Comparing Good Faith Estimates (GFE)

Regulation Z, the federal truth in lending law, requires that mortgage lenders provide borrowers with a good faith estimate (GFE) of closings costs. Many clients come to me for advice on how to make sense of this document and with good reason. How can you compare two GFEs among two lenders competing for a borrowers business? Are we really making apples to apples comparisons?

When it comes to origination charges, those charges paid directly to the lender, we can make the apples to apples comparisons. These charges once disclosed cannot increase unless the lender re-discloses at least three days prior to closing. Most of the time there is a valid reason that the origination charge increases. For instance if the borrower decides to “buy down” their interest rate and pay points, the lender must re-disclose. If these numbers change significantly without a change initiated by the borrower, the lender has some explaining to do. One more good reason you want hire your own lawyer to represent your interests through the home buying process.

The more difficult questions are those charges that are required by the lender, but are paid to a third party or vender. These are appraisals, tax service fees, flood certification fee and title related charges just to name a few. Unlike origination charges, these fees have a ten percent tolerance and can increase by ten percent without re-disclosure. Once again, this can happen for very a valid reason, for instance, the underwriter may require a second appraisal. However, I will give a simple example of why you need to compare the GFEs from various lenders with the assistance of your attorney.

The example I come across quite frequently is owner’s title insurance. First, there is some variation among title insurers in premium rates. This number is usually insignificant. The real issue arises because there are two separate types of owner’s title insurance, standard and extended. For a good explanation of owner’s title insurance check out this nice pamphlet.  At O’Connell & Rudolph, we always recommend borrowers make the investment in an extended owner’s title insurance policy.  For what is usually around ten percent more in premium, the home owner gains significant coverages such as mechanics liens and inflation protection.  So herein lies the rub, that difference in premium between a standard policy and an extended policy will show up differently on a GFE and could convince an unwary borrower to make a decision based on an apples to oranges comparison.  For example, on a $250,000.00 purchase with 20% down payment.  The standard premium will be roughly an additional $588.00 over the amount of the lender policy.  The same scenario with an extended policy is $675.00.

This amount can make once  GFE look more attractive.  When in reality the lender disclosing the higher premium may be closer to what the borrower would see at closing.  Among the  many important functions your attorney performs, comparing lenders and GFEs is essential.

Information for Home Buyers and Sellers

Buying and selling a home can be a daunting undertaking. With the help of a good real estate broker and an experience real estate attorney, the process will go much smoother. You have signed that purchase and sale, now what? You need to start thinking about preparing for closing. I have attached some good literature by Old Republic National Title Insurance Company which is helpful for anyone in the process of buying or selling a home:

Preparing for Closing

Protect Your Most Important Asset: Your Home

Protecting Your Investment

If you have any questions or comments, feel free to post in the comments.

Jay S. Rudolph

Your Needs, Our Priority

Serving the Beverly and Somerville, Massachusetts areas, Attorneys Jay S. Rudolph and Kathleen M. O’Connell have acquired a working relationship with the local community including local courthouses and local charitable organizations.

In addition to specializing in Real Estate Law and Estate Planning, Attorney Rudolph provides Probate Law and Estate Administration services. Attorney Rudolph is a strong advocate for the local food movement and sits as Treasurer on the Board of Directors for Waltham Fields Community Farm, an organization that promotes local agriculture and food access.

Attorney Rudolph graduated from the University of Florida with a B.S. in Accounting and obtained his J.D. at the New England School of Law. At New England, he was an Executive Case and Note Editor for the New England Law Review, a recipient of the American Jurisprudence Award in Property, a semifinalist at the National Environmental Moot Court Competition at Pace University Law School and twice recognized as a New England Scholar. After graduating magna cum laude from New England, Attorney Rudolph served as a Law Clerk to the Justices of the Massachusetts Superior Court. Prior to starting his own firm, Jay worked for a small firm in downtown Boston and a small firm in Woburn, focusing on residential and commercial real estate. An experienced Beverly residential real estate attorney and estate planner, Attorney Rudolph also has experience representing businesses, LLC’s and individuals in the mediation and litigation processes.

Kathleen M. O’Connell graduated from Northeastern University School of Law in 1997. Thereafter, she served as a Law Clerk to the Justices of the Massachusetts Superior Court . As a Law Clerk, she was able to gain insight into the inner workings of the Court and learn what judges are looking for from advocates to best advance their positions.

Following her clerkship, Attorney O’Connell served as an associate at the Boston law firm of Carney&Bassil. There, she specialized in criminal defense and family law, with a particular concentration in high-conflict divorce and child custody cases. After leaving Carney & Bassil, Kathleen worked as a public defender for the Committee for Public Counsel Services. As a public defender, Kathleen was in court every day fighting to protect her client’s rights.

Attorney O’Connell left the public defender’s office to start O’Connell & Rudolph with her husband and partner Jay S. Rudolph. Together, they strive to provide comprehensive and compassionate services to individuals struggling with major life changes and conflicts. The attorneys at O’Connell & Rudolph work hard to be responsive to their clients needs in times of crisis.

Overview of New Massachusetts Homestead Law for Conveyancers, Estate Planners and Other Interested Folks

Here is the latest Bulletin from Old Republic National Title Insurance Company to their Massachusetts Agents regarding the new Massachusetts Homestead Law (2010 Mass. Act Chapter 395). It provides a brief overview of some of the new provisions:

In 1980, the Supreme Judicial Court issued its opinion in Atlantic Savings Bank v. Metropolitan Bank and Trust Co., 9 Mass.App.Ct.286, 400 N.E.2d 1290, (1980), which for conveyancers, was a seminal case in the law of Homesteads in Massachusetts. The Atlantic Court held that a mortgage executed by a homeowner and his spouse was superior to a prior-recorded Declaration of Homestead. Atlantic Savings Bank at 1291. Unfortunately, the case left many other questions unanswered and those issues have been the basis of a great deal of debate and uncertainty in the intervening period. With the passage of the new Homestead Law (2010 Mass. Acts Chapter 395), the legislature has rewritten M.G.L. c. 188 and answered those questions giving conveyancers a clear protocol that had been lacking until now. Effective March 16, 2011, the statute not only codifies the holding in Atlantic Savings Bank, it expands the scope of homesteads generally and does away with some of the prior law’s more anachronistic provisions.

….

Automatic Subordination of Prior Homestead (Section 9): As mentioned above, the new statute codifies the holding in Atlantic Savings Bank. Specifically, section 9 provides that a when a mortgage is signed by all the owners of the property, a prior-recorded Declaration of Homestead will automatically be subordinate to that mortgage. However, the statute changes prior practice in that it no longer requires a non-titled spouse to sign the mortgage in order to subordinate the homestead to the new mortgage. Further, the mortgage no longer needs to contain subordination language which was a prerequisite to subordination for the SJC in Atlantic Savings Bank. Finally, section 9 prohibits a lender from requiring a release of Homestead prior to recording a mortgage.

Automatic Homestead (Section 4): The statute now provides for an automatic homestead without any action required of the owner. The automatic homestead under section four provides for $125,000.00 protection for the owner and her family. It should be noted, however, that while this is an improvement upon the old statute where no coverage was provided on an automatic basis, the protection provided is still significantly less than the $500,000 protection provided under the declared homestead option under section five.

Declared Homestead (Section 5): The new statute provides $500,000.00 protection on the recording of a written Declaration of Homestead. Section 5 provides several requirements for the form of declaration to be recorded, notable among these:

1. Non-title spouse must be identified (§ 5(a)(1)). This is a codification of prior practice and the dictates of Atlantic Savings Bank.
2. The homestead declaration cannot be made in a deed (§ 5(c)).
3. Homesteads may now be declared where the home is owned by a trust, and it is anticipated that the trustees would execute the declaration (§ 5(a)(1)). Further, the beneficiaries of the trust should be identified in the declaration (§ 5(a)(1)) and § 1).
4. If the homestead is declared while the owner is single, and the owner is subsequently married, the homestead shall accrue to the benefit of the new spouse, and that benefit shall accrue as of the date of the original filing (§ 5(d)).

Termination (Section 10): [Conveyancers and Estate Planners] will recall many situations where certain inter-family transfers resulted in a homestead’s inadvertent termination creating in some cases an undue hardship in contravention of the purposes of the statute. The new statute provides very clear parameters for termination and, as importantly, to prevent inadvertent termination. Under this section, termination must be evidenced by an intent to terminate and be in very specific form:

1. Deed to a non-family member signed by the owner and the non-titled spouse;
2. Release signed by owner and non-owner spouse;
3. By abandonment of the home by the owner, owner’s spouse and family;
4. In the case of trusts, a deed or release signed by the trustee or by the release or abandonment by the beneficiary named in the declaration;

Significantly, section 10 provides a safety net for those transactions which are not meant to affect a termination. Consequently, the following conveyances will not affect the homestead:

1. Deeds between spouses or co-owners who individually or jointly hold a homestead;
2. Deeds between a trustee and beneficiary;
3. Deeds between a life tenant and a remainderman, unless in all of the above cases, there is an express release in the deed.

Further, section 10(d) provides that nothing contained in a mortgage will act to terminate a homestead.

Multiple Owners: In a departure from prior practice, the new statute anticipates that a homestead may be declared by multiple owners (§ 5(a) and § 3(a)). That is, each co-tenant, joint owner or tenant by the entirety may declare their own homestead.

Notice (Section 14): The statute requires that a closing attorney provide the mortgagor with a notice of the right to declare a homestead under c. 188. The notice should be signed by the mortgagor to acknowledge receipt and should include inter alia:

1. a summary of the differences between the automatic homestead protections and the declared homestead protections;
2. the enhanced benefits of the declared homestead protections.

Old Homesteads remain in effect under the new c. 188: Finally, the new statute provides that all homesteads currently in effect will remain in full force notwithstanding their failure to comply with provisions of the new statute.

To view the statute in its entirety, please click here.

REBA: Governor Signs Homestead Reform Legislation

REBA: Governor Signs Homestead Reform Legislation.

New Homestead Law

Here is a good overview from the Middlesex North Registry of Deeds: http://lowelldeeds.blogspot.com/2010/11/big-changes-coming-to-homestead-law.html

Estate Plan? Don’t I Just Need a Will?

What is estate planning?

Estate planning is the process where an individual or family arranges the transfer and protection of their assets in preparation of death or incapacity. A proper plan also addresses health care, guardianship of minor children and business planning. Two major goals of an estate plan is to preserve the maximum amount of wealth possible for the intended beneficiaries and to provide ease and flexibility in the handling one’s affairs prior to and after death or incapacity. Estate planning also is effective for implementing important wishes and desires, such as end of life decisions and charitable donations.

Estate planning involves the services of not just your attorney, but can involve the services of other professionals, including your accountant, financial planner, life insurance adviser, banker and mortgage broker.

What is in a basic estate plan?

Many factors go into determining each client’s needs for their estate plan. Typically, a basic plan will include a will, durable power of attorney, health care proxy, HIPAA release form and advance directive which is sometimes called a living will. Depending on one’s assets, family and estate tax situation, the plan might also include revocable or irrevocable trusts, emergency guardianship designations, homestead declaration, life insurance trusts or pet trusts. Estate planning not only involves the creation of the proper documents, but also involves how one holds title to their assets such as real estate and financial accounts. The appropriate beneficiary designations on your retirement accounts and your financial products, such as life insurance, are crucial to the effective implementation of an estate plan.

Do I need an estate plan?

Yes. It does not matter if you are older or young or if you are married or single. It does not matter whether you are a parent or you have no children. It makes sense whether you are wealthy or not to invest in an estate plan. There is a lot to be gained by you and the ones you love through estate planning. There is even more that can be lost by failing to take the time to make a plan. Proper estate planning will avoid the turmoil and wasted assets of an unplanned estate. Remove the uncertainties and give yourself and your loved ones the sense of security that is deserved.

What are the benefits of an estate plan?

Estate planning provides more than just an orderly distribution of property to your loved ones, other beneficiaries and charitable organizations. A proper plan determines who will be the guardian of your minor children. The plan will also provides a mechanism for a trusted individual to handle your financial and medical affairs should you become incapacitated.

Asset protection and probate avoidance are also accomplished through an effective estate plan. The plan should take into consideration succession planning for family or closely held businesses. For larger estates, tax shelter planning is crucial to insure that your beneficiaries do not lose a large portion of the estates assets to the government. The plan can even set aside assets to care for a family member with special needs.

An effective estate plan can even provide for the care of your pets not only when you pass away, but also provide a means to alert medical personnel that you have pets should you be incapacitated. A significant number of animals are euthanized every year because they are overlooked during a crisis or tragedy.

Why should I use a lawyer when I could get forms online or buy them at an office supply store?
Estate planning even in the simplest of situations requires a significant amount of background information. A lawyer will ask probing questions to assess the client’s overall goals and needs. The lawyer will seek to determine not only the property and asset situation, but also he or she will seek out any unusual circumstances you might have. Lawyers are trained to look not only look for red flags, but also to provide guidance in making the difficult yet important decisions needed even for the most basic plan. Too often what seems straightforward contains some issues that can only be resolved with experience and training.

Use of “off the shelf” products to replace the counsel of an experienced attorney is fraught with peril. Understanding the intricacies of joint property and beneficiary designation on retirement assets, such as IRAs and 401(k), can be confusing without someone to take the time and effort to make sure you understand the implications of your decisions. Also, the estate plan does not operate in a vacuum and must continually change as your life, your needs and the law changes.

Today we rely on the internet for a wealth of information and we are truly fortunate to live in such a wonderful age of dynamic communication. However, as powerful a tool as this information can be, it must be used prudently and cannot replace the experience and education of a trusted professional.

The foregoing is not intended as legal advice or legal representation. Due to the constantly changing nature of the law, we cannot assure the accuracy of the information given. There is no substitute for an actual consultation with an experienced attorney.

Massachusetts Declaration of Homestead: What Are My Homestead Rights?

For most of us, our home is our largest asset. We live in our homes today and we count on our home’s equity for retirement tomorrow. We all have homeowner’s insurance to protect that investment from fire and casualty. However, most homeowner’s fail to take the simple steps to protect their home from the reach of creditor’s and themselves from getting sued. For the cost of drafting and filing a Declaration of Homestead with the appropriate Registry of Deeds, The Massachusetts Homestead Act, Massachusetts General Laws, Chapter 188, protects a family’s use and possession of their home from the claims of creditors.

Under normal circumstances, if a creditor obtains a judgment against the homeowner by suing them in court, the creditor can satisfy their judgment by forcing a sale of the property unless the homeowner takes advantage of the Homestead Act. The Homestead Act provides that a homeowner and his or her family are entitled to an Estate of Homestead which protects the equity in their home to the extent of $500,000. As such, the property is exempt, up to the exemption amount, from the laws which allow creditors to force the sale of a homeowner’s property to payoff debt.

The protections of the Homestead Act are not automatic but are triggered by the recording of Declaration of Homestead in the appropriate Registry of Deeds. The protection of the Act extends to both spouses and their minor children; however, the Act applies regardless of the homeowner’s marital status or whether they have children. The rights under the Homestead survive the death of the declaring homeowner and continue to benefit a surviving spouse and their minor children.

Of course as with any legal matter, there are exceptions. Among the common exceptions, the Homestead Act does not protect a homeowner for failure to pay taxes, debt contracted prior to the acquisition of the Estate of Homestead, debt contracted for the purchase of the home and alimony or child support.

The Homestead Act only applies to the homeowner’s principal residence, so a homeowner can only have an Estate of Homestead in one home. The residence can be a single family, multi-family, condominium or apartment house, as long as; the property is the homeowner’s principal residence. The property can be owned solely or jointly. The Act does not apply to second homes or vacation properties.

The Homestead Act also contains a special provision for the elderly and disabled. For most homeowner’s who are not disabled or who are under the age of 62, the maximum protection of the Act is $500,000. However, for each homeowner who is elderly (over the age of 62) or disabled there is a $500,000 exemption. For example, a married couple, who both are over the age of 62, can claim $1,000,000 as an exemption. A special Declaration of Homestead must be filed in the appropriate Registry of Deeds to take advantage of the special provision for the elderly and disabled.

We will pay hundreds, even thousands of dollars, on a yearly basis to protect our homes from fire or other disasters. Yet, so many homeowners fail to protect themselves and their homes from lawsuits and creditors. For the negligible cost and effort to take advantage of the Homestead of Act, it only makes sense.

Title Insurance: A Critical Component of Every Transaction

There are numerous closing costs that today’s home buyer pays at the closing table when purchasing a new home. From underwriting fees to processing fees, from tax service fees to wire fees, from attorney fees to recording fees; however, there is probably no closing cost that I receive more questions about than title insurance. Ironically, title insurance is probably one of the most critical components in the residential real estate transaction, providing not only smooth closings, but also helping to reduce risk in the secondary mortgage market, a big player in today’s economy.

So what is title insurance? Title insurance provides the insured, usually a lender or a homeowner, with protection from unknown defects in the title to property. This protection insures the proper transfer of property from a seller to a buyer. Much like a homeowner’s insurance policy protects the homeowner and the lender from hazards such as fire, title insurance will cover losses due to problems ranging from actual ownership to unknown liens. The types of defects covered include: false impersonation of the true owner of the property, forged documents, undisclosed or missing heirs, mistakes in recording legal documents, misinterpretations of wills and fraud. There are many other matters covered which are too numerous to cover here.

In a sale, a mortgage lender is going to take great pains to reduce their risk associated with the home buyer defaulting on their loan. This due diligence includes checking the home buyer’s credit among other financial considerations. The lender is also going to reduce their likelihood of loss from the property securing repayment of the loan, our home buyer’s new home. The lender will appraise the value of the property. They will require the home buyer to obtain homeowner’s insurance protecting against hazards such as fire. The lender will also want to make sure there are no problems with title. This is accomplished by having the home buyer purchase a loan policy of title insurance. However, the loan policy only protects the lender’s interest. It does not protect the home buyer. That is why I usually recommend home buyers purchase an owner’s policy of title insurance. The owner’s policy protects the home buyer against loss due to unknown title defects. It also protects the home buyer’s interest from certain matters which may exist, but may not be known at the time of the sale. This protection lasts as long as the home buyer or their heirs have an interest in the property.

Under a loan policy, if some issue arises affecting the past ownership of the property, the title insurance company would defend and protect the interest of the lender. However, the home buyer would have to assume the financial burden of her own legal defense. If the defense is unsuccessful, the outcome could be a total loss of title. In that case, the homeowner would lose their down payment and any equity built in the property. The lender would be compensated for their losses and they would assign the loan to the title insurance company. As such, the homeowner would still owe the balance due on the note.

When a home buyer obtains an owner’s policy simultaneously with a loan policy there is a significant discount. When the simplest of title problems arise, the cost of hiring an attorney to investigate the issue is very often much higher than the nominal cost of the owner’s title insurance purchased along with a loan policy. In some cases, an owner’s policy of title insurance will allow a sale to proceed, even with minor title problems, saving a seller who has an owner’s policy the costs involved in the delay selling her property.

Much of today’s residential real estate transaction is controlled by title insurance. It allows the lender and secondary mortgage market to not have to worry about the security of their loans. It also allows the homeowner not only potential savings in money and time, but most importantly, peace of mind.

Don’t Sign That Offer Before You Talk to an Attorney

Hi There!!  I thought I would start things off with an issue I see all too often in the residential real estate transaction: Involving Your Attorney After Entering A Legally Binding Contract.  In Massachusetts, a Buyer will usually submit an offer to purchase on some version of a standard form “Offer to Purchase” created by one of the local or regional Realtor associations like the Greater Boston Real Estate Board.  In most cases, once the Seller accepts the offer, the material terms of the contract have been set and the parties are bound to the Offer and the conditions agreed upon.

Contained in the Offer to Purchase is: a description of the property; the purchase price; the deposit and the conditions under which the deposit becomes the property of either of the parties; the expiration date of the offer; the manner in which the offer may be accepted; the nature of the title to be conveyed; the items of personal property and fixtures that are either included in or excluded from the transaction; and the time and place for the delivery of the deed.  These forms will also contain language similar to “NOTICE: This is a legal document that creates binding obligations. If not understood, consult an attorney.”

One of the conditions, contained in the Offer to Purchase is that the parties will execute a Purchase and Sale Agreement that is agreeable to both parties.  This is the point where many Buyers and Sellers will first involve their attorneys.  It is very important that the parties use an attorney in the negotiation of the Purchase and Sale Agreement.  However, there are numerous reasons, it makes sense to have an attorney review the Offer to Purchase before the material terms are set.  In a future posting, I will discuss in detail why an attorney is needed in the negotiation of the Purchase and Sale Agreement.

For the Buyer, I like to include a valuation contingency, so that if the property does not appraise for the sale price, the Buyer has the opportunity to either renegotiate the sale price or back out of the deal and receive their entire deposit back which can be as high as five percent of the sale price.  Additionally, I like to add some warranties and representations to the Offer to Purchase.  For the Seller, it is important that they identify personal property that they may be leaving behind or fixtures, such as chandeliers, that they intend to take with them.  There is no such creature as the “routine” residential real estate transaction. Each parcel of real estate is unique and each party to the transaction has individual needs and desires. For both parties, it is always a good idea to have a trained, experienced set of eyes review the terms and make sure the client’s interests are best represented and that the client fully understands the implications of the documents they are signing.

In my practice, I charge a flat fee for representing buyers and sellers and that fee includes the review and drafting of the Offer to Purchase.  The same is true for all documents a Buyer or Seller would need to sign from broker disclosures to listing agreements.  I would advise any Buyer or Seller to talk to an attorney as early on in the process as possible.  In a future posting, I will discuss in detail why an attorney is needed in the negotiation of the Purchase and Sale Agreement.