STRUGGLING WITH LENDER INSTRUCTIONS: Remember the days of easy credit, when you could get a loan as long as you were breathing? This was followed by the real estate market crash and now the 180 degree turn around in which you couldn’t get a loan to save your life.

In today’s lending climate lenders have decided that whether a loan will be a good one or bad starts with the escrow transaction. All responsibilities for how this loan was underwritten and conditions provided must be put squarely on the escrow, regardless of whether we had anything to do with it all.

Lender Instructions to Escrow Holder reflect the specific loan guidelines and underwriting conditions and can run to 25 pages with a list of over 50 items that we, the Buyer, the loan officer, and even the Seller must conform to. The difficulty is that these instructions must be agreed to and signed by the Escrow Officer at which time we commit ourselves to be held liable for whatever responsibilities and liabilities are arbitrarily imposed on us in that document. Refusal to sign means that the loan will not fund and escrow will not close. Here are samples of some of obligations which we are forced to accept and/or comply with:

• Escrow Officer must agree that within one year from closing on the short sale, we will not act as the closing agent on any transactions involving the same property (short sale approval condition)
• Notify lender if there are any disbursements on seller’s closing statement that exceeds $1,000 that is not a normal closing cost or related to the transaction
• Lender must approve any disbursement of seller proceeds to anyone other than the Seller
• Certify that we do or not have any knowledge of any previous or concurrent transaction involving the same property within the last 12 months or which will happen 2 weeks after closing
• Certify that the same borrower has no other transaction on another property in the same escrow company, no matter which branch or escrow officer
• Notify lender if the new mortgage is 25% over the amount of a previous mortgage that was taken out 6 months before
• Notify lender if borrower, loan and real estate agents, appraisers or anyone involved in the transaction had a prior interest in the property
• Certify that there are no material facts that may have an impact on lender’s decision not to make the loan
• Suspend the transaction if Closing Agent has any knowledge that any document has been tampered with, generated falsely, contains a fictitious name, contains an incorrect or falsified date, contains different names and addresses for the same party, or any party’s handwriting is not consistent through the file
• Closing Agent must pay back the lender if lender has to reimburse borrowers for interest that lender did not calculate correctly
• Notify lender if we know the borrower is not going to live on the premises even though they got an owner occupied loan
• Notify lender if the funds to close escrow are of a suspicious nature, like they come from the Cayman Islands, or Switzerland
• Suspend the transaction if the final deposit from borrower did not come from their own account (we are not recipients of their bank statements)
• List on an Affidavit for borrower to sign all the aka names that appear on borrower’s credit report (we are not recipients of credit reports)
• If the final closing statement is not sent within 72 hours from closing, the Closing Agent will be charged $150.00 penalty per day
• Closing Agent MUST make and retain a complete copy of the loan package for its records and for future reference in case lender needs it.
• Closing Agent will be responsible for any interest difference between the intended and the actual disbursement of loan funds date

You can understand our reluctance to sign a 25 page document which will hold us hostage for years to come. Should the loan come into jeopardy, will the lender, based on this signed document, assert that the loan default is due to Escrow Officer’s failure to comply with their demands and consequently file a claim for damages and blacklist the escrow company? There are a number of escrow companies who have had to hire attorneys to defend themselves against these claims.

Lenders’ arbitrary designation of responsibilities through its Lender Instructions is an issue that has long been a source of headaches for the escrow industry. The issue has been discussed nationally, but regretfully, the national concerns never filtered down to the local mortgage and real estate industries. It is time that the general public is made aware of a very important and troubling part of the “mysterious” escrow process.

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