Prestige Title Agency, Inc. provides Commercial and Residential Title Services Nationwide. For more information, please contact Anthony Chiellino at (212) 651-1200 or achiellino@prestitle.com. | |
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Prestige Title eNews
Winter 2009 | |
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| Greetings! |
| Welcome to the second issue of Prestige Title eNews. I am very pleased with the overwhelming positive response to our first issue. Please keep your comments and suggestions coming, and feel free to forward this issue to your friends and colleagues.
In this issue we visit the long standing practice of paying off mortgages, with some new information regarding short sale procedures.
If you have any questions or would like further information regarding any of the items in this newsletter, please contact Michael Alfieri, Esq. at (212) 651-1200 or malfieri@prestitle.com.
Also, if there are any topics that you would like us to include in future newsletters, please feel free to e-mail us with suggestions at info@prestitle.com.
We look forward to hearing from you!
- Anthony Chiellino, President |
| Paying Off Mortgages at Closing:
Written Payoffs vs. Verbal Payoffs |
In this issue, we will be touching on an important aspect of real estate closings and mortgage transactions. This aspect is an integral component of practically any real estate transaction. What is it? It is the payoff of an existing mortgage.
Generally speaking, most residential and commercial transactions will often involve the seller/seller's attorney or borrower/borrower's attorney obtaining a payoff of an existing mortgage. In paying off an existing mortgage, it is important to distinguish between two (2) types of payoffs - that is, the written payoff and the verbal payoff.
First, we will review some basics as to the payoff of an existing mortgage. Then, we will look at payoffs involving the following:
- Home Equity Line of Credit (HELOC) Mortgages;
- Short Sale Payoffs;
- Private Mortgages
Given the recent tumultuous upheavals in the banking and lending industries, with lending and banking institutions being either taken over, going out of business, or filing for bankruptcy, obtaining a payoff of an existing mortgage can involve a herculean effort. However, having said that, it is still important to keep in mind that most title companies will not close with or accept a verbal payoff of an existing mortgage - a fact that is sometimes lost in the rush to close due to time constraints or simply due to the delays of the lender processing and issuing the actual written payoff. A verbal payoff is simply not an acceptable form of a payoff and should not be relied upon to payoff an existing mortgage.
To payoff an existing mortgage at closing, the title company will require the seller/seller's attorney or borrower/borrower's attorney to obtain a written payoff. In reviewing the written payoff, the parties need to check that the correct mortgage is being paid and that the payoff is not for another mortgage. The payoff letter should sufficiently identify the mortgage, the subject property, and the mortgagor and mortgagee. Such confirmation can be made by:
- checking the loan number of the payoff letter with the loan number of the mortgage to be paid;
- confirming and comparing the names of the mortgagors and mortgagees and property address on the payoff letter with those set forth in the title report and reflected in the land records (two caveats - 1) the payoff letter may not be generated or issued by the mortgagee of record, but rather by a servicer of the mortgagee who assists the mortgagee in servicing the loan; and 2) the mortgagor's address on the payoff letter may not reflect the address of the premises encumbered by the mortgage to be paid);
- comparing the amount of the mortgage to be paid off in the payoff letter with the amount of the mortgage set forth in the title report and reflected in the land records.
If the payoff letter does not sufficiently identify the subject property, the parties, and the loan, the lender must be contacted to confirm the payoff letter as it pertains to the correct property. At closing, the closer will also need to verbally verify and confirm the terms, figures, and amounts of the existing payoff letter with the lender or party providing the payoff of the existing mortgage.
However, care must be taken in confirming whether the payoff letter, notwithstanding the per diem amount, has a date upon which the payoff letter expires or is no longer considered valid. If such is the case - where the payoff letter has expired - it is no longer valid and the payoff cannot be made using the expired payoff letter. A new payoff letter is required regardless of whether or not per diem interest can be calculated beyond the expiration date of the payoff letter. A valid payoff letter must always be used to make a payoff.
Home Equity Line of Credit (HELOC) Mortgages
A full pay down of a HELOC Mortgage does not extinguish the lien securing the repayment obligation nor does it prevent a borrower from drawing additional funds from the credit line unless the account is properly closed and the lien is released/satisfied. If a borrower draws on an open HELOC Mortgage after a full pay down has been made, the lender's interest in the property will continue to be senior to the insured lender or insured owner. Hence, proper closure of the account is of utmost importance.
On HELOC Mortgage payoffs, the closer must obtain and send (generally by facsimile transmittal) a letter ("close-out" letter) signed by each borrower that instructs the lender to immediately close out and freeze the line of credit and record a discharge of mortgage. The closer will also fax a form letter to the lender confirming that the borrower's account is being paid in full. This faxed transmittal will include a copy of (i) the lender's payoff letter, (ii) the signed payoff check, if available, and (iii) the required "close-out" letter signed by each borrower instructing the lender to close out and freeze the line of credit and record a discharge of mortgage. In addition, if possible, the seller/borrower will provide any unused checks and their check register for the line of credit and compare the remaining check numbers with the check numbers in the register. If there is a gap between the last check used as noted in the register and the first number of the unused checks, then the seller/ borrower shall instruct the line of credit lender to freeze payment of the missing items.
To read about payoffs for other types of transactions, see the list to the right or click here.
If you have any questions about this article or would like further information, please contact Michael Alfieri, Esq. at (212) 651-1200 or malfieri@prestitle.com.
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| Announcements |
Did you know that our Company provides Cooperative Apartment Lien Searches? Our Company has been providing Coop Searches for the real estate industry for over twenty years, and our fees are the most reasonable within the industry.
Please contact Anthony Chiellino for further details at (212) 651-1200 or achiellino@prestitle.com. |
Payoffs (cont.) |
In transactions involving a short sale payoff it is imperative that a short sale written payoff letter is obtained which details the provisions, terms, and conditions upon which the lender will consent for the short sale to close. With a short sale payoff letter it is very important to pay close attention and adhere to the terms, provisions, and conditions set forth in the letter. Generally, the letter will include the following terms, conditions, and provisions:
"Borrower shall not receive any proceeds or funds from the sale of the property";
"The lender agrees and approves the sale between seller/borrower and purchaser (the names of the seller and purchaser to be identified) with a purchase price of $X amount in which the required net minimum proceeds should not be less than $X amount";
There will be a specific date, or what some may refer to as the "drop-dead date", in which the "offer will expire" as set forth in the short sale payoff letter. If this date is missed or passes, then a new short sale payoff letter is required with a new "drop-dead date";
"The HUD1 settlement statement must first be forwarded and approved by the lender and should show a net yield to the borrower of an amount zero or perhaps a negative amount";
In addition, a copy of the lender-approved final HUD1 settlement statement must be faxed at closing to the lender. Then, this copy should also be sent with the short sale payoff letter and payoff check to the lender. The short sale payoff letter may also contain a provision that requires the borrower/seller to enter into a deficiency agreement with the lender (lender agrees to release its interest in the property) for the remaining balance due on the loan.
Finally, some title companies have been requiring a written statement from the lender that it has reviewed the final HUD1 settlement statement and has approved the short sale. This additional confirmation, or as some would refer to as "belts & suspenders", may appear to be redundant and duplicative in nature. However, it provides the title company with the comfort that there is no misunderstanding on the part of the lender to the short sale payoff.
Payoff of a Private Mortgage
Most mortgages originate with a bank or financial institution. In some cases, however, a non-institutional lender or a private individual, a seller, or investor may choose to hold a mortgage directly. To payoff a private mortgage at closing, most title companies will require a written payoff letter. In addition to the written payoff letter, the original mortgage satisfaction/discharge or release must be brought to closing. This is an important fact to remember because at closings involving the paying off of mortgages held by a bank or financial institution, the original satisfaction will not be at closing but will follow upon receipt of payment. Finally, the original note (marked cancelled/paid in full) and original mortgage should also be brought to closing.
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| Recent News Items |
Described below is a summary of recent newsworthy items that you may find of interest:
FEDERAL ESTATE TAX EXCLUSION INCREASES TO $3.5 MILLION FOR THE YEAR 2009
The Federal Estate Tax exclusion amount for persons deceased during calendar year 2009 has been increased to $3,500,000.00. Therefore, Federal Estate Tax will be applied to such 2009 estates only to the extent that the taxable estate exceeds the new $3,500,000.00 exemption amount. For persons deceased in previous/earlier years, the exemption amount is determined by the exclusion amount provided by federal law for the year of death in question:
$650,000.00 when decedent died during 1999;
$675,000.00 when decedent died during 2000-2001;
$1,000,000.00 when decedent died during 2002-2003;
$1,500,000.00 when decedent died during 2004-2005;
$2,000,000.00 when decedent died during 2006-2008;
$3,500,000.00 when decedent died during 2009
NEW YORK CITY REAL ESTATE TAXES - SEMIANNUAL AND QUARTERLY PAYMENTS
All properties (residential properties [including houses, condominiums, and cooperatives] and commercial properties) with an assessed value of $250,000.00 or less (or in the case of coops, a per unit billable assessed value of $250,000.00 or less) will pay in quarterly installments - July 1, October 1, January 1 and April 1 (within 15 days of due date).
SPECIAL ADDITIONAL MORTGAGE RECORDING TAX EXEMPTION FOR FEDERAL CREDIT UNIONS THAT CONVERT TO STATE CREDIT UNIONS
Chapter 522 of the Laws of 2008 establishes an exemption from the special additional mortgage tax on mortgages where the mortgagee is a New York state chartered credit union that has converted from a federal credit union on or after January 1, 2009. To qualify for this exemption, the converted credit union must be issued an authorization certificate pursuant to Section 486 of the Banking Law. To claim an exemption, the converted state credit union must submit to the recording officer (at the time the mortgage is presented for recording) an affidavit signed by the mortgagee in duplicate, which sets forth the following:
- the mortgagee is a credit union that has been issued an authorization certificate from the Superintendent of Banks pursuant to Section 486 of the Banking Law indicating that the credit union has converted from a federal charter to a state charter on or after January 1, 2009; and
- pursuant to Section 486-a of Article 11 of the Banking Law, the mortgage is exempt from the special additional mortgage recording tax imposed by Section 253.1-a(a) of the Tax Law.
If you have any questions about this article or would like further information, please contact Michael Alfieri, Esq. at (212) 651-1200 or malfieri@prestitle.com.
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Prestige Title Agency, Inc. provides Commercial and Residential Title Services Nationwide. For more information, please contact Anthony Chiellino at (212) 651-1200 or achiellino@prestitle.com.
15 W. 39th St., 10th Fl. · New York, NY 10018 · (212) 651-1200 · Fax (212) 651-1201
Member of New York State Land Title Association · Member of American Land Title Association |
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