Wednesday, February 10, 2010
Credits When Dealing With the New GFE and Settlement Statement
With the passage of new amendments to both RESPA (Real Estate Settlement Procedures Act) and HUD rules and regulations, short sale lenders and negotiators may get confused as to why we reflect credits on page 1 of the settlement statement.
Pursuant to §3500.7(d) “The loan originator must prepare the GFE in accordance with the requirements of this section and the Instructions in Appendix C to this part.” (emphasis added). Click here to see page R-4.
Appendix C requires that the loan originator include a charge on the GFE for “Owner’s Title Insurance” in Block 5 of the GFE, and “Government Recording Charges” in Block 7 of the GFE. Click here to see page R-18 and R-21.
In some parts of Florida, including the Tampa Bay Area (Pasco, Hillsborough, Pinellas and Polk Counties) both Owner’s Title Insurance and Government Recording Charges related to the deed are paid by the Seller of property. However, the GFE requires these costs be shown as Buyer costs.
To remedy this, see Appendix A to Part 3500 which states as follows:
As a general rule, charges that are paid for by the seller must be shown in the seller’s column on page 2 of the HUD-1 (unless paid outside closing), and charges that are paid for by the borrower must be shown in the borrower’s column (unless paid outside closing). However, in order to promote comparability between the charges on the GFE and the charges on the HUD-1, if a seller pays for a charge that was included on the GFE, the charge should be listed in the borrower’s column of page 2 of the HUD-1. That charge should also be offset by listing a credit in that amount to the borrower on lines 204-209 on page 1 of the HUD-1, and by a charge to the seller in lines 504-509 on page 1 of the HUD-1. (emphasis added). Click here to see page R-7.
Therefore, in those areas of Florida, including Tampa Bay, where the seller pays certain closing costs pursuant to the contract, which are listed as buyer costs on the GFE, those costs must be shown as a credit to buyer and seller on page 1 of the settlement statement. To do otherwise would violate Federal Law related to real estate closing procedures.
Monday, February 8, 2010
How Does Bankruptcy Affect My Credit?
Bankruptcy and its affect on credit is unquestionably the biggest concern of most bankruptcy clients. The ironic aspect is that often bankruptcy, especially Chapter 7 bankruptcy, is the quickest road to credit recovery.
Everyone knows that credit score dictates a person’s ability to borrow. What many people do not realize is that credit score is only one element of lending criteria.
Lenders will tell you that credit score will “open the door” to getting a loan, but the single most important lending criteria is DTI, or, debt to income ratio.
DTI, in basic terms, is the percentage of a person’s monthly gross income that is utilized to pay their debts. If a person’s DTI is too high, that too much of their income is used to service debt, lenders will be very reluctant to continue to lend money.
Again, the irony of credit is that a person can have a credit score of 750 (which is excellent and would indicate a good potential borrower) but will be denied a loan because their high DTI ratio. For example,
Bob has a FICO credit score of 750 and DTI ratio of 85%. Bob wants to borrow money to purchase a vehicle. While Bob will be “pre-approved” based on credit score alone, the vehicle lender will likely decline Bob’s loan. Based on Bob’s DTI, the lender is concerned that Bob cannot continue to service his debts and will therefore be a substantial default risk.
I use the term ironic in describing credit because credit score is very often just a façade. While Bob’s score is high, it is still somewhat worthless – really no different than a person with a 550 credit score. Why? NEITHER CAN BORROW MONEY!!
Bankruptcy is often a very quick credit recovery because a person’s DTI is instantly and substantially reduced through the bankruptcy. Bankruptcy discharges the debt – instantly improving the DTI ratio, which again, are the single most important criteria evaluated by lenders when taking loan applications.
Christopher W. Boss, Esq.
Yesner & Boss, P.L.
Monday, February 1, 2010
How Does Bankruptcy Affect Child Support?
There are two facets to child support and alimony in a bankruptcy context; both the payment and receipt of child support and alimony.
Sometimes, child support and alimony debt can become so burdensome that the parent or ex-spouse believes that bankruptcy is the only way out. Bankruptcy is a bad alternative to eliminate child support or alimony; a family law court would be a better forum to have those obligations reduced, if appropriate. Bankruptcy might help reduce other unsecured debts that will allow the child support and alimony obligations to be more affordable however.
When the bankruptcy is filed, the automatic stay halts all collection activities, except those actions to establish paternity, and actions for domestic support, child custody or visitation. In addition, the automatic stay has no effect on the reporting of overdue child support to any consumer reporting agency.
Both domestic support obligations and debts owed to a spouse or former spouse pursuant to a divorce or separation agreement are non-dischargeable in bankruptcy. Therefore, those debts remain even after the bankruptcy is completed.
Finally, in order to file for bankruptcy protection, child support and alimony obligations must be current and must be kept current during the bankruptcy case.
Therefore, bankruptcy is ineffective as a tool to eliminate child support and alimony obligations, although it might be a good alternative to reduce other debts, thereby making child support and alimony easier to afford.
What happens, however, when the person receiving child support or alimony is forced to file for bankruptcy protection? For those bankruptcy filers that receive child support and alimony, both federal law and Florida law allow the receipt of child support and alimony to be exempt from creditors and from the bankruptcy trustee. Therefore, the receipt of child support and alimony has little effect on the amount the debtor may have to pay to unsecured creditors during the pendency of the bankruptcy case.
Shawn M. Yesner, Esq.
Yesner & Boss, P.L.