Course 11 Loan Closing and Loan Documentation

Question 1

What is the role of the underwriter in the closing process?

Answer 1

The closing department creates the settlement statement and the underwriter reviews the settlement statement and make sure it conforms to the underwriting. The 92264A Sources and Uses is used to make sure all data is captured correctly.

Question 2

What are common impediments to closing?

Answer 2

• Satisfaction of firm commitment special conditions
• Assuming HUD approval without written confirmation
• Understanding obligations especially pertaining to new HUD forms (make sure the most current version of the forms is being used)
• Organizational documents – need to be in order, updated and accurate
• Previous Participation 2530 disclosures/clearances
• Land disposition, local approvals, amendments, need building permits
• Survey – should be ordered early
• Availability of principals to sign
• Critical/non-critical repairs (must know when they have been completed and the work must be inspected and certified)
• Title – good clean title; exceptions, acceptance; know what HUD will or will not accept with regard to exceptions
• Subordination Agreement – if there is other financing, HUD comes first and everything else comes after. Must use the HUD form and it cannot be changed.
• Use Agreement
• Timing/backlogs/attorney available/priorities - all require good communication

Question 3

Which individuals sign the note at closing?

Answer 3

The note is signed by the borrower and a HUD director. HUD physically endorses the note the day of closing.

Question 4

Why is the Regulatory Agreement important to HUD?

Answer 4

The Regulatory Agreement is the key document with HUD; and is strictly between the borrower and HUD. The agreement details the Bad Boy carve outs for the active principals. The principals are not liable unless they do certain stipulated acts such as keeping funds that are supposed to be remitted. The borrower can only keep surplus cash after all obligations have been met. Distributions can only be made annually or semi-annually. The agreement also includes the following:
* Rights and remedies separate from lender
* Surplus cash limitation
* Subordinate debt limitation
* Exception to recourse
* Reserve for replacement requirements (paragraph #10) – Firm Commitment sets out money for deposit
* Section 50 principals are identified (signer of documents)
* Active Principals sign

Question 5

Why might escrows be required at closing?

Answer 5

• Reserves could be increased or added to mitigate specific risks. – repairs, lease up

Question 6

What are the main closing documents and what is the purpose of each?

Answer 6

1. LEGAL OPINION - A Legal Opinion is required by counsel, both from the jurisdiction of the property and the jurisdiction of the borrowing entity.
2. NOTE
3. SECURITY AGREEMENT - The Security Agreement can be a Deed of Trust or a Mortgage and is recorded in the land records.
4. REGULATORY AGREEMENT
5. RESIDUAL RECEIPTS ACCOUNT - The Regulatory Agreement also provides for a Residual Receipts Account which used by HUD only, HUD has complete discretion of funds.
6. BORROWER’S COUNSEL OPINION - The borrower’s counsel opinion is a form document. No changes can be made to the form. It needs to be determined immediately if the Borrower’s counsel is willing and able to render the opinion on the HUD form.
7. TITLE INSURANCE AND SURVEY
8. GROUND LEASE
9. ZONING AND CERTIFICATE OCCUPANCY
10. REQUEST FOR ENDORSEMENT (RFE) - The disclosure of costs is signed by the lender and outlines all collected fees regarding the transaction (financing, legal, and transaction costs, GNMA or administration fees).
11. SETTLEMENT STATEMENT OR CLOSING STATEMENT
12. COST CERTIFICATION - Cost must be identified early and as accurately as possible, so cost certification matches the commitment. When there are minimal excess funds, HUD will sometimes allow them to be placed in a reserve account in lieu of reducing the mortgage amount. Not required for 223 (a)(7) or cash out 223(f).