide copies of buyer investigations?
• If so, under what authority? If so, what if copies not provided?
• If buyer asks seller to take care of pest control (termite) pursuant after an inspection made, does lender require delivery of RR or RRRR form?
Title and Vesting
• Monetary liens paid, others stay
• If lender objects, buyer needs to negotiate. Is loan contingency still in place? Title contingency won’t help.
• Vesting is not for agent to decide. If entity, is contract in entity name? Has entity been formed? Who has authority to sign?
Close of Escrow, Extension of Time Addendum
• Either Buyer or Seller can give a Demand to Close Escrow
• If lender delayed because of Closing Disclosure, underwriting, or any other reason, Buyer can ask for extension. – If Seller responds with a DCE, Buyer has 3 days to perform.
Repairs, Prorations of Property Taxes
• Question: Do lenders ever ask for proof of compliance for repairs? Buyer entitled to proof from seller.
• If taxes not paid, lender can foreclose
• C.A.R. forms SPT, and SBSA, paragraph 48
Broker Compensation
• Rare that buyer pays compensation … but …
• With different brokerage models appearing all the time …
• If buyer does pay, will lender include compensation in the loan amount? Hmmm.
Representative Capacity
• If an entity or trust, then signer is not the principal.
• Who has the authority to sign is critical and proof required.
• If change during escrow from named buyer to another, should use an assignment.
• Lender may have to start loan process over if change to entity. Could cause delay. Important to keep status of contingencies.
Liquidated Damages (Bonus clause – not really lender related)
• Possession paragraph 9, states buyer to occupy as primary residence.
• Liquidated damages paragraph, 21B, limits deposit to 3% if buyer intends to occupy – does not state as principal residence.
• 21B could apply limit for second homes or vacation homes. Depends on definition of occupy. Is intent occupy or rental?
Assignment
• No assignment without seller’s consent – Can seller refuse? Does assignment put seller or transaction at risk?
• Original buyer still contractually liable
• Assignee should receive all documents
• May need not only assignment form but also RCSD if assignee an entity
Time Limits – Checklists and Reminders in zipForm® Plus
• Set reminders • Receive notifications • Inside any Transaction
Different Lenders Require Different Material – Share Data Securely with zipCommunity™
• Password protected • Customize sharing • Great for Co-Agents
In Summary – Keep in Mind or Take Aways
KEY Financing Items on RPA: • Addendum & Advisories(Short Sale (SSA) (RPA 5A) • Government Requirements & Retrofit (RPA 7B) • Escrow and Title (RPA 7C(1&2)) • Other Costs Private Transfer Fee (RPA 7D(7)) • Items Included In & Excluded From Sale (RPA 8B) • Closing & Possession (RPA 9A, B, C, D) • Statutory & Other (FLD & ESD) (RPA 10A(1,4)) • Condo & Planned Development (SPQ, ESD) (RPA 10F) • Condition of Property (RPA 11) • Buyer Investigation of Property (RPA 12B) • Title and Vesting (RPA 13B & 13D) • Close of Escrow Extension of Time Addendum (RPA 14G) • Repairs (RPA 16) • Supplemental Property Tax Bill (SPT) (RPA 17) • Broker Compensation (RPA 18A) • Representative Capacity (RCSD, RCSD-B) (RPA 19) • Liquidated Damages (RPA 21B) • Assignment of Agreement Addendum (AOAA) (RPA 26)
REALTOR® Resources:
•Mortgage Rescue • mortgage.car.org • Lender Resources • Automated FHL-AIBot • Mortgage Assistance
• Legal Resources • ZipFormPlus • Legal Hotline • Legal Q & A’s • Disclosures AI Bot
Questions? Webinar recording and slides will be posted on
www.car.org/knowledge/webinars/financehelpline
financeworkshops.car.org
If your question did not get answered, email [email protected]
29
Financial Literacy Boot Camp - Save the Date!
STEPS Towards Home Ownership
Mortgage RescueTM & Freddie Mac in Your Local Area
Thursday, April 24th 11am – 2pm – SRCAR Murrieta
Thursday, May 10th 11am – 2pm – CVAR Glendora
Thursday, June 7th 11am – 2pm – OBCAR Berkley
Thursday, TBD 11am – 2pm – Bakersfield or W. Los Angeles
Save the Date!
Upcoming Mortgage RescueTM fka Finance Helpline B2B Webinars
Thursday, April 19th 10am – 11am – ZipTMS Transaction & Finance Management (tentative)
Tuesday, May 1st 12pm – 1pm - CalHFA Live from Spring Business Meetings (tentative)
Wednesday, May 23rd 10am – 11am - Valuation part 2 - Creating an Actual Appraisal Valuation (tentative)
