Wednesday, March 12, 2008

Bad closing agent! Sit! Stay!

Monday I attended a closing at one of our fine local lenders, with whom I do not have a business relationship. And now I know why.

We represented the seller. The purchase agreement said the termite inspection fee was to be paid by the buyer. The purchase agreement also said the buyer was getting a "conventional/VA" loan--whatever that is. We received a HUD-1 settlement statement from THE bank's closing agent which showed the buyer paying the termite inspection. When I got to closing, THE bank's closing agent had moved that fee from the buyer's to the seller's side of settlement statement without letting us know. That alone is merely annoying, rude, and unprofessional. I can live with that. What went beyond annoying, rude, and unprofessional was the explanation I received when I questioned this unauthorized revision. THE bank's closing agent said that since it was a VA loan, the lender would not allow the settlement statement to show the buyer paying the termite inspection fee, which is true. But then she said that the buyer would reimburse the seller directly outside of closing. Honestly, I was appalled at the ease with which this scheme was suggested. Usually, I would expect a whispered, "Psst, hey buddy, come here, I gotta talk to ya about something." She even offered to cut the checks that way from her trust account! I am pretty sure the VA does not look favorably on schemes to circumvent their rules.

I had to call shenanigans. I did. Really. I said, "Unacceptable! Mortgage fraud! RESPA fraud! Ain't gonna happen!" Except, without the exclamation points. And I don't think I used the word "ain't."

I suggested that the buyer pay the termite inspection fee directly, since he was contractually obligated to do so. THE bank's closing agent left the room, ostensibly to contemplate my refusal to engage in fraud, but more likely to disparage the jerk sitting in their closing room. THE bank's closing agent claimed that the "underwriter" said that "they" would verify with the termite inspection company that the buyer paid the fee directly. I really doubt that is true, but even assuming it was, why wouldn't "they" verify with the seller, the closing agent, the buyer, the seller's attorney, the listing agent, or the selling agent that the buyer paid the fee. I even read that portion of the settlement statement aloud to the class where it says:
I have carefully reviewed the HUD-1 Settlement Statement and to the best of my knowledge and belief, it is a true and accurate statement of all the receipts and disbursements made on my account or by me in this transaction.

This had the expected effect. "Do it our way, or we won't close." Well, I will not be coerced into committing mortgage and RESPA fraud, but apparently I can be coerced into paying a $50 to protect my clients.

Yes, I know, it was only $50. What's the big deal? The lender will never know, right? Doesn't matter. That kind of attitude is what has cause the current mortgage debacle. Fraud is not a matter of degree--an action is fraudulent or it is not. How can I allow a $50 fraud to occur, and then refuse to commit a $5,000 fraud, and a $50,000 fraud the next month, and then a $5,000,000, and pretty soon you are talking about real money there? It's a bright line, and we all know where it is. Stay on the right side of it.


Doug Miller said...

I feel your pain. Next time consider threatening to move the closing to another title company. More often though the purchase agreement requires the Seller to pay those fees in the VA financing addendum. If not, then whomever drafted that contract is probably at fault.

Either way, if you want the title company to cooperate, get on the phone in the closing room to a competitor and ask them how fast they could do an emergency closing. You'll be surprised how fast the current company will eat the $50.

Diane Cipa said...

Great post. Thank you for standing your ground. What a travesty that truth can't simply be faced at the time of the sales agreement. The VA has had this rule for the entire of the 30 years I have been in the business. The veteran cannot pay for the termite report. WHY? Who cares, it's THE RULE. How about dealing with it up front? The mortgage lender should train its personnel to amend the contract when they originate a VA mortgage. It's not too hard. Instead, WAY TOO many mortgage lenders rely upon the tried and true method of fraud at the table.

In my mind, like yours, fraud is a bright line onver which I do not cross. Mortgage lenders who permit little white lies of fraud whould not be too damn surpised when their borrowers and staff get confused about where that bright line really sits.

What lazy slobs.

Thomas O. Moens said...

Good suggestions. We didn't actually find out until closing that the "conventional/VA" financing was simply VA. I'm not sure if they were keeping their options open with this or if the agent and lender just didn't know how to fill in that particular blank.

I hadn't even thought about how employees and borrowers will come to expect bigger and better frauds once someone crosses the line. How could they differentiate between frauds the boss will accept, and frauds the boss will not accept.