The Real Deal New York

Wanted: Closing horror stories; Fed asks consumers, industry for worst experiences

February 01, 2014
By Kenneth Harney

The federal government has a real estate question for consumers who’ve bought or refinanced homes that is certain to generate more than an earful: Were there any problems when you went to close the deal?

Any last-minute glitches or surprises that delayed the settlement, required unexpected negotiations or, worst of all, blew up the sale or refi? Did the settlement sheet arrive in advance so there was time to review the documents intelligently? Were there any errors or discrepancies that popped up — charges that were considerably higher than expected, loan-related fees or an interest rate that differed from what the buyers thought they had signed up for? Was the whole process pleasant? Was it “empowering”?

Wow. Talk about stirring up hornets. The Consumer Financial Protection Bureau, which has broad regulatory powers in the real estate settlement arena, wants to know whether there are common problems that need to be fixed. If so, it may make what it euphemistically calls “interventions” in order to right what seems to be wrong.

The bureau also wants to hear from real estate professionals, lenders, title insurance and escrow agents, attorneys and others who play roles in closings on homes — the people who produce, bless and witness the signings of mounds and pounds of paper associated with the settling of America’s home transactions.

From industry accounts, the vast majority of closings are successful. The National Association of Realtors estimates that roughly 10 to 12 percent of all pending sales don’t close for various reasons. But conversations with agents suggest that a much higher percentage of settlements experience problems that arise just before or during the event, either delaying or complicating the process.

Though eleventh-hour delays can occur because of title insurance-related issues and various other problems, a disproportionate percentage appear to be related to the mortgage. Late in the game, the lender might inform the borrower: Sorry, but we’ve encountered some underwriting red flags in your application that you’ll need to resolve before we can proceed. Or oops, we didn’t get all the loan documents to the closing agent in time. Or worst of all, we’ve changed our mind and we simply cannot do this loan, and we sincerely regret that we’re telling you this on the day before your scheduled closing.

Gary Kassan, an agent with Pinnacle Estate Properties in Valencia, Calif., says he routinely gets buyers pre-approved by lenders but that problems pop up after the pre-approval in at least 20 percent of purchases that threaten to delay or disrupt closings. In early January, Kassan was waiting for a lender to agree to close on a deal that was originally scheduled for late December. The problem: underwriters’ questions that arose late in the process about the borrower’s income.

“I want to ask all these [loan officers] — why didn’t you bring this up earlier, before you gave [my client] a pre-approval letter?”

Cindy Westfall, an agent with Premiere Property Group in the Portland, Ore., area, has had two recent sales knocked off track by underwriting issues just before the closing, one of which caused the entire sale to blow up, forcing her buyers to start their home search all over again. “My clients were very stressed” by the entire experience, she said in an interview.

Rhonda Masotta, an agent with Bright Realty in Sarasota, Fla., almost found herself in the same situation: Last year, she was sitting at a table for her buyer’s closing on a $1.25 million home. The only thing missing was an essential — confirmation that the bank committed to do the loan had wired the money needed to complete the transaction.

“We all waited for hours,” but there was no word from the bank, Masotta said. The closing was rescheduled for the following day, but then came the bad news: The bank had decided to back out of the deal. That’s usually a death sentence on a home sale, but Masotta and her colleagues on both sides of the transaction opted for an emergency rescue attempt and found a bank willing to underwrite and fund the loan on an expedited basis later the same day.

That’s not the way closings are supposed to work, but stuff happens.

To share experiences with the Consumer Financial Protection Bureau, email the details by Feb. 7. Detailed instructions for submitting comments — and postings of comments made to date — are online in the Jan. 3 Federal Register, at www.federalregister.gov.

Kenneth Harney is a syndicated columnist.

  • Bullying Trends

    In the year 2011 we found a Buyer (as a Latino, I desperately
    needed to move my family out of a Town that I had no business being in. Hate Crimes
    were escalating after I filed a police report).

    Inspections were performed and almost every inspection ended up with severe
    damage to my property (example; I caught my septic inspector damaging my septic
    system with a “pinch bar” – it cost me
    money. My pool was damaged about a week before we were to close – costing me
    more money. The Home Inspector never made it onto the roof but wrote in his
    report that my home needed a new roof, closing was almost cancelled because a Septic
    Health Dept document needed for closing was somehow lost – a new form needed to
    be handed in; the inspections list went on and on…

    I couldn’t look for another home because we were skeptical that
    closing would take place (it was the middle December now). At the eleventh hour
    when we were told that there’s a good chance that closing would happen, my wife
    and I needed to seek temporary housing to move into. We had our furniture place
    in storage until such time when we could find another home to purchase.

    About six months later we found another home in an urban
    area (where I realized, I really belonged). We were meet with so so much resistance
    from the local real estate agent that we need to put that agent on notice
    regarding fair housing and discrimination. By the way, my wife and I have been
    realtors for many many years.

    2013 year I get a letter from the IRS notifying me that I
    owe thousands of dollars. The closing attorney for the home we sold in the year
    2011 claimed that the IRS form 1099S was sent out to the IRS after the closing
    and the IRS was requesting a copy of that form.

    There’s “so much more” abuse that still goes on but it
    actually doesn’t refer to real estate but is as a result of once living in a
    Town that after the first month there I knew I had made a big mistake.