by Greg Anglewicz, Esq.
With the warm weather comes the need to tune up the lawn mower, service that grill, and clean-out those flower beds, in order to get ready for our summertime activities. But the rise in mercury is not just a harbinger of outdoor summer living. With the increase in temperatures, we see an increase in home sales and home remodeling, and with that, an increase in mortgage lending. Just as you sharpen that mower blade, spring is a great time to sharpen your real estate title skills.
Many mortgage title issues can be prevented with a little attention to detail and remembering some basic requirements of mortgage law. A quick review of some of these issues will get you primed for the mortgage lending season.
- Are you getting what you are paying for? One of the most important, but easiest to overlook aspects of mortgage lending is the fact that it is a real estate transaction. In exchange for the loan funds, the lender is getting an interest in real estate. Make sure you are getting (what you think you are getting) for your money. The simplest way to ensure this is to have a title company conduct a title exam to confirm that your borrower has, or will have, an interest in the property that you are taking as collateral. If your borrower has defective title, so do you. It is very important to take the time to review the title commitment and title report for exceptions to title. It is also important to make sure that you are actually dealing with real estate. Often manufactured housing and cottages built on a land lease are not real property and cannot be mortgaged. Having your borrower purchase a lender policy of title insurance (or a less expensive junior policy for a second mortgage) is always advisable, and is invaluable if a defect is later discovered.
- Is your borrower really your borrower? Whether the loan documents are being signed in your office or with the title company, it is very important to make sure that the person signing those papers is who you think they are. The best way to make sure of this is to check and make a copy of the borrower’s photo I.D. One should always make a copy of each signatory’s valid, government issued I.D. a part of the loan file. More importantly, look at the I.D. and the person sitting across from you. That person should match the photo on the I.D. and the name on the I.D. should match the names on the documents being signed. Nothing is more embarrassing than having a bankruptcy trustee challenge the validity of a mortgage based on the identity of the party signing, and finding that the copy of the I.D. in your loan file is not you borrower. It happens! One should however be mindful of some precautions that should be taken when obtaining a photo I.D. A picture tells a lot about a person, including whether they fall into a protected class under the Equal Credit Opportunity Act (Regulation B). A copy of the photo I.D. should not be a part of the loan application, or be provided to those underwriting the loan. In doing so, lenders can avoid the appearance of discrimination should the loan be denied for legitimate reasons. The I.D. should be gathered at closing. Its purpose is to confirm who is sitting before you and signing those documents. And by that point, the loan has already been approved. As always, it is best to have these practices in writing, should a regulator ever ask.
- Is your mortgage complete? A mortgage lacking necessary parties or proper acknowledgements is not going to secure your lien in the property. Make sure that all parties with an interest in the property are signing the mortgage. (This is another great reason to review the title commitment). In addition, some states grant a dower or homestead right to the spouse of a title owner. In these states, the spouses of the owners must also sign the mortgage and the document must clearly define the marital status of any owner and identify their spouse clearly. Just as important as including all required parties in the mortgage, is having those parties sign and making sure that they acknowledge their signatures in front of a notary public. The notary should certify, by name, each person who executed the mortgage, and fill out the acknowledgment completely, including state, county, city, date and the length of their term, as well as signing and affixing their seal.
- Did you record? A mortgage will provide little security in the property if it is not recorded. The executed and complete mortgage (be sure a full legal description of the property is included in the mortgage) needs to be recorded with the county recorder within the county where the property is located. Until the mortgage is recorded, it is not enforceable against third parties and your lien priority will not be established. The sooner you get the mortgage of record the better.
Keeping these four simple tips in mind will help prevent many of the most common title issues that may arise with mortgage lending, and should help keep you from getting burned.
Greg Anglewicz practices in Real Estate Default at Weltman, Weinberg & Reis Co., LPA as the supervising attorney of Thoroughbred Title Agency in the Cleveland office. He can be reached at 216.685.1137 and firstname.lastname@example.org.