Today I'm wrapping up refinancing for my Florida house. I've done lots of closings in person, a few mail closings and today is my first online closing. You can laugh but I'm actually excited. As I review and sign-off on each document, it's the perfect time to document the title and purpose. This will help prepare you for your closing. It's important because the mortgage closing paperwork can be 100 pages or more. Most home buyers never read anything except the numbers … but I do, and so should you!
Lots of the paperwork is administrative gobbledygook, really. It feels like every time there's a legal issue, they add another piece of paper to the package. The craziest one I can recall is when we sold a Florida condo purchased for my husband's parents. We had to sign a page stating we had remained married for the life of the mortgage, really.
The worst example of mortgage industry bullying occurred with our first house. The bank wanted me to sign a paper that said “My name is Tina “husband's last name”, as I am married to my husband. I refused, as no bank was going to tell me what my name was, never! The woman at the title company spent a half hour on the phone negotiating with the bank. They finally allowed her to XXXXX over the statement about a fictitious name. The document I signed said “… I, “my name” am married to “husband's name.”
Here's a summary of my mortgage closing paperwork, so you can click over to the information you need:
- Mortgage Closing Logistics & Financial Summary – 4 documents; 9 pages; 2 eSign (online signatures) and the numbers!
- Mortgage “Note” to Secure Your Loan – 1 document, 3 pages and 1 ink (wet) signature.
- Mortgage Closing Paperwork – The Mortgage – 1 document; 15 pages and an ink signature.
- Mortgage Closing Paperwork – Lots of Little Details – 25 documents; 56 pages plus 13 eSign / 9 ink signatures
It makes sense that the mortgage closing paperwork start with directions and the thing most home buyers want to know … the numbers!
Notary Signing Instructions (1 pg) – meant primarily for the notary (she's coming at 1pm), it explains special rules for closings that involve a trust, power of attorney (my husband and I started taking turns covering closings) and non-borrowing (spouse not on mortgage) persons.
Key Points for a Faster and Smoother eClosing Experience (1 pg) – explains that the closing includes both eSign documents plus documents “that are legally required to be physically (ink) signed. For example, the promissory note and your mortgage or Deed of Trust.
Closing Disclosure (5 pgs and eSign)- the numbers! Hopefully you've already reviewed these pages which contain all the financial information about your loan. By law you should have received the final numbers at least 3 days before the closing. That's when you want to study them and make sure you agree with the numbers.
Focus on the second page, the “Closing Cost Details”. These can be confusing until you figure out that the total for each section is on top versus below the figures being totaled. For this closing (after 20+ personal closings), I had two surprises so you ought to expect them.
- Lower refi amount (lazy appraiser story coming) – was reflected with lower government fees which are based on the mortgage amount.
- Higher payout to old servicer – which I questioned several days ago. This is the first time I've seen a payout document, asking for another 20 days of interest past the closing date. The short answer is most of this money will be refunded after closing. The longer answer is explained in detail in this article, Signing Your Mortgage Does Not Close the Loan.
Notice Concerning the Furnishing of Negative Information to Consumer Reporting Agency (1 pg, eSign) – explains the reasons why the lender will report negative information about your loan payments.
In addition to confirming you understand and agree with the financial figures, the two most important documents in the mortgage closing paperwork package are the promissory note and the mortgage. This made me wonder why there were two separate documents.
- Promissory note – has the financial details for the loan's repayment, like interest rate and method of payment. The note is not recorded in the county records. The lender holds the promissory note while the loan is outstanding, returning it to the borrower when the loan is paid in full.
- Mortgage – documents the procedures that will be followed if the borrower fails to repay the loan on the required schedule. Mortgages are recorded in the county land records, along with transfer taxes and recording fees.
Note (3 pgs, ink signature) – is your borrower promise to pay. It covers interest rate, time and place of payments, borrower's right to repay (there was a prepayment penalty when I bought my first house), actions on failure to make payments, several administrative topics related to non-payment and “documentary tax” seal to be added when this note is filed and state taxes paid.
Mortgage (15 pgs) – prepared by the lender but all they're doing is filling in the blanks, really.
Remember how I mentioned above that my loan will be sold off within a week. The primary purchasers of conforming home loans are two United States government-sponsored enterprises, Fannie Mae and Freddie Mac. The main difference between the two is Fannie mostly buys mortgages from commercial banks like Bank of America. Freddie Mac typically buys loans from smaller banks, often called thrift banks (learn more about the 9 types of financial institutions).. I recently wrote an article on forbearance (click for links to see who holds your mortgage) and discovered my current loan is held by Freddie Mac.
Why should you care? Just look at the bottom of your mortgage document. My footer reads “FLORIDA – Single Family – Fannie Mae/Freddie Mac UNIFORM INSTRUMENT – MERS”. This means your lender merely filled in the blanks. You should still scan the document to make sure you're aware of all the potential problems you might run into over the life of your mortgage. It's really hard to learn what's important in the middle of a crisis like the current Covid-19 pandemic. Fortunately your congressional representatives took care of homeowners with the CARES Act.
If you're just scanning the stack of mortgage paperwork in front of you, you might skip this section. The idea is to familiarize you with words that will appear in your mortgage. The definitions are always adequate so grab your handy dictionary if you truly want to build up your vocabulary (lesson learned doing homeschooling – Google misses a lot in their short phrase definitions). I also like my Nolo's book, Buying Your First Home. But guess what, with an 18 page index, it didn't have security instrument (see below).
Mortgage Definitions (2 pgs) … to be continued as a separate article, because it's hard to review mortgage closing paperwork if you don't understand the words you're reading.
- Security instrument – laughing now as all it says is “this document dated ___, together with all Riders to this document.” With some digging, I learned that a security instrument is a legal document giving a lender a security interest in the property. Typically it's a mortgage that gives the lender a lien on the property.
- Borrower – is Tina Gleisner, a single woman. Yes, recently divorced I am amused/annoyed at how we have to be labeled beyond our name. For many years I also had to argue that my name appear first as I always managed family finances, did the paperwork and my husband simply signed as needed.
- MERS – is Mortgage Electronic Registration Systems, Inc. We the borrowers, get to pay $11.95, so the industry can keep track of our mortgage as the lender sells the loan and serving rights to other companies. Seems like it should be their expense, not ours?
- Lender – is a Kansas bank … for about a week, LOL!
- Note – is the promissory note as previously documented.
In your mortgage closing paperwork (40+ documents) is the mortgage, the most important document. It's long and difficult to understand unless you're a mortgage broker or real estate attorney. Here are the most interesting items that homeowners should be aware of. Most I already knew but there were a few new ones because of new experiences I've had, like a flooded house.
- Transfer of rights in the property – was interesting because this refinancing is being done to capture the improvements recently made to the house. From the mortgage document, the mortgage covers the property with “… all the improvements now or hereafter erected on the property, and all easements, appurtenances, and fixtures now or hereafter a part of the property.” Granted it's not easy to take your kitchen cabinets with you but I often taken light fixtures to my next house, replacing them with inexpensive fixtures before listing the house.
- Uniform covenants – deal with handling of bounced checks, sequence in which payments are applied and that's important. If you ignore a late charge, there will likely be repercussions you don't understand or like. Escrow used to be optional. Now it's almost mandatory with absurd requirements like sending in documentation proving you paid your property taxes, if you don't escrow taxes and insurance.
- Charges – refer to liens on the property and your responsibility to remove them. The most common are mechanics liens if you have work done at your home and fail to pay the contractors.
- Property insurance – is where my problem started regarding flood insurance. The lender has the right to require insurance it deems necessary to protect it's asset (your home).
- They claimed I needed flood insurance a few months after closing. The FEMA process I had to follow to get documentation to rebut their claim can take up to three months (read: Flood Insurance Nightmare).
- More interesting/frustrating is when you have an insurance claim like mine, they add more hurdles to getting your house back to pre-loss condition. One lender said they had to pay all bills but I had to gather/send them all the documentation … really. The second loan servicer distributed the insurance disbursements – it was crazy.
- Occupancy – is important to understand. If you said the house is your primary residence, you must occupy within 60 days and live in the house “… for at least one year after the date of occupancy, unless Lender otherwise agrees in writing.” I'm laughing now as here's what my house looked like six months after I moved in last year.
- Preservation, maintenance and protection of the property – seems logical but some homeowners do little/no home maintenance. Owning a handyman business, I've had to explain to numerous homeowners why the insurance company may inspect their home before renewing a policy. So this time, I'm now reading that your lender/loan servicer has the same right.
- Borrower's loan application – must be truthful or you could be found in default and lose your house.
- Protection of lender's interest in the property and rights, under this security instrument – addresses lots of scary things like bankruptcy, probate, condemnation … things we hope you never experience. The significance here is any expenses the lender pays to protect this asset will become additional debt.
- Mortgage insurance – is paid by homeowners unable to make a down payment of 20%. The insurance is meant to cover losses if the borrower doesn't repay their loan. Last year I purposely put down 10% knowing that within 60 to 90 days, I would be investing another 15 to 20 percent in the house. My original plan was to get a new appraisal documenting the added value to prove 20 or 22% equity (learn more about private mortgage insurance or PMI).
- Assignment of miscellaneous proceeds: forfeitures – deals with property that is abandoned or damaged to a point where it cannot be restored with available funds. This language is for a lawyer who at this point, would be helping you deal with your insurance company.
- Borrower not released; forbearance by lender not a waiver – explains that a delay in payments known as forbearance, does not release the borrower from all the conditions of this mortgage.
- Joint and several liability; co-signers; successors and assigns bound – Basically it says if there are co-borrowers, if one defaults the other borrower(s) are responsible for all conditions of the mortgage. I'm sure there's more here but I'd need help from a lawyer to explain more.
- Loan charges – gives the lender/loan servicer the right to “charge borrower fees for services performed in connection with borrower's default”.
- Notices – documents that either party must communicate in writing/snail mail. Important if you're using a different mailing address from your home, “The notice address shall be the property address unless borrower has designated a substitute notice address.” This was an issue when my house flooded and the insurance company wasn't mailed things to my post office box as requested.
- Governing law; severability; rules of construction – indicates that federal and state laws apply.
- Borrower's copy – says you'll be given one copy of the note and this security instrument/mortgage.
- Transfer of the property or a beneficial interest in borrower – explains you have to get lender's written consent to transfer ownership.
- Borrower's right to reinstate after acceleration – … sorry but I'm not clear what the purpose of this section is.
- Sale of note; change of loan servicer; notice of grievance – this lays out in print how crazy the mortgage business has become:
- Note can be sold one or more times without prior notice to borrower.
- When note sold, the loan service who collects periodic payments can change.
- The loan servicer can change one/more times unrelated to a sale of the underlying note.
These things really happen. Last year my loan was sold within one week. Whether my first loan servicer, Cenlar, came with the sale is unclear but it happened within a few weeks. Six months later, Cenlar passed loan servicing off to Nationstar. Three changes in less than nine months!
- Hazardous substances – should be obvious, that borrowers can not allow the presence, use, disposal or storage of hazardous substances on their property.
- Acceleration; remedies – deals with process and timeframe for foreclosure proceedings.
- Release – commits lender to releasing this security instrument. It also says they can charge a fee for this, ridiculous! Please be aware that it's not unusual for lenders to drop the ball on this critical step in the mortgage process. Make sure you get a copy of the release within 30 days or start calling. Chasing down a bank several years after the fact, when names and ownership have changed is a nightmare.
- Attorney's fees – isn't clear because I've never gone through bankruptcy and hopefully, you won't either.
- Jury trial waiver – is your agreement to waive the right to a jury trial. Now I'm wondering about small claims court to recover what Nationstar took out of my escrow account?
Ink signature on this document!
Planned Unit Development (PUD) Rider (3 pgs, ink signature) – covers your obligations to a homeowner association, and their commitments to common areas and facilities of the owner's association. Most important, it documents your commitment to pay owner assessments which for some reason, aren't held in escrow.
Borrower's Certification and Authorization (1 pg, eSign) – ugh, this one bother's me a lot because it's another hard inquiry against my credit report. You're basically authorizing the lender (hopefully not the loan servicer) to review all the information provided in your loan application. There is a time limit here of three months as I earlier refused to sign a similar document that had no time limit.
Mailing Address Certification (1 pg, ink signature) – which is good as I use a PO Box due to frequent traveling for business.
Request for Transcript of Tax Return, IRS Form 4506-T (2 pgs, ink signature) – gives permission to pull tax returns for last three years, normal.
Request for Taxpayer Identification Number and Certification, IRS W-9 (6 pgs, eSign) – required as I own a business, HomeTipsforWomen.com. That's where I explain all aspects of home ownership including things like mortgage closing paperwork, LOL!
Uniform Residential Loan Application (5 pgs, eSign) – should look familiar as this is where your loan processing started.
Information for Government Monitoring Purposes (3 pgs) – shaded, hard to read but demographic data for government analysis of homeowners.
Covid-19 Attestation (1 pg, eSign) – to confirm my income has changed from when I submitted application.
Acknowledgement of Receipt of Appraisal Report (1 pg, eSign) – received report, sent in rebuttal as you can't use 2-story houses for 1-story appraisal but this guy was lazy and couldn't be bothered finding viable comps. More to follow …
Specific Closing Instructions (4 pgs, ink signature) – used by lender to communicate requirements to the title company, including requirments for title insurance.
Federal Equal Credit Opportunity Act Notice (1 pg, eSign) – seems absurd as it simply states that lenders can't discriminate against credit applicants. The only useful information is where to send a complaint, which would go to the FDIC consumer response center.
Occupancy Declaration (1 pg, eSign) – is where you “declare” that you're going to occupy the house as your primary residence, second residence or not occupy the property, e.g. rental property which usually has a higher interest rate.
Hazard Insurance Authorization and Requirements (2 pgs, eSign) – documents the requirements for your homeowner insurance. It feels strange because you have to identify your insurance company much earlier in the process. There is also communication from the lender to the insurance company to make sure they're named so that in the event of a claim, checks include their name along with your name.
Statement of Anti-Coercion Florida (1 pg, eSign) – basically informs you that the lender cannot require you to use a particular insurance agent/company. What's interesting is how production builders offer huge ($5,000 and more) financial incentives if home buyers use their lender AND their insurance company. Wonder if that is a violation of this Florida law?
Notice of Right to Cancel (2 copies of same page, eSign) – similar to other consumer laws, let's you cancel your mortgage without cost, if done within 3 days.
Amortization Schedule (8 pgs) – a waste of paper, showing how your mortgage payments shift from mostly interest, to more principal over the years. Payment 105 (roughly 9 years into the loan) is where my principal payment is more than interest.
Borrower Consent to the Use of Tax Return Information (1 pg, eSign) – is the one page I absolutely disagree with. I also refused to sign it earlier in the mortgage process so it was wrong to tuck it into the mortgage closing papers … again! Once this article is published, the next letter will be to the CEO of NBKC explaining what I object to. Once written, I'll add as an attachment or link to separate post.
Note: I was ready to start from the beginning to sign the package without this document. This wasn't an option so trusting my mortgage guy, I let it go through. If I were signing papers, I would sign and then put a diagonal slash through the page with a note that I didn't agree. This is the dilemma of eSigning, you can only sign … or stop the process in its entirety.
USA Patriot Act Customer Identification Verification (2 pgs) – lists the different types of identification allowed to prove who you are. As a notary came to my house, I gave her copies of my drivers license and social security card).
Compliance Agreement (2 pgs, ink signature) – gives permission for the lender to adjust documents if there are clerical errors.
Initial Escrow Account Disclosure Statement (2 pgs, eSign) – is a useful timeline showing how your escrow payments will accumulate and get used to pay your property taxes and homeowner insurance (called hazard insurance). Never assume that your escrow payment will always cover these costs. If there is a shortfall, your escrow payments will increase following the annual escrow analysis. If there's too much money in your escrow account, you will get a check and probably have your escrow payments lowered.
Limited Power of Attorney (1 pg, ink signature) – gives “my agent” permission to correct clerical/typographical errors. What's bad here is they never define who the agent is and there's no time limit to the agreement. My reason for questioning this is while I trust NBKC, I have had negative experiences with loan servicer's (Cenlar and Nationstar) that took over managing my prior NBKC loan.
Name Affidavit (1 pg online, 2pgs for wet documents) – simply funny that I have to confirm that my name spelled with all caps, with or without a middle initial are all one person, namely me.
Payment Letter to Borrower (2 pgs, eSign) – simply lists the components of your monthly mortgage payment and the date of the first payment. For me it's a bit odd as I know that my property taxes are too low, so I will adjust my payments to what I know they should be. We fixed this earlier in the application process but I decided it would be easier to correct after the closing. The figures were recalculated based on Nationstar's payoff document. This reflected higher insurance costs but not the real property taxes because new houses typically pay taxes on unimproved land the first year.
Servicing Disclosure Statement (1 pg) – tells me my loan servicing will be transferred. In this case I have negotiated ahead of time such that my loan servicer is one that works closely with NBKC so if I have a problem, I can go back to my mortgage guy who's been great. If not for this commitment, I would have gone with PenFed who doesn't transfer loan servicing outside!
Signature Affidavit and AKA Statement (2 pgs, ink signatures) – mentioned earlier, these simply confirm that my name might be written different ways but I'm one and the same person.