Have you considered what to take into account when handling payoff statements? Read on as State Underwriting Counsel Hilary Herris Fentress outlines the proper procedures that should be followed when ordering payoffs in order to protect yourself and your agency amidst these hectic times.

It’s the end of the month and you are swamped like everybody else. You have been trying to get a payoff out of the seller’s lender for weeks and they still have not sent it. The seller knows this is holding up the closing and emails a payoff statement to you that they were able to get by requesting it online through their account with the lender. You are so happy to have a number so you can get this closing scheduled that you take it and don’t think twice about it. Days later the closing happens, wires are sent out, title policies are issued and you moved on to all of your other closings. Months later a buyer calls demanding to know why they are getting foreclosure notices on the house they just bought at your firm. You still remember that closing (there were lots of other issues, of course) and pull the file so you can call the lender. You discover from that phone call that the payoff was short by $50,000.00…….

While the above fact pattern is just a story, falsified payoffs do happen, and nationwide payoff errors continue to be a large source of claims loss for our companies. To protect yourself, your agency and avoid something like the above happening to your firm, there are procedures that should be followed when ordering payoffs:

1. Payoff statements should always be addressed to your firm or title agency. A statement addressed to an employee or just a fax number is not sufficient. If the payoff received is not so addressed, make sure your procedure is to make a note on the payoff statement naming who requested the payoff, that it was received directly by the lender and then the name of the person who received it and date received.

• • A payoff statement can be a binding agreement if the terms of the payoff are followed. If the lender later claims the payoff was not correct, our claims counsel can rely on the payoff statement to defend the company in a claim. If the payoff is not directly to your firm or title company then claims loses that defense.

2. Payoffs ordered and provided by a mortgage broker, real estate agent or borrower should not be relied on. Accept the payoff provided and then use that information to obtain a payoff directly to your firm or company. Verbal verification of a payoff obtained by a non-employee is not sufficient.

3. Never close on a verbal payoff. A verbal payoff may not include additional fees like pre-payment penalties, escrow shortages or accrued late fees. If you already have a statement directed to your firm or company, you can verbally update based on that payoff statement.

4. If the payoff statement has an expiration date, the lender does not have to honor the figure after that date. It is no longer valid and an updated payoff figure with a new expiration date should be obtained. The payoff figures could change for several reasons so just adding interest to an expired payoff is not sufficient. Here are some examples of ways the payoff could change:

• • Borrower placed stop payment on their last month’s payment
  • Borrower took an additional advance on a line of credit
  • Lender paid taxes or insurance out of escrow and there was a shortage
  • Late charges and additional interest accrued

Even if you follow all the above guidelines, do not assume that once that payoff is sent the loan will be properly paid off and closed. Our agents have experienced many post-closing situations involving payoffs that have led to claims losses. For example: lenders have returned payoffs because they are not for the correct amount, even if only pennies, placing the loan into default and even proceeding with foreclosure; lenders have paid off the wrong account for either the same or even a different borrower; or sometimes they reject the payoff for some other reason with no notice to the firm who sent the payoff. It is extremely important that confirmation is obtained that any payoffs sent clear your escrow account and that any returned payoffs are addressed immediately. Checking down the title after all the recording comes back to be sure that any lenders sent in the cancellations for the security deeds paid off at your closing, as required by Georgia law, is also a great procedure to have in place. O.C.G.A. § 44-14-3

Also always remember that an equity line must be closed out by every borrower on the account so that no further funds can be drawn on the equity line. If the lender does not send their own form for signature by the borrowers to close the account, have a form prepared that they can sign at closing directing the lender to close the account and make sure that form is either sent with the payoff check or mailed separately if the payoff amount is wired.

Still have questions? Contact an underwriter at 404-303-6300 or by emailing us at gaunderwriter@cticga.com.

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