Rep. Murphy successfully added an interesting amendment to SB 62 which had previously been a bill that made some fairly uninteresting changes to the Sheriff’s duties with respect to posting notices of foreclosures.
Rep. Murphy’s amendment, which passed the House by a vote of 73-15, would require “settlement service providers” to provide copies of closing documents on home loans to borrowers more than 48 hours before the closing. The term “settlement service provider” is defined as “a person that provides services in connection with the closing of a real estate transaction, including the provision of title examinations or title insurance.” If the terms in the closing documents provided to the borrower at closing differ from the terms provided 48 hours before, the borrower is entitled to postpone the closing without penalty and without forfeiting the right to enter into the loan or purchasing the house.
I like the sentiment. While foreclosures have been skyrocketing, I don’t know how many times I’ve heard something to the effect that the borrowers deserved what they got because they should have read their agreements. That’s true as far as it goes, but in practical terms, borrowers often don’t get copies of closing documents until they are at the closing table, whereupon stacks of documents are shoved at the borrower with instructions to sign.
But, it seems that this amendment uses a cleaver where a scalpel is probably needed. Just flatly asserting that the borrower can postpone with no penalty seems to ignore that there are other parts of the equation besides the borrower and the settlement service provider. For example, there is a home seller who might need the money on the day of closing in order to go and close on the home the seller is going to move into; and there may be a lender, distinct from the settlement service provider, who can’t obtain the money tomorrow at the same terms it could obtain the money today. I’m not sure how you make sure the borrower gets the necessary time without wrecking the house of cards if the settlement service provider doesn’t do what it’s supposed to.
Seems a better piece of legislation would create a state regulatory division for first lien mortgages. Currently only second lien mortgages have such oversight, and the first lien homebuyer that experiences any problems at closing has recourse only through Federal agencies.
You are correct that this would hurt sellers and in some cases lenders just wouldn’t do business in Indiana due to this potential for delays. In essence allowing the buyer to delay and try to get the seller to pay more of their costs.
One possible solution would be to treat first mortgages like home equity and refinances now. The mortgage “closes” but no funds are actually transferred for three days (what is called the right of recission)… I might suggest 24 hours here to keep the domino deals in line.
Supposedly this protects the buyer/borrower and let them go home and read their documents and go through their buyer’s remorse. But in truth it makes the title company get the documents done a day earlier so everyone can sign and then wait for funds in 24 hours.
Sure, I think in some cases buyers would bail out and for no good reason. This would be too bad, and if I were the seller I’d be ticked.