Module 10: The Closing Process Flashcards
What is a commitment lender?
Once the mortgage lender has made the decision to lend a commitment letter (commitment to lend) will be prepared by the mortgage lender and forwarded to the borrower.
In NS the lender provides this commitment to the borrower in the form of an initial disclosure statement of the cost of borrowing.
What does the commitment letter include?
Details of the mortgage loan including:
-Name & address of borrower & lender
-Address of property
-Prepayment privileges
-Interest adjustment date
-Advance/funding date
-Principal amount of mortgage loan
-Mortgage insurance
-Payment info
-Annual interest rate and APR
-Loan term and ammortization period
What are common conditions that must be met after the commitment is issued and before the mortgage is actually granted?
-Verification of property value through an appraisal
-Ordering a survey or inspection
-Confirmation of down payment
-Confirmation of income and employment
-Additional credit check
-Acquisition of homeowners and or title insurance
Once all conditions are fulfilled the transaction cannot proceed to closing
Before the borrower enters into the mortgage it is important they receive some disclosure documentation, provide some additional details:
-Typically disclosure documentation is provided at the same time as the commitment letter, as the disclosure is highly related to the terms and conditions noted in the commitment.
What are some general disclosure requirements across jurisdictions?
-Fees and charges to the borrower, annual percentage rate
-Details about the mortgage and how it is to be repaid, other payment details.
-Conflicts of interest
-Material risks associated with the mortgage
-Disclosure of receipt of payment of referral fees
-Disclosure that the associate mortgage broker will be compensated and the method of compensation.
What are the key items to remember when making disclosures to borrowers?
-In Writing - If borrower consents electronic documents are permitted
-Complete
-Clear
-On Time - disclosures must be made no later than two business days before the borrower enters into the mortgage agreement
-Agreed To
How can you provide a truly suitable mortgage for your borrower?
-Document Your Activities: Broker must provide the borrower with a written assessment of why and how the mortgage is suitable.
-Know Your Products
-Know Your Client (KYC) - Understanding the whole picture about your client
What must be disclosed regarding remuneration the mortgage brokerage will receive?
Has, may or will the brokerage receive a fee or other remuneration directly or indirectly from a person in connection with this mortgage transaction.
If a fee or other remuneration is paid to the broker he/she must disclose:
-Identity of person providing fee
-Basis for calculating the fee amount
-The nature of the benefit (volume of discounts)
What’s the difference between the APR and the AIR?
The APR includes non-interest related expenses while the AIR is jus the interest rate.
In most provinces the mortgage brokerage fees must be included in the APR and disclosed by either:
-associate mortgage broker - if the borrower pays the fee directly to the mortgage brokerage who arranges the loan
-Lender - if the fee is deducted directly from the loan proceeds
What are some expenses that would be included in the APR calculation?
-charges for services, transactions or other activity related to the mortgage
-Lawyer fees
-Title insurance when provided by an insurer not chosen by the borrower
-brokerage charges are paid by lender and to be reimbursed by borrower
-Appraisal fees
What are the key items to remember when making disclosures to private investors?
-In writing (can be electronic if agreed upon)
-Complete
-Clear
-On Time
-Agreed To
Is dual representation of the borrower and private investor allowed?
No
What does it mean to work in the best interest of the private investor & what must the broker provide the private investor?
-A completed Form 4 - Investor Disclosure Statement or completed Form 5 - Investor Renewal Disclosure within the appropriate timeframe
-The information and documentation prescribed by regulations and
-any other information, in writing that an investor of ordinary prudence would consider to be material to a decision about whether to make the investment in the mortgage
Typically the lawyer who is acting on behalf of the borrower handles the mortgage registration as part of the closing process. The letter of instruction requests the lawyer to:
-Act for the mortgage lender in the preparation and registration of the final mortgage document.
-Supervise the disbursement of the mortgage funds
-Verify the details of the real estate transaction - sale price, survey requirements, number of copes of mortgage document, procedures to follow for the disbursement of mortgage funds.
-Complete a Lawyers Report on Title (also known as a Solicitors Report on Title or a Lawyer’s Opinion on Title).
The mortgage lender sends a letter of instruction to the borrowers lawyer
What are some of the required documents in advance of funding?
-Survey
-Lawyers Report on Title: Sets out details of the mortgage
-Title Insurance
-Standard Charge Terms: A list of standard mortgage terms and conditions
-Additional and Supporting Documents
How does the disbursement of funds work?
The mortgage lender provides the mortgage money to the purchaser’s lawyer in trust for future disbursement to the vendors lawyer.
What is the Interest Adjustment Date (IAD)?
This is normally the first day of the month following the closing of the mortgage transaction.
When does the lawyer handling the registration perform the title search?
The title search are generally done on the day of closing.
After the proceeds of the mortgage have been disbursed, the mortgage lender receives the final report from the lawyer. What does this final report include?
-Proof mortgage was registered
-Cope of mortgage and deed
-Copy of the survey or proof of title insurance
-Confirmation that no realty taxes are owing
-Sheriff’s Certificate
-Lawyers certificate of title
-Copy of any other documents relating to chattel mortgages or corporate borrowing requirements
-Accounting statements documenting the receipt and disbursement of funds through the lawyers trust account
-There may also be a final copy of Statement of Registered and Recorded Interests (SRRI) that was printed from Land Titles on the day of closing.
Once mortgage funds have been disbursed who takes over the mortgage file?
Mortgage Administrator. Large lending institutions will often take over this service.
What is the purpose of mortgage servicing and what services are provided?
Mortgage servicing keeps track of the mortgage loan throughout its life cycle from the viewpoint of the borrower and the mortgage lender. Tracking/servicing of the mortgage takes place from when the mortgage funds are disbursed until the final discharge of the mortgage.
Is failure of the borrower to pay taxes a breach of a covenant?
Yes failure to pay property taxes is a breach of one of the borrowers covenants and generally constitutes an act of default.
A mortgage loan can be repaid by the borrower in one of three ways:
-Payment of the balance at the end of the amortization period
-Payment of balance at the end of a mortgage term (no penalty)
-Early discharge or release (may incur penalty)
What happens when you pay off your mortgage?
The borrower obtains a Release or Mortgage receipt. The receipt acknowledges receipt of all money due under the mortgage and releasing the mortgage.
What is an Assignment of Mortgage?
The transfer of mortgage ownership from one lender to another.
Are disclosures to borrowers and private investors optional?
No, they are not optional, they are required under the MRA and regulations.
Provide some examples of required disclosures:
-Fees and charges to borrower
-APR
-Details about mortgage and how it is to be repaid
-conflicts of interest
-material risks associated with the mortgage
-disclosure of receipt
-payment of referral fees
-disclosure of brokers compensation
