Financing And Closing Flashcards
Course overview
Financing and closing unique to Hawai’i examined, mortgage law, seller financing and usury law are reviewed.
Hula Mae loans and (ERS) Employee Retirement System loans
Hawaii’s Escrow act of 1967 and Good Fund Acts
The itemization of the buyer’s and seller’s closing cost that appear on the closing statements
Objectives:
Explain mortgage foreclosure law, usury law
Explain eligibility for Hula Mae loans and ERS loans
Describe how escrow. Handles a closing including compliance with Good Funds Act
Allocate the items that are credits or debits to a buyer and seller at closing.
Mortgages
A person may hypothecate real property he owns or is to acquire with the funds from a loan as security for the loan.
In Hawai’i the document used to do this is a mortgage.
Since the loan is voluntary and undertaken in contract, the mortgage is a “voluntary contractual lien”.
Hawai’i operates under the “lien theory of mortgages” which provides that the mortgage creates an encumbrance in the form of a specific voluntary lien against borrower’s property.
The mortgage lien may then be enforced by statutory foreclosure suit, through which the borrower’s rights to the property would be terminated.
Foreclosure
If a mortgagor defaults in the note or mortgage, the mortgagee has the right to:
Sue on the note to obtain judgement, request the property be foreclosed and sold through court action in the circuit court of the county land is.
Or
Have property foreclosed through a non judicial foreclosure.
In Hawai’i , in the judicial foreclosure process, the borrower has the right of redemption upon payment of full debt up to the foreclosure sale.
If he does not redeem, the court will issue a writ of execution ordering the sheriff to sell the property.
If a mortgage contains a power-of-sale clause, the lender has authority to sell the property upon default. The actual sale will be executed by the lender or its representative called a trustee.
A notice of intent to foreclose must be published once a week for3 successive weeks with the last publication at least 14 days before the sale date. Copies of notices must be delivered to the mortgagor, the borrower, any prior or jr. Creditors, state Dept. Of taxation, the director Of finance of the county of county location, Dept. Of commerce and consumer affairs.
At least 28 days before sale date notice must be published on the DCCA website.
Mortgagor has a right to cure the default up to 3 days before sale date by paying the lien debt, costs and reasonable attorney fees.
Seller Financing
Purchase Money mortgage
The financing arrangement may be handled by the buyer by giving the seller a note for the balance of the purchase price plus a mortgage securing note. Simultaneously, the seller would give the buyer a deed to the property. The buyer would hold title to the property and the seller would have a lien against the buyer’s property, as a mortgagee.
When the seller takes back a mortgage as partial payment for the property, the mortgage is called a purchase money mortgage.
Usury laws specifies a max rate of interest that may be charged for various types of loan. Hawai’i law provides that interest rate on personal loans or on a JR. Mortgage carried by a private individual, other than the seller is 12% per year.
There is no limit rates on conventional,VA , and FHA loans secured by real estate in Hawaii.
If a usurious rate of interest were stated in a contract, the borrower would only have to pay the principal. Any amt of interest already paid would be deducted from the principal owed.
Escrow.
Works with a 30 day month and a 360 day year.
There may be a tenancy statement also called an estoppel certificate.
When signed by both the seller and the buyer, it prevents one party from claiming different facts than what is set out in the instrument, it is most often required by the buyer of commercial property.
Disputes
If disputes arise with respect to the transaction or any demand is made on escrow and the agent is uncertain as to its duties, the escrow agent may:
Without any liability take no action and wait for a determination by the parties
Or
File a suit in interpleaderor institute other action in any court of competent jurisdiction
Good Funds Act
Escrow may not close until:
All certified checks have cleared the bank
The lender’s funds whether wire transfers or cash are on deposit
Bureau of Conveyances require escrow have good funds in hand at least 2 business days prior to recording.
Tax issues first a requires 10% and HARPTA requires 5% withholding of sales proceeds by the buyer for non exempt transactions involving non resident sellers.
If property had been a rental, then Hawaii’s GE tax has not been paid then that amt. plus interest may be required prior to approval of form N288B. This form must be submitted 10 days prior to closing.
Hawai’i capital gains tax is 11%, the first 250,000. Gain for single and $500,000 for couples for at least 2 of the past. 5 years.
Escrow agent must also insure compliance with the following laws:
The international investment and Trade Services Survey Act ( iitssa)
The Agricultural Foreign Investment Disclosure Act of 1978. (AFIDA)
The Currency and Foreign Transaction Reporting Act of 1970 which requires the filing of a Currency Transaction Report (CTR) with the IRS when there is a monetary transaction of $10,000 or more on any one day.
