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KASS: Review escrow account fees carefully

DEAR BENNY: Can a mortgage lender make you pay a fee to close the escrow account? Is it legal for the lender to increase your mortgage after deducing money for escrow? – Eleanor

DEAR ELEANOR: I am always happy to answer mortgage lender questions. But there is a better place to go, and that’s the Consumer Financial Protection Bureau (CFPB). You can file your complaint on their website, and the bureau sends your complaint directly to your lender. From my experience, you should get a prompt response. (www.consumerfinance.gov).

I don’t like escrow accounts. In my opinion, the lenders like it because they get lots of money – interest free in most states – which they can invest until it’s time to pay your real estate tax and your home insurance premium. I have had  many cases over the years where the lender – for whatever reason – failed to pay the tax and my clients first learned about it when they received notice that the government was about to sell the house at a tax sale.

But it is a fact of life we have to live with. If you pay off the loan, the escrow will be closed and the lender will refund any balance in the account. Typically a lender will charge a small fee for processing the required release documentation, so there should be no extra fee just for closing the escrow account. However, if you are able to convince a lender that there is so much equity in your house that you no longer need to escrow, then I think it is appropriate for the lender to charge a small fee to close the account.

Can the lender increase your mortgage? Yes, if you are delinquent in your monthly payments and the lender was paying the real estate tax and your insurance. Those amounts can legitimately be added to your mortgage balance. This will be authorized in the deed of trust (or mortgage) document you signed when you first obtained the loan.

One issue always comes up when the real estate tax is increased. Your tax escrow is based on the amount of the annual tax and insurance that is paid. Clearly, if the lender now has to pay more, that amount will be passed on to you in higher monthly payments. However, the lender has an obligation to give you a clear, concise explanation, and you have an obligation to carefully review it to confirm it is correct. Again, from experience, there are mistakes.

DEAR BENNY: My partner and I own a house as joint tenants with rights of survivorship. Do you know if I can obtain a home equity or personal loan using the property as equity without my partner also signing for the loan? Do financial institutions have home equity loans that allow only one tenant of a joint tenancy to acquire a loan without the second party knowing about the loan? – Michael

DEAR MICHAEL: I cannot give you legal advice, but you are heading toward a disaster and possibly a lawsuit from your partner. If he or she is really your partner, you have to work together, and not try to “sneak around” hiding things. If you need money, talk with your partner. He or she may agree to assist in getting you that loan.

To answer your questions: When a lender makes a loan – such as a HELOC (home equity loan) they want and need security– and that’s your home. If you default, the lender wants the ability to foreclose. How do they do that? In most states, borrowers sign a deed of trust (the mortgage document) deeding the property to a trustee selected by the lender. If you are in default, the trustee has the power to sell the property.

But if two people own the house, and only one signs the deed of trust, the lender cannot foreclose.

This is a short summary of a deed of trust. To answer your questions, no, the lender will need your partner to sign any legal documents if you want to get a HELOC.

You may be able to get a personal loan, based on the equity in your home plus any other assets you can pledge, including your salary.

You should either talk with your partner, or an attorney  – or both.

 

Benny Kass is a practicing attorney in Washington, D.C. and in Maryland. He is not providing specific legal or financial advice to any reader. He wants readers to e-mail him, but cannot guarantee a personal response. He can be reached at: mailbag@kmklawyers.com.

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