Module 3.9 Commitment letter, conditions, and final details Flashcards
what is a commitment letter
outlines the specific terms and conditions of the loan. If the offer to lend has conditions attached, then the lender will only advance funds if the conditions are fulfilled completely and in a timely manner.
Can the commitment have exactly what offer you were shopping for?
No, sometimes the lender will send back a commitment with what they are willing to offer only.
Commitment checklist of items to explain to applicants
Review the mortgage details (term, interest rate, privileges, repayment schedule, etc.) very carefully.
If the mortgage details or amount are not the same as what was requested, explain why and what is different.
Carefully explain each and every condition. Full approval and advancement of funds depends on the conditions being properly fulfilled.
Discuss strategies to fulfill any conditions such as what documents the applicant is required to obtain and from where, why the lender requires them, and the deadline for returning the documents to the lender.
If necessary, negotiate with the lender about the conditions. For example, if the lender requires a certain document and it is not available for some reason, find out if the lender will accept an alternative form of supporting documentation.
Have the applicant initial important items in the commitment to demonstrate both that the items have been explained and that the applicant understands them.
how long do applicant have to sign the commitment letter
48 hrs also sometimes referred to as the cooling off period and is required by the fair trading act
what are mortgage instructions
are a set of documents that describe the terms upon which the lawyer may proceed to act in connection with the mortgage offer. It is important to remember that lawyers cannot start preparing documents for a client to sign until they receive the mortgage instructions. If there are last minute instruction updates this may involve redrafting and resigning documents.
what does the lawyer do in the transaction
receives a copy of the purchase agreement from the applicant’s real estate professional and confirms that the deposit has been paid;
conducts title searches and other searches to determine what charges, liens, or other unknown encumbrances may be listed against the property;
prepares a report that details easements, taxes, fire insurance, other insurance, verification of title insurance (if applicable), and other attachments related to the property;
meets with the applicant before the closing date to explain the mortgage documents and witness the signing;
requests a copy of the applicant’s fire insurance on the new property, with loss payable to the lender;
prepares the mortgage “instrument” (document) to be registered on title; and
supervises disbursement of the mortgage funds.
what does the lawyer do on closing day
performs a title search again to confirm that there are no changes. Then registers the mortgage against the title at the land titles office and transfers title to the new owner. Then fires of the total amount required to the sellers lawyer “in trust” to provide clear title to the buyer
when is the lawyer due to be paid
at the last meeting before closing, and they will require a bank draft or certified cheque to pay.
Lawyers role for purchase transactions
coordinating the transfer of title from the seller to the buyer
holding any monies in trust and disbursing to the appropriate parties to close the mortgage and real estate transaction
preparing the mortgage and legal documents in accordance with the instructions from the lender
meeting with the applicant to discuss the state of the title and review any encumbrances on title that cannot (or will not) be removed from title
explaining the land title transfer documents, as well as mortgage documents such as the APR disclosure
receiving monies directly from the applicant for legal fees and disbursements, down payment, and any outstanding closing fees and/or adjustments
submitting the signed mortgage contract and land title transfer documents to the land titles office
requesting the advancement of funds from the lender to pay the seller for the property
Lawyers role in a Refi transaction
making necessary change(s) in the mortgage to be registered on title
receiving and carrying out mortgage instructions with regard to the preparation and execution of the transfer or new registration of a mortgage on title
receiving and carrying out mortgage instructions with regard to debt consolidation (if applicable) and how much of the financing will be used to pay off existing debts
explaining, reviewing, and having the applicant(s) sign the mortgage documents, including the mortgage contract
submitting the mortgage contract to the land titles office for registration
notifying the lender to advance the funds to the lawyer for distribution
What are the 7 types of compensation (pay) you can receive
referral fees brokerage fees finder’s fees (up-front fees) trailer fees volume bonus value bonus/efficiency or funding-ratio bonus lender incentives
what is a referral fee
A referral fee is a one-time fee paid by one brokerage to another for referring a client whose mortgage is ultimately approved and fully funded.
NOTE: Referral fees must be administered between brokerages, not between individual industry members.
what are brokerage fees
As you know, some brokerages charge additional fees to the applicant, depending on the brokerage’s corporate policy and/or the complexity of the deal. If brokerage fees are charged to the applicant, part of those fees may be paid to you as part of your compensation.
NOTE: When compensated (in part or in whole) by brokerage fees, you must disclose that information to the applicant by within the borrower – intermediary relationship disclosure requirements.
what are finders fees
Finder’s fees (also called upfront fees) are one-time, lump-sum payments from lenders to brokerages based on loan amount and term length. The larger the loan amount and the longer the term, the higher the finder’s fee. The brokerage typically splits the finder’s fee with the broker or associate based on his or her employment / compensation agreement with the brokerage.
For example, in the spring of 2013 a one-year term for a 2.74% fixed rate mortgage might pay a finder’s fee of 45 bps while a five-year fixed term for the same rate might pay 75 bps.
what are trailer fees
Trailer fees are based on a model by which an individual receives a smaller lump-sum finder’s fee at the time a deal closes but receives a small recurring fee or annuity on the anniversary date of the deal for the lifetime of the loan.
For example, the lump-sum payment might be about 75 basis points of the deal, with another 10 to 15 basis points of the deal for every year of the initial term. Then, if the borrower renews the mortgage with the same lender, there is another small, lump-sum finder’s fee for the renewal plus annual trailer fees for the duration of the renewal term. If the applicant purchases an insurance product with the mortgage, there may also be a trailer fee with that.
Like finder’s fees, trailer fees are paid to brokerages, and the brokerage splits the fees with the broker or mortgage associate based on his or her agreement with the brokerage.