- March 18, 2008
- All New York State Office Counsel, Managers and Agents
- The Importance of Obtaining Collected Funds
The situation regarding troubled lenders - those that are experiencing disruptions in funding, have ceased or suspended operations, and/or who have filed for bankruptcy protection - appears to be worsening.We have received reports of lenders refusing to fund loans - without explanation - on the day of closing. We have also received reports of Associates experiencing unexpected recalls of funds they thought were collected.
Funding disruptions may be the result of a temporary liquidity problem or may be an indication ofan impending bankruptcy filing. The situation extends to all sizes and types of lenders, and can deteriorate without warning. It may be impossible to ascertain in advance which lenders will be affected next.
In addition, in response to liquidity problems in the secondary market, some mortgage investors are requiring a re-verification of the loan underwriting after execution of the closing documents, but prior to authorizing funding. This may delay funding for certain closings. If misrepresentations are discovered during the re-verification process, the lender may refuse to fund.
We have previously reminded you that the settlement provider is the party ultimately responsible for obtaininggood funds. However, compliance with your state's "good funds" laws or regulations may be inadequate to protect you from loss in this turbulent situation. For example, cashier's checks and certified checks may be deemed "good funds" under your laws, but such checks nevertheless may be subject to stop payment orders and uncollectible under certain circumstances. Also, please note that mortgage company checks are generally not sufficient until collected.
For your protection, and to reduce the risk that you might close a transaction in reliance upon purportedly "good" but uncollectible funds, we strongly urge you to require that all funds - whether by check (any type of check) or by wire transfer - be deposited, fully settled and unconditionally credited to your account before closing a transaction (either insuring title or disbursing). Since checks may require several days to clear - thus potentially requiring a document escrow prior to finalizing the closing - we recommend that you require your customers to wire funds to you whenever possible.
Requiring funds to be tendered electronically reduces your risk but doesn't completely eliminate it. Funds transferred electronically by wire (CHIPS or Fed wire) are preferred over electronic funds transferred (EFT) through the Automated Clearing House (ACH). It is possible that funds transferred through ACH can be recalled for an extended period of time. Please refer to our simultaneously-issued related Bulletin describing the differences between ACH Transfers and Federal wire transfers.
To further protect wired funds, we suggest that you set up a separate trust or escrow account to receive all incoming wire transfers, and immediately upon receipt, re-transfer the funds into a secure escrow account or trust account. Please do not rely solely upon the sender's Federal Reference Number to confirm a wire. Please confirm with your own bank that the funds have been received and credited to your account.
We urge you to adjust your mindset regarding heretofore customary procedures and expectations, and proceed with extreme caution with respect to all funding matters. It is imperative that you take every precaution to ascertain that funds received are completely cleared. Closing without funds deposited, fully settled and unconditionally credited to your account may result in devastating consequences to you.
As a reminder, before closing any transaction, please check the searchable "Special Alerts" section of Virtual Underwriter (http://www.vuwriter.com). You should search all parties, including the buyer, seller and mortgagor, as well as the existing mortgagee of record, the lender providing the payoff statement (if different), and the new lender (funding the new loan). This database is provided for your convenience, but it is not meant to be exhaustive. It does not relieve you of your obligation to develop an awareness regarding troubled lenders.
Please contact Stewart Title Insurance Company Agency Legal Services with any additional information you may have regarding any other lenders who may be experiencing problems.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.
- Bulletins Replaced:
- Related Bulletins:
- NY000311 Mortgage Lenders That Are The Subject Of Closing Alerts Or That May Be Troubled
- SLS00368 Mortgage Lenders That Are The Subject Of Closing Alerts Or That May Be Troubled
- SLS2007004 This bulletin has been replaced.
- Underwriting Manual:
- Exceptions Manual: