ESCROW TRIALS AND TRIBULATIONS
Escrow Nightmare Endeavors
The escrow process is a very challenging process when you are doing specialty FHA programs. The Feds require adherence to very specific guidelines and you had better not depart from them. This may be true for escrow procedures that exist for standard loan types, but is a real trial when a 203 k loan is at stake.
The initial experience gives you the feeling that the agents involved are doing everything they can to discourage you from proceeding. You can’t let your realtor take the reins and provide you with periodic updates because he out showing houses. You can’t let the loan officer be in charge because he or she may disappear or keep passing the buck to other agents who are not up to date on your file.
This is Part 6 in the BUDGETHOUSE RENOVATOR series that involves the search for, location of, and unique auction-style purchase of my home in the country. The series includes dealing with a foreign based auction house and escrow to help facilitate this transaction. Also, I show how I worked with a mortgage company programmed to process the “specialized” FHA 203k Program rehabilitation loans. My loan included funds to buy “and” repair my house. Part 5 is about generating the escrow player team after a real estate auction. My next article in Part 7 is entitled “FHA 203k Renovation Plan Workings And Issues“. It will show the steps taken to do the paperwork and issues that arose to start all the renovations.
Getting Escrow Started
It is imperative that you be in control of the entire process and keep tabs on each step of the escrow details which include:
- Locating a primary loan officer that will handle your loan application
- Have a backup plan if that loan officer quits or disappears
- Choose and/or approve the escrow company yourself
- Handle requested information with your own controls in place
- Obtain necessary employment or business income records yourself for preview
- Review credit reports generated by an independent credit agency and submit corrections when you spot posted errors
- Find your own homeowners insurance company
- Deal with county tax records via your own research
- Take charge of the independent inspections required for your property
- Choose your title insurance company
- Nix verbal confirmations and do everything possible in written format to protect your interests
I think it is very easy to let someone else act as your escrow agent and make decisions and recommendations on your behalf. This is a big mistake in any type of transaction, but especially true with specialty loans that require stricter procedures to follow.
The Clandestine Loan Officer
When I started the ball rolling, I made contact with a leading loan officer for the initial application procedures. He was my go to person when I submitted the required information for a pre-approved loan guarantee. I had no specific house in mind yet, but I let him know what I wanted.
He forwarded me an application via email and I filled it out. I provided the necessary income statements and employer/business documents along with a signed form that gave him permission to check the credit ratings of both me and my wife.
With my authorizations in hand, he obtained those credit reports from a specialty business credit reporting agency (CoreLogic) and I updated any requested additional information as needed. This process took about 2 weeks.
He finally got that coveted pre-approval statement from a mortgage company and asked me if I had made an offer on a home yet. I had not, but let him know what area I was interested in and would give him an answer very soon.
When I won the bid on a foreclosed home in North West Florida, he became the contact person for the seller’s agent, the escrow and title company, the realtor, insurance agent, and so forth.
Then, in the beginning of all sorts of emails, paperwork, deposits, and document signings, my loan officer disappeared! He was no longer available for all the questions, decisions needed, or updates to the newly started escrow. Gone!
Not getting a clear answer from the loan brokerage company who certainly knew where he went, I wound up taking full control of my loan application and escrow process. What made matters more difficult was the fact that various members of the loan company stepped in for support and they were located in different parts of the country. Emails and phone calls were a daily occurrence.
Escrow Choice Roulette
The first big decision I made was the choice of an escrow agency. I could either choose my own or go with the escrow provided by HUBZU, the all-inclusive “auction house-realty company-escrow-agent-title company”. It was not an easy decision and one that I knew could go horribly wrong in a heartbeat.
Since there was no local escrow company in the area, I went with the criteria:
- The all-inclusive company would be the seller’s agent and in direct contact with same
- This company would handle direct transfer procedures from the auction house protocol
- They would be in a good position to obtain escrow extensions from the seller if necessary
With these directives in mind, I chose the HUBZU compendium of in house agents and it paid off. They handled all necessary paperwork properly. Everything was done via email including efficient eDoc processing and signatures.
When escrow ran 2 months over the deadline, the seller (REO mortgage company) threatened cancellation three times, the HUBZU escrow agents got extensions for each date that was exceeded.
When it came time to physically sign 70 plus pages of escrow closing documents, they arranged for a mobile notary to come to our apartment and complete the necessary signature procedures
DIY Home Buying Tricks
Since I had no realtor, using Zillow was my best option. As stated in Part 1 of this Budgethouse Renovator series, I wanted a suitable property that was chosen by me and no one else. On their well laid out website, I obtained a substantial amount of information, plus interior/exterior pictures, of the all properties I looked at.
My primary interest was foreclosed homes because they offered me the best opportunity for low price and fit for the 203k loan program. For my favorite choice, HUBZU was listed as the agent and auction house. It was like a 2-for-1 scenario. I found that, through them, a foreclosed property in decent shape could be obtained at a good price by bidding on it at auction, and then the option of financing that winning bid could be chosen instead of the cash in hand scenario required by most auction companies to complete the purchase.
After winning the bid and forwarded the down payment to HUBZU, I didn’t want the processing requirements spread all over the place. My preference was to keep as much of the detail work as centralized as possible. Hubzu was able to accomplish that for me.
So here are the initial steps I took:
- Searched Zillow for a prospective home.
- Narrowed my choices down to 3 or 4 possibilities.
- Settled on one house after reviewing all possible contenders.
- Bid on that home myself in lieu of having a real estate agent make an offer.
- Won the bid and completed a requested-amount down payment transaction to the auction house.
- Notified loan company officer of acceptance by seller.
- Got independent home inspection completed with out-of-pocket funds and thoroughly reviewed report of same.
- Located a token realtor who would agree to satisfy auction house requirements.
- Started escrow with HUBZU and connected their agents with those from loan brokerage company.
When Things Go Wrong
The problems I had were with the loan company and the looming disappearance of the escrow officer/agent. I suddenly felt I was left dealing with representatives in different states that did not always communicate well with one another. I would email info to one person and find out later that someone stationed elsewhere was in charge of processing it.
One thing you definitely need completed in a transaction like this is an appraisal. Since the brokerage company had set this up, I made the mistake of thinking it was a done deal. When I made my first trip to the house in August, I wound up being there at that specific time because I anticipated a final closing date would final out before that date. While waiting for someone else, a gentleman showed up right out of the blue for no apparent reason. When I made my inquiry, he said he was the appraiser. I then went into shock thinking the inspection had already been done because another deadline was approaching fast.
He stated that the first appraiser could not locate the house and gave up. In the meantime, I had been making numerous inquiries to the loan processor who assured me that the appraisal had been completed and the paperwork was somewhere out there in transit. After a few weeks of waiting for that first appraiser’s report, he said he was contracted as a backup to get it done. He then told me he could have it within a week, which is actually what happened, and I crossed on more hurdle when the loan officer received it.
I had another “head-of-loan department” individual contact me for the purpose of obtaining answers to questions from the underwriter. I then sent him a detailed letter of explanation and never heard from him again. Someone else in the loan processing office picked up the slack after I made numerous update inquiries.
Last minute requests for IRS tax documents were done just before seller closing deadlines. When threats were made to cancel the sale, various loan reps stepped in to get extensions until all the final details were completed.
Even when I signed the closing docs with my wife, the sale could not be completed because an FHA well water quality test had never been done. Something the original loan officer could have included with the actual test of the operation of the well pump itself. So, another deadline was transgressed!
It actually took a hurricane in September of 2016 to force a required-by-law extension of escrow to save the deal. On top of that, underwriters were requiring last-minute concessions from the seller which were rejected and additional threats of cancellation ensued.
Problematic Escrow Finally Completed!
Escrow was finally completed after all of the issues were handled, mostly by myself. Threats of cancellations really were extremely stressful. The actual completion date and finalized sale of the house took place around the middle of that month. It was a nerve racking experience because I had already made plans to move out of our apartment in Ft. Lauderdale and had made several trips to move furniture ahead of time.
I had to get the lockbox code from my designated realtor to get into the house. He did locate a water pump tester for me, but I think he and the tester should have been knowledgeable about the FHA requirement for water quality as well as operational capacity as well. I was responsible for paying for the quality test myself because escrow documents had been finalized and no longer able to include the cost in the financing package.
After all this was done, the house was finally mine and now I could complete the move in process. I don’t think I could go through that nightmare again, but it all turned out and was well worth the trouble. I can only hope, now, that my info will help others who are willing to venture into the depths of this type of purchase.
My Next article, in Part 7, will be entitled “FHA 203k Renovation Plan Workings And Issues“. It will show the steps taken to do the paperwork and issues that arose to see all the renovations and final inspection through. I will discuss many of the details of the 203k program and adventures I went through. It was lots of fun too. Till then!
I am requesting that my readers click on the links provided and download a sample read of each book and give a review on Amazon. You will have free access to the first four chapters of each book. My hope is that you will like the story lines enough to obtain either an eBook version or a paperback copy that you can put on your bookshelf as a masterpiece when you are done. FATE STALKS A HERO I: RESURGENCE, FATE STALKS A HERO II:THE FIJI FULCRUM, and THE SAGA OF HERACLES PENOIT. I will be giving excerpts on these works in upcoming blogs to familiarize you the reader with exciting details about the contents of each one. Thank you!