Death and Taxes - The Blog

Countrywide: Not On Your Side

Every time I take part in a real estate closing, I'm reminded of why I rarely work in this area anymore.  Yesterday was no exception. 

An estate I represent was selling a residence in Chicago.  The closing was scheduled to begin at 1:00 p.m.  The closing ended at about 5:30 p.m.  The reason why nine people -- three attorneys, three clients, two realtors, a closing agent from First American Title -- got to spend their afternoon at a title company? The lender (Countrywide Home Loans). 

Countrywide sent a packet of loan documents to the title company, for signing by the buyers.  The buyers signed, and the title company faxed the executed documents back to the lender.  The lender's response?  Sending more documents.  And more documents.  And more documents. 

Then, once the lender had received every document they could possibly want?  Crickets -- the lender stopped returning the title company's calls.

Everything was eventually resolved.  I realize I'm tilting at windmills here -- clients choose lenders based on their interest rates, not their service on the closing day -- but it's a real annoyance.

Prepaid Interest and Real Estate Closings

In the Chicago area, there's always a rush to close real estate transactions on (or near) the last day of the month.  This rush is usually explained as resulting from the requirement that a buyer prepay interest for the month of closing.  At first glance, this makes sense -- isn't it better to close on the 31st of the month and pay one day of interest than to close on the 1st and pay thirty days of interest?  But let's look a little deeper. 

First, some background.

Mortgages are paid in arrears.  So, if you close on your new house on July 15, your first mortgage payment won't be due until September 1.  Your September 1 mortgage payment will include interest for the month of August.  Your October 1 mortgage payment will include interest for the month of September.  And so on.

"Prepaid interest" results from the fact that, under the above fact scenario, you haven't paid any interest for the period from July 15 to July 31.  You have to prepay that interest at the July 15 closing. 

However, what do you really lose by not closing at the end of a month?  Not much, really.  If you close on August 1 instead of July 31, you are paying your August interest on August 1 instead of on September 1.  There's a time value of money advantage to making this payment later, but it's fairly small -- what's the value of holding on to, say, $1,000 for an extra month?

Furthermore, consider that, if you close on August 1 instead of July 31, you won't have to make your first mortgage payment until October 1.  If your monthly payment is more than the amount of prepaid interest, it might make more financial sense to work it this way.

It's also important to think about what you gain (in a non-financial sense) by closing at some time other than the end of the month.  Most title companies are a madhouse at the end of the month -- your closing could very well be delayed.  By contrast, there tend to be very few closings scheduled at the beginning of the month, which makes for a far more pleasant experience for buyers (and their attorneys).

Thanks to the posters at the ISBA Transactional Law Discussion Group for bringing this issue to my attention.

More Thoughts on the Lender Report Card

Yesterday I presented a report card for lenders involved in two recent closings that I handled.  You may agree (or disagree) with the letter grades I gave, but the better question is: how can I use this information?

My main intention in grading lenders is to let people know that there's more to a lender than the interest rate it offers.  I think there's a tendency to believe that loans (and lenders) are fungible, and that a 5.5% loan is always better than a 5.6% loan.  That isn't necessarily so.

But part of my problem is that I am very affected by a lender's competence or lack thereof.  It can mean the difference between 1 or 2 hours spent at a closing and 5 or 6 hours spent at a closing.  Does that mean you should choose your lender to make your attorney happy?  Of course not.  Even the worst closing day may be worth it if your savings (in terms of monthly payments) are substantial. 

I think lender service (or lack thereof) is important for two reasons:

1. So that you can accurately assess the worst case scenario, and decide if you can live with it.  The 5 hour closing I recently attended was made somewhat easier because the sellers had already moved in to their new home.  But what if this hadn't been the case?  What if you were trying to sell your house in the morning and buy another house in the afternoon?  What if the funds for your purchase aren't ready in the afternoon?  Do you have to cancel movers? Do you have a place to store your stuff?  What about your family?  Bad lenders can create logistical nightmares.

2. So that you can ask tough questions of your lender before you hire them.  Questions like:

-will I work with one dedicated individual to get my loan approved?

-will one of your representatives be at the closing?

-if not, will a dedicated person be available by phone at the closing?  what is that person's name?

-when you send you loan documents to the closing, do you also send a check for the loan proceeds? if not (i.e. if you send the proceeds by wire), when is the wire sent? 

Lender Report Card

A few months ago, I wrote this open letter to lenders and mortgage brokers, explaining what I (as a buyer's attorney) need from them. 

Evidently some people didn't get the letter, as I spent much of the day on Monday (8:30 a.m. to approximately 1:30 p.m.) at what should have been a fairly simple real estate closing.  The delay was the direct result of my client's lender, Lending Tree.  For whatever reason, neither the loan proceeds nor the loan documents were at the title company when the closing began.  In fact, the loan documents didn't arrive until about 11:00 a.m, even though the closing had been confirmed well in advance, and even though the buyer and I had both asked the lender (repeatedly) if they needed anything else to close the deal (they said no).  Lending Tree offered some excuses for this delay -- computer problems, the fact that they are located on the West Coast -- but excuses don't cut it.  The buyer, the sellers, the attorneys, and the title company personnel were all inconvenienced by the lender's failure to fulfill their obligations.  Grade for this transaction: F

Another closing (held yesterday) had a far better result, because of some good work by my client's lender, Rose Mortgage.   Weeks prior to closing, they assigned a closing specialist to my client, and she did a great job of making herself available to answer questions.  There were a couple of last-minute glitches, but the closing was completed in less than 2 hours.  Grade for this transaction: B+

Slate on Mortgage Foreclosures

Slate's Daniel Gross has an interesting article about "why banks are so afraid to foreclose on you."  The article explores a number of reasons why this is so, but this quote in particular stood out to me:

"[T]he mortgage industry is working hard to avoid coming down too hard on overextended borrowers. It has... everything to do with a healthy corporate regard for self-interest, stock value, and public image."

The mention of "public image" is interesting in light of an experience I had recently. 

I am assisting in the administration of a decedent's estate -- she was survived by two adult sons (her only heirs).  After the decedent died, the lender (let's call it "The Bank That Works") decided to foreclose.  That was the lender's right under the mortgage documents, but it struck me and the two sons as unnecessary -- they were making the monthly payments on the loan (and had been since their mother's death), and were getting ready to pay it off entirely. 

I was then contacted by the bank's attorney, who told me that he was preparing to file a claim against the decedent's estate.  I indicated that this wouldn't be necessary, and asked him to hold off on doing so; after all, the bank had six months in which to file a claim, and the estate (and the bank) might be able to avoid court costs and attorney's fees if an out-of-court resolution could be reached.  The attorney agreed to wait on the filing of a claim.

The claim arrived in the mail about two weeks later.  (When I asked him about it, the attorney said he didn't recall our conversation, and stated that he had too many open files to be able to keep track of them all.)  The claim included $500 for attorney's fees.  When I told the attorney that my clients objected to paying these fees (since an out-of-court resolution could easily have been reached), the bank's attorney told me we could fight the fees in court, but that he would bill the estate for additional fees at a rate of over $200 per hour.  Frustrated, my clients then agreed to allow the claim, at which point the attorney tried to tack on an additional $200 in fees for speaking with me on the phone about this matter.

Needless to say, "The Bank That Works" shouldn't expect to get any business from me or from the decedent's sons in the future.