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#619851 - 09/29/06 01:49 PM Single pay refinance?
BjK Offline
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BjK
Joined: Mar 2003
Posts: 151
Mid USA
Our lender is wanting to do a 12 month refinance of primary residence with cash out. She is wanting to set it up as a single pay note, but the customer is wanting us to escrow for her. Is this even a possibility? Would RESPA apply?

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#619852 - 09/29/06 02:41 PM Re: Single pay refinance?
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,025
Bloomington, IN
Why would you go through the hassles to collect escrow on a single pay note? If this loan qualifies as a temporary loan then it would be exempt from RESPA. See 3500.5.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#619853 - 09/29/06 02:53 PM Re: Single pay refinance?
BjK Offline
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BjK
Joined: Mar 2003
Posts: 151
Mid USA
It is at the request of the customer to help her escrow for taxes and insurance. She is going through a lot of medical problems and doesn't want to come up short when these expenses are due. Can this qualify as temporary financing if it is a refinance? There is no commitment for permanent financing b/c the customer is only doing this so her monthly payment is reduced for cash flow purposes. She could probably pay the entire mortgage off in a year depending on how her medical condition progresses.

If this qualifies for the RESPA exemption, what about the escrow?

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#619854 - 09/29/06 04:07 PM Re: Single pay refinance?
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,025
Bloomington, IN
It doesn't appear to be temporary financing to me based on your above statement . I know of know reason why you could not escrow, whether subject to RESPA or not, if you want to accommodate your customer. However, if it is subject to RESPA you have to follow the escrow disclosure rules.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#619855 - 09/29/06 04:35 PM Re: Single pay refinance?
BjK Offline
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BjK
Joined: Mar 2003
Posts: 151
Mid USA
What part of my above statement makes this not qualify for temporary financing?

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#619856 - 09/29/06 04:58 PM Re: Single pay refinance?
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,025
Bloomington, IN
It's not construction nor is it financing to be replaced by long term financing. It appears to be short term permanent financing.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#619857 - 09/29/06 07:51 PM Re: Single pay refinance?
BjK Offline
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BjK
Joined: Mar 2003
Posts: 151
Mid USA
Okay, thanks for your help with this!

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#619858 - 10/01/06 11:05 PM Re: Single pay refinance?
Lucy Griffin Offline

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Lucy Griffin
Joined: Nov 2000
Posts: 1,544
I'm going to chip in on this with a slightly different viewpoint. I think the loan is subject to the temporary loan exemption. HUD's definition is:
Temporary financing. Temporary financing, such as a construction loan. The exemption for temporary financing does not apply to a loan made to finance construction of one- to four-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by this part. Any construction loan for new or rehabilitated one- to four-family residential property, other than a loan to a bona fide builder (a person who regularly constructs one- to four-family residential structures for sale or lease), is subject to this part if its term is for two years or more. A “bridge loan” or “swing loan” in which a lender takes a security interest in otherwise covered one- to four-family residential property is not covered by RESPA and this part.

The test is exclusively whether the financing is temporary. Temporary is measured by whether there is an underlying legal obligation to extend the loan or renew it in the form of a mortgage. There is no purpose test here, so the customer's use of the loan proceeds is not relevant. Since neither the lender nor the borrower is under any legal obligations at the end of the loan's short term, there is no loss of the exemption here.

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#619859 - 10/01/06 11:07 PM Re: Single pay refinance?
Lucy Griffin Offline

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Lucy Griffin
Joined: Nov 2000
Posts: 1,544
Oops. Now for the escrow issue. You may set up an escrow account whenever you want as long as it is not prohibited. If you do establish a consumer escrow account, you should follow RESPA's escrow rules even if the loan is exempt. It is a sensitive topic and you don't want any disagreements.

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