Everyone who has ever closed a
real estate transaction knows that the number of documents
that must be signed at the closing table is enormous – I
refer to this as the “Mortgage Document Deluge”. A major
purpose of this series of articles is to help borrowers cope
with the deluge. Borrowers need to know
which
documents in the pile deserve their attention, and
when
that attention is needed.
To help answer those questions, I divide the document package the borrower receives into 4 groups that call for different treatment, as follows
-
Junk documents
-
Educational documents
-
Future use documents
-
Transactional documents (which changed with the new TRID rules)
Only the last group requires the borrower’s careful scrutiny
immediately before or at the closing; I will discuss
specifics of the transactional documents in Part 4 of this
series.
This article is directed to junk documents, which is the
largest category and the least important to borrowers. Many
are merely acknowledgements that a disclosure that the law
requires lenders to provide has in fact been provided. Here
is my current junk list:
Servicing Disclosure: In
the mortgage system of the US, borrowers can choose the
lender who originates their loan but they can’t choose the
lender who services it. In this disclosure, you acknowledge
that you have been told this fact of life. Sign and go on.
Name Affidavit: You acknowledge that you are who you say you are.
Mortgage/Deed of Trust: This
is a long document that details the terms of the lien that
the lender has on your property, and your obligations in
connection with the lien, such as maintaining your
homeowner’s insurance and paying the property taxes. Much of
this document reflects statutory provisions of the state in
which the property is located. This includes remedies
available to the lender in the event that you default on
your payment obligations.
The matters contained in this disclosure are important and I
considered classifying it as educational. I finally placed
it in junk, however, because it is unimportant to the great
majority of borrowers who meet their obligations.
ARM Rider: Repeats
information in the note.
Appraisal Report Disclosure: This
document acknowledges receipt of the appraisal report.
Attorney Selection Notice: This
document acknowledges that you have been advised of your
right to have an attorney at the closing.
Authorization to Release
Information: This
document authorizes the lender to obtain information from
third parties, such as banks and employers, for the purpose
of verifying the information you have provided.
Consumer Privacy Policy Notice: This
document performs much the same function, indicating the
types of information about you that the lender can disclose,
and to whom it may be disclosed.
Fair Credit Reporting Act Notice: This
document acknowledges that if you are delinquent or default
on your payment, the lender will report it to a credit
bureau.
Equal Credit Opportunity Act
Notice: This document
requires you to acknowledge that you have been informed a)
that the lender cannot discriminate against you on the basis
of race, color, religion, and so on, and b) where to go to
report violations.
Tangible Net Benefit Worksheet: Some
states require that on a refinance transaction, the lender
must document that the borrower receives a net tangible
benefit from the transaction. Some lenders elect to provide
such assurance even if not required by law. The borrower
must acknowledge receipt of the document attesting to the
benefit.
IRS Forms W-9 and 4506-T: These
documents certify that you are a taxpayer, and authorize the
lender to look at your tax returns to verify your income.
Lenders are likely to require these documents from
self-employed borrowers, less likely to require them from
salaried borrowers with employers who can document
their income.
Escrow Account Waiver: Standard
industry practice is to create an escrow account in the
borrower’s name when the loan is originated, out of which
the servicing lender pays the property taxes and homeowners
insurance premiums when they come due. The monthly payment
includes an amount needed to fund the escrow account
adequately. Borrowers who prefer to manage their taxes and
insurance on their own can pay a fee to waive this
requirement. Those that do will receive this document, which
has them acknowledge responsibility for making the payments
themselves, and the consequences if they don’t.
While no two document packages are exactly alike, you should
have no trouble identifying junk documents in your package
that are not in mine. Weeding out the junk documents will
cut your document pile roughly in half.
Next week I will review the next two categories of
documents: educational and future use documents.
