Scenario:

We are selling a home that we repossessed. The GFE has already been given. The processor is working on the HUD now and is asking about some costs that were not disclosed on the GFE.

During the repossession and sheriff sale process we discovered that the property has termites and that a boundary on the property runs through a lake, so the lake is partially owned by the neighbor. So the bank started the process of getting a termite inspection and scheduling to tent the home before we ever had a buyer. We also planned on getting a survey of the property so that we would know the exact boundaries of the property. In the interim, a potential buyer contacted the loan officer. The loan officer explained about the termites and treatment that was being done at the bank’s cost and the survey that would be ordered at the bank’s cost. The person decided to purchase the property and a purchase agreement was written up between the bank (seller) and the buyer. The purchase agreement stated that we would provide a termite certificate and that the survey lines would be marked on the property.

As a lender, we did not require the borrower to obtain a termite certificate or a survey. But as a seller we are obtaining these at our cost and will provide the customer a copy (the bank was obtaining the survey and termite inspection/treatment because we knew any potential buyer would want a termite free home and an accurate boundary survey; it was coincidence that there was a buyer while we were working to obtain these things). The costs of these services were not disclosed on the GFE.

Should they have been disclosed on the GFE? I’m thinking no because as a lender we did not require it of the borrower (FAQ page 34 GFE-Block 6 question 1). Does it have to be disclosed on the HUD? If so, would it be put in the 1300 series (FAQ page 57 question 1 and page 45 question 9)?

Additionally, we are not requiring a title search, opinion or lender’s title insurance because we obtained a Proces Verbal from the sheriff sale, so we know the title is clear. Therefore, we did not quote the cost for this title service. The customer, however, wants the attorney to provide a title opinion anyway. The loan officer knew the customer wanted this, but I am unsure at what point in time he was told.

Should the cost have been disclosed on the GFE, or at the point the loan officer knew should have notified the processor so a revised GFE could have been given due to changed circumstance? Or is it not required to be disclosed since we never required the service, but in fact the borrower who wants that service?

Sorry for the long explanation but I thought the details may make a difference in making a determination. Thanks!

I think you are okay on the termite and survey. You don't have an option on OTI and to do so, generally you are going to have associated title service costs. So, I think you do have an issue with that portion of non-disclosure and no option for a CC because OTI would have been required regardless.

I agree.

The inspection, treatment and survey was agreed to between the seller and the buyer at the seller's expense. Seller charges do not go on the GFE but they are disclosed on the HUD.

My answer to the title services question from the other day:

But they (bank) are requiring the service.

The only difference is they wanted to use a title exam they already obtained and paid for but the borrower wanted their own title exam.

Under RESPA the bank, being the seller, cannot dictate what title services provider the buyer uses.

I also agree with RRJ on the OTI. For purchase transactions you have no option but to disclose an estimated cost for OTI.

Thanks Dan and RR,

Dan, do you mean that because the bank has a title exam already in hand that this automatically means we required one?

As the lender we didn't require a title opinion because we know its clear. We were trying to save the customer from purchasing something that was unnecessary for us to finance the transaction.

The customer on his own accord contacted the attorney and ordered a title opinion that the customer expected to pay for outside of the loan transaction.

The opinion isn't even going to be address to the bank and we are never going to see a copy.

As the lender we didn't require a title opinion because we know its clear. We were trying to save the customer from purchasing something that was unnecessary for us to finance the transaction.

Without that opinion in hand, or if you weren't the seller, would you have required one for this purchase transaction?

This would be no different if I was the seller and the buyer was financing through your bank and you told the buyer you need title work. I tell the buyer I already have title work from XYZ, but the buyer wants ABC to do the work. Under RESPA, as the seller, I can't dictate what title company the buyer uses.

In this case you have to distinguish between what you require as the seller and what you require as the lender.

You might be able to argue the point but IMHO you did require title services and the buyer chose to use someone different than the one you had already used.