This past year saw the residential sale market to be fairly slow, but refinancing has been hot. With the popularity of the Home Affordable Refinance Program (HARP), some of you may have already found yourself taking advantage of today’s low interest rates, while many of you may be wondering whether refinancing makes sense for you. If refinancing is on your mind, reach out to a trusted mortgage professional to explore whether you are in a position to benefit from the current low interest rates. In some cases, you may be able to reduce your interest rate considerably and knock years off of your existing mortgage at the same time.
As always when you seek financing, your income, credit score and the appraised value of your home will remain key factors. It is important to know, however, that there is more to the application process than just your direct qualifications with the lender: the state of your “title” is also significant.
When you apply for a mortgage, the lender will require an insurance policy, known as a loan policy, to be issued at closing. This policy is different than the policy obtained when you purchase a home (the owners’ policy) and it insures that the new mortgage will be in a first lien position on the property. Thus, when a refinance application is submitted, the lender will require a title search, and it is at this stage where issues, or hiccups, may arise which can surprise and inconvenience a borrower.
The title search discloses any outstanding mortgages or lines of credit against the property, and any judgments or liens against the property. Any open mortgages must be paid off, or subordinated (i.e. moved to second in line to the new mortgage), and any open judgments must be paid off at closing. The most common hiccup occurs when a borrower has paid off an old mortgage, but a satisfaction of mortgage was never recorded in the County Clerk’s office. Thus, the borrower may know the debt to be satisfied, but he will have to prove it to the title company in order to refinance.
At this point, a borrower may be forced to sift through mounds of old paperwork in order to furnish proof that the debt was satisfied. In some cases, a zero balance or “account closed” marker on a credit report may not be enough for the title company. As a result, addressing open mortgages will often prove to be a burdensome task for a borrower. This task may also be aggravated if prior lenders or title companies are no longer in business and the borrower has no entity to go to with his request for a duplicate satisfaction of mortgage. Thus, a savvy borrower should always inquire as to whether a lender, after confirming that a debt has been satisfied, has forwarded the proper documentation (either a satisfaction of mortgage or a release of lien) to the County Clerk’s office for recording. In addition, it is wise to request that a copy of same be forwarded to you, for your own records and safe-keeping, so that, if faced with the inconvenience of open mortgages, you will be in a position to furnish the appropriate documentation to the title company upon their request.
Another area where title hiccups may occur relates to vesting, i.e. how you took title. In some cases, a borrower may have taken title prior to a marriage with a maiden name but are now known by a married name. Although a new deed is often not required in these circumstances, the borrower will be required to furnish a copy of the marriage license to the title company to prove that they are, in fact, now known as the married name. At closing, the borrower should expect to have to sign with both names on some of the loan documents. Similarly, when there is a divorce or death post-ownership, a copy of a death certificate or divorce decree will often be required. Although vesting changes are often minor matters to be dealt with, it is yet another area where hiccups may occur during the refinance process.
In addition, when a borrower is refinancing a condominium or a property that is part of a home owners association, the title company will require the borrower to provide a letter from the managing agent’s office letter at closing, confirming that the borrower is up-to-date with his or her monthly common charges. Once again, this requirement goes back to the lender’s requirement for a clean, first-position loan policy. Although this, may not seem like a major inconvenience, this requirement is often not communicated to a borrower until scheduling has occurred because the letter needs to be current. Thus, it can add an element of surprise to the borrower at the end-stages of the refinance process.
In conclusion, it is helpful to understand that, throughout the refinance process, there is a whole second level of analysis that is triggered by the title search. Being aware of these common hiccups at closing may help ease the flow of the refinance process and help make the closing experience a positive one all-around.
Speak with Steve Taitz, or Christine P. Smith if you have any questions about your Real Estate closings.
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