Mortgage Info for Homes and Small Business Financing

New Good Faith Estimate – RESPA | Cure Bites Lender in the Shorts

Last Thursday my family left on a long drive to Tampa, Florida, to visit with my wife’s relatives over the Christmas holiday.  It was on this drive that I received a series of expected emails with very unexpected news.

The first email contained a settlement statement or HUD-1 for the purchase of a Lorton, Virginia property in which I had arranged the mortgage financing.  The unexpected and unwelcome message from the title company indicated that,

“The transfer taxes are out of tolerance by $3,409.99”

Ughhhh!  I immediately felt a large knot develop in my stomach and knew what was to follow.  In a second email I read the following:

“Please confirm the tolerance cure of $3,409.99 is to be deducted from the broker check to MetFund Mortgage Corporation.”

As of January 1, 2010, Housing and Urban Development (HUD) mandated the use of a standardized Good Faith Estimate of settlement charges.  If any of the prescribed charges, and specifically in this case the transfer taxes, are underestimated or “out of tolerance” by any amount then the disclosing party must “cure” or credit the borrower for the difference.  We wrote about these changes earlier in New Lending Regulations Do Little to Protect the Consumer and New RESPA Rule Changes Slated for Beginning of New Year.

In Virginia, transfer taxes are charged by the county and state on the amount of the recorded mortgage amount and with purchases each jurisdiction also collects a tax on the recorded sale’s price.

I couldn’t imagine how we could have made an error of over $3,000 when our Calyx processing software, Point was pre-programmed with the values for each tax.  We calculate the Fairfax County tax for the mortgage amount on the first line.  The second line has the tax that the Commonwealth of Virginia collects on the same mortgage amount.  The third and fourth lines contain the county’s and state’s charges based on the rates for the recorded sale price.  The rate of taxation is different for counties from the state.

As we came to find out after many email inquiries and a number of telephone calls the lender had incorrectly re-disclosed after the initial disclosure.  This was accomplished by MetFund during the loan origination.  Subsequently, the loan was “locked” and the lender was required to once again produce a new good faith estimate with the locked rate and terms.  When they did, this they must have used only one line of transfer tax costs from our original disclosure.  In so doing they under disclosed the final and true amount for the transfer taxes.  Therefor, the lender became responsible for the cure.

When I got this information I was pleased to learn that MetFund had carried out our initial disclosure correctly.  In review, we realize that even lenders can make costly errors.  In this case the borrower was delighted to receive this unexpected change in total settlement costs because his cash-to-close requirement had just dropped by over $3 THOUSAND dollars.

What a nice present for the Christmas holidays!



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