Everyone who has ever closed a real estate transaction knows that the number of documents that must be signed at the closing table is enormous - I refer to this as the "Mortgage Document Deluge". A major purpose of this series of articles is to help borrowers cope with the deluge. Borrowers need to know which documents in the pile deserve their attention, and when that attention is needed.
To help answer those questions, I divide the document package the borrower receives into 4 groups that call for different treatment, as follows:
- Junk documents
- Educational documents
- Future use documents
- Transactional documents (which changed with the new TRID rules)
This article is directed to junk documents, which is the largest category and the least important to borrowers. Many are merely acknowledgements that a disclosure that the law requires lenders to provide has in fact been provided. Here is my current junk list:
Servicing Disclosure: In the mortgage system of the US, borrowers can choose the lender who originates their loan but they can't choose the lender who services it. In this disclosure, you acknowledge that you have been told this fact of life. Sign and go on.
Name Affidavit: You acknowledge that you are who you say you are.
Mortgage/Deed of Trust: This is a long document that details the terms of the lien that the lender has on your property, and your obligations in connection with the lien, such as maintaining your homeowner's insurance and paying the property taxes. Much of this document reflects statutory provisions of the state in which the property is located. This includes remedies available to the lender in the event that you default on your payment obligations.
The matters contained in this disclosure are important and I considered classifying it as educational. I finally placed it in junk, however, because it is unimportant to the great majority of borrowers who meet their obligations.
ARM Rider: Repeats information in the note.
Appraisal Report Disclosure: This document acknowledges receipt of the appraisal report.
Attorney Selection Notice: This document acknowledges that you have been advised of your right to have an attorney at the closing.
Authorization to Release Information: This document authorizes the lender to obtain information from third parties, such as banks and employers, for the purpose of verifying the information you have provided.
Fair Credit Reporting Act Notice: This document acknowledges that if you are delinquent or default on your payment, the lender will report it to a credit bureau.
Equal Credit Opportunity Act Notice: This document requires you to acknowledge that you have been informed a) that the lender cannot discriminate against you on the basis of race, color, religion, and so on, and b) where to go to report violations.
Tangible Net Benefit Worksheet: Some states require that on a refinance transaction, the lender must document that the borrower receives a net tangible benefit from the transaction. Some lenders elect to provide such assurance even if not required by law. The borrower must acknowledge receipt of the document attesting to the benefit.
IRS Forms W-9 and 4506-T: These documents certify that you are a taxpayer, and authorize the lender to look at your tax returns to verify your income. Lenders are likely to require these documents from self-employed borrowers, less likely to require them from salaried borrowers with employers who can document their income.
Escrow Account Waiver: Standard industry practice is to create an escrow account in the borrower's name when the loan is originated, out of which the servicing lender pays the property taxes and homeowners insurance premiums when they come due. The monthly payment includes an amount needed to fund the escrow account adequately. Borrowers who prefer to manage their taxes and insurance on their own can pay a fee to waive this requirement. Those that do will receive this document, which has them acknowledge responsibility for making the payments themselves, and the consequences if they don't.
While no two document packages are exactly alike, you should have no trouble identifying junk documents in your package that are not in mine. Weeding out the junk documents will cut your document pile roughly in half.
Next week I will review the next two categories of documents: educational and future use documents.