TX Escrow Officers Checklist for Home Equity Transactions 1
Yes No Escrow Officers Checklist for T-42
1.Commitment: Order for New Home Equity Mortgage
The order discloses that the new loan will be a Home Equity Loan: Add the following requirement to the Commitment:
"The policy to be issued will have attached and be subject to the terms of the Equity Loan Mortgage Endorsement (T-42). Issuance of our policy and of the Coverages provided by paragraph 2 of the T-42 Endorsement is subject to compliance with our requirements, including (1) execution of our Home Equity Affidavit (or Dairy Production Home Equity Affidavit, if applicable); (2) joinder of the owners of the land, and spouses, if any; (3) releases of all mortgages and liens for which a release is required in this commitment; (4) satisfactory conspicuous written disclosure in the proposed mortgage that the extension of credit is the type of credit defined by Section 50 (a)(6), Article XVI, Texas Constitution' (or similar words); and (5) execution of the insured mortgage and of the promissory secured by the mortgage at the office of this Company or of its title insurance agent which issued this Commitment."
2.Commitment: Unreleased Home Equity Mortgage Over 1 Year
Examination discloses unreleased Home Equity Mortgage recorded more than one year before the examination of the title: Add the following after the Home Equity Mortgage:
"This Mortgage discloses that it secures an extension of credit made pursuant to Subsection (a)(6) of Section 50, Article XVI, Texas Constitution ("Home Equity Mortgage"). This Home Equity Mortgage must be released in order for any new Home Equity Mortgage to encumber the title to the land."
3.Commitment: Unreleased Home Equity Mortgage Within 1 Year
Examination discloses unreleased Home Equity Mortgage recorded within one year prior to the examination of the title: Add the following after the Home Equity Mortgage:
"This Mortgage discloses that it secures an extension of credit made pursuant to Subsection (a)(6) of Section 50, Article XVI, Texas Constitution ("Home Equity Mortgage") recorded within one year prior to the effective date of this Commitment. This Home Equity Mortgage must be released in order for any new Home Equity Mortgage to encumber the title to the land. A new Home Equity Mortgage may not be insured unless the closing occurs and the documents are executed more than one year after the date of recording of this Home Equity Mortgage."
4.Commitment: Released Home Equity Mortgage Within 1 Year.
Examination discloses Home Equity Mortgage recorded within one year prior to the examination of the title which has been released: Describe the Home Equity Mortgage and the release and then add the following:
"This Mortgage disclosed that it secured an extension of credit made pursuant to Subsection (a)(6) of Section 50, Article XVI, Texas Constitution (Home Equity Mortgage") recorded within one year prior to the effective date of this Commitment. A new Home Equity Mortgage may not be insured unless the closing occurs and the documents are executed more than one year after the date of recording of this Home Equity mortgage."
[exception does not need to appear in policy to purchaser or in mortgagee policy for purchase money but should appear in the Commitment]
5.Survey: Over 10 Acres.
Survey discloses that land exceeds ten acres: call the lender for instructions as to whether to close. The T-42 does not insure on this issue. Some closing instructions may attempt to create liability. Note: this issue does not apply to land that is clearly rural. Instead the issue for rural land is whether it exceeds 100 acres for a single person or 200 acres for a married couple.
6.Endorsement T-42: Paragraph 2(a) Joinder of Spouses.
Verify that both the owner and spouse join in the Home Equity Mortgage. If multiple owners, require joinder of all spouses, even if specific owner does not claim as homestead (e.g., heir of deceased parent). See Bulletin TX000040 and TX2013004 for Powers of Attorney. Do not do mailouts (unless to a Texas Stewart Title insuring agent for execution at that office).
7.Endorsement T-42: Paragraph 2(c) No Other Home Equity Loans on Land.
Verify that, when the Policy is issued, the only prior mortgages remaining on the land (and not paid off at closing) will be purchase money, home improvement, owelty or refinance of such debt or refinance of federal tax liens. Verify that any prior Home Equity Loan is paid off in the closing.
8.Endorsement T-42: Paragraph 2(d) No Prior Home Equity Loan on Land Recorded Within Last Year.
Verify that no Home Equity Mortgage on the land was recorded within the last year, regardless of whether it has been released. If a Home Equity Mortgage was recorded within the last year, see Paragraphs 3 and 4 above on Commitment and DO NOT CLOSE on a new Home Equity Loan until one year has passed since recording of prior Home Equity Mortgage.
9.Endorsement T-42: Paragraph 2(e) Mortgage Disclosure that Home Equity.
Verify that the new insured Home Equity Mortgage (1) discloses that "THE EXTENSION OF CREDIT IS THE TYPE OF CREDIT DEFINED BY SECTION 50(a)(6), ARTICLE XVI, TEXAS CONSTITUTION" or similar words [saying it is a "Home Equity Mortgage" is not enough], and (2) that the disclosure is CONSPICUOUS [ a disclosure is conspicuous if it is in larger print, is bold (and rest of text is not), and/or is underlined (and rest of text is not).] The Fannie Mae/Freddie Mac "Texas Home Equity Security Instrument (Cash Out - First Lien)" contains a conspicuous disclosure. "A printed heading if capitals.... is conspicuous. Language in the body of a form is "conspicuous" if it is in larger or other contrasting type or color." Section 1.201 Business and Commerce Code. "The fact that the release heading has a larger font size than the release language does not alone make the release conspicuous." Littlefield v. Schafer, 955 S.W.2d 272. See Section 1.02, Business Corporation Act.
10.Endorsement T-42: Optional Paragraph 2(f) Closing at Title Company
[You should use the T-42 with preprinted Paragraph 2(f) if you include this paragraph.] Verify that the Note and new insured Home Equity Mortgage are executed at your title company office. Call us if the Home Equity Mortgage will be executed at another title company. If the Note and Mortgage are executed at the lender's office or elsewhere, issue the T-42 which does NOT include paragraph 2(f) (or line through and initial Paragraph 2(f)). Fannie Mae requires all paragraphs including 2(f) be included in coverage.
11.Closing Instructions: Copies
If closing instructions request, and you agree, give separate copies of all documents signed by the owners/borrowers at your office to each spouse (including HUD-1 and your Home Equity Affidavit, which acknowledges receipt.) Fannie Mae suggests that Instructions require copies be given to the borrowers. KEEP a copy of ALL documents signed by the borrowers.
12.Closing Instructions: 2% Fees
If closing instructions request, send a copy of the Closing Disclosure or separate sheet showing all fees that will appear on the final Closing Disclosure or that you will collect, disburse or pay. Do not add additional fees unless the lender consents in writing. Decide whether you will accept closing instructions (1) that require you to determine that the fees do not exceed 2% of the new Home Equity Loan, or (2) that require you to complete a calculation sheet. Fannie Mae suggests that Instructions that the lender approve the settlement statement showing all fees to be imposed or collected by the title company.
13.Closing Instructions: No Blanks
If closing instructions request, decide whether you will review the documents signed in your office to verify there are no blanks when the borrowers sign (except acknowledgment or jurat). Some will require you to verify only that documents you prepare have no blanks. Be aware of closing instructions that require you to verify no blanks in other documents or to verify generally "compliance with [all laws, Subsection (a)(6), etc.]." Fannie Mae suggests the Instructions state that no documents have blanks when the owner signs.
14.Closing Instructions: Do Not Close Before Stated Date.
If closing instructions request, do not close or let borrowers sign documents before a stated date. A stated date is a specific date stated in the closing instructions or the date of the instruments drafted by the lender. Decide whether you will accept closing instructions that require you to determine the date to close or that require you to calculate the date to close. Fannie Mae suggests the Instructions prohibit closing before the lender's stated date.
15.Closing Instructions: Do Not Allow Borrowers to Execute Election Not to Rescind Until Three Days After Closing
If closing instructions request, require the borrowers to return after three BUSINESS DAYS (all days except Sundays and federal public holidays) evidencing an election not to rescind. Do not accept a fax unless the instructions allow. If you are in doubt as to the applicable date for execution after the expiration date, call the lender. Some lenders may state the applicable date in instructions. Fannie Mae suggests the Instructions specify an expiration date and that the owner and spouse not execute an election not to rescind before the expiration date.
16.Closing Instructions: No Disbursement Before Expiration of Rescission Period
If closing instructions request, do not disburse loan proceeds prior to the expiration date for the three-day right of rescission period. Fannie Mae suggests the Instructions prohibit disbursement before the expiration date specified by the lender.
17.Closing Instructions: Record Home Equity Mortgage Before Three Day Right of Rescission Passes.
If closing instructions request that you record the Home Equity Mortgage before three day right of rescission passes, require that the lender provide written agreement to be signed by borrowers consenting to early recording before disbursement of funds or provide your own letter for borrowers to sign. Do not record prior to passage of right of rescission unless borrowers consent in writing.
18.Closing Instructions: Attach Appraisal or Evaluation to Written Acknowledgment of Fair Market Value Before Execution by Borrowers
Some lenders require that the Written Acknowledgment of the Fair Market Value have an appraisal attached. If so, attach a full copy before signature by the borrowers and have them initial the appraisal. Furnish a copy of the appraisal with the written acknowledgment of value (which you will include in copies given to the borrowers.) Closing Instructions may require you to verify an amount is stated for "fair market value."
19.Closing Instructions: Determine Whether Urban or Rural Homestead, Whether Only Homestead Property, or Whether Land Exceeds Acreage for Rural Or Urban Homestead.
Some closing instructions may require you to determine whether the land exceeds the allowable acreage for urban or rural homestead or whether all of the land is homestead. Decide whether you will accept these closing instructions. If the closing instructions require a survey and require that it certify that the land does not exceed one acre, you should review the survey and verify compliance.
20.Closing Instructions: 80% Limit on All Recorded Liens Against the Land.
Some closing instructions may require you to determine that the amount of prior liens or all liens against the land do not exceed "80% of the fair market value of the homestead" or similar language. Some closing instructions may require you to complete worksheets. Determine whether you will accept these closing instructions. Be aware of closing instructions on a junior Home Equity Loan that require you to secure written payoffs of prior liens good through the closing date and to forward that amount to the new lender or not to close if the amount of recorded mortgages exceeds a specific stated amount.
21.Closing Instructions: Use of Powers of Attorney
If you are asked to accept a Power of Attorney, comply with Bulletin TX000040 and TX2013004 and verify in writing from the lender that the Power of Attorney is acceptable.
22.Closing Instructions: Comply With Law
If closing instructions require you to comply with "applicable law" or homestead or home equity requirements, decide whether you will accept those instructions or close. Contact your legal department if you wish to change those instructions.
23.Closing Instructions: Acknowledgment of Receipt:
Bulletin 155 says that "Procedural Rule P-35 ... is not intended to prohibit title agents or escrow officers from following the terms of and acknowledging receipt of standard closing instructions, provided that no certification or guaranty is included or implied in the acknowledgment of receipt." Avoid signing a certification regarding closing or a certification of proper completion. You may sign an acknowledgment of receipt of closing instructions.
Do not close based on mailouts, unless you secure consent of your legal department or a Stewart Underwriter.
25.Closing: Home Equity Affidavit.
Require both spouses to Execute the Home Equity Affidavit AFTER they have read it. If they state that the form is not true, contact your legal department or a Stewart Underwriter. DO NOT USE OUR REGULAR INDEMNITY AND AFFIDAVIT AS TO DEBTS, LIENS AND POSSESSION.
You must attach the Endorsement T-42 to the Mortgagee Policy (T-2). If our requirements are not met for each paragraph, contact your legal department or a Stewart Underwriter. We may agree to issue subject to deletion of particular paragraph, with lender consent. For other endorsements, see Bulletin TX000040.
If the Home Equity Loan will be a JUNIOR Mortgage, the borrower must not pay escrow, copy, delivery or tax certificate fees. The lender may pay these fees if it does not add the costs to the loan principal (i.e., finance these costs). Stewart Title Guaranty Company does not tell you whether to charge such fees.
28.Refinances: Premium Rate, and Use of Renewal Language
There is no extra charge for the Equity Loan Mortgage Endorsement (T-42). If the Home Equity Loan refinances or pays off a prior mortgage insured by a Mortgagee Policy (T-2) within the last seven years, apply Rate Rule R-8. Do NOT require that the new Home Equity Mortgage include refinance or renewal language (we do not object, we just do not insist).
29.Intervening Liens ant Other Matters: Releases, Subordinations, Subrogation, Termite Reports.
If there are intervening liens recorded after a prior lien to be paid off with the Home Equity Loan, require a release. Do NOT rely on a subordination unless the new lender consents in writing (because it may conflict with closing instructions and may violate the 80% limit). Do not rely on subrogation to insure priority over intervening liens unless you secure approval from your legal department or a Stewart Underwriter (several issues: priority as to other advances, limits on types of liens when home equity and 80% limit). Maintenance liens will likely NOT be subordinate to the Home Equity Loan: BE SURE YOUR CLOSING INSTRUCTIONS DO NOT REQUIRE YOU TO DETERMINE THAT MAINTENANCE LIENS ARE SUBORDINATE.
Master Closing Instructions also may include irrelevant requirements that should be deleted: these might include termite certificates.
Disclaimer:Comments on closing instructions are not intended to direct your escrow or settlement practices or to change provisions of applicable underwriting agreements. You may make your own decisions concerning closing instructions and are not our agent for settlements or closings.
For issuing guidelines on this form, see Guidelines