By: Ilyce Glink and Sam Tamkin
Q: I am in the middle of completing a refinance of my home and missed my rate lock due to an un-recorded deed. As soon as this was discovered, I extended my rate lock but my rate was now .75 percent higher.
Shouldn’t the lender who failed to provide the service of recording the deed be responsible for directly causing the missed lock and the resulting added expense between the two rates? I believe the difference between the rates will be about $17,000 over the life of my loan. I feel the lender should cover this differential, as it was the company’s failure to file that will result in me paying significantly more for my refinance.
Your thoughts would be greatly appreciated.
A: We don’t think you have a strong argument in this situation. The real questions are who had the duty to record the deed and what duty did they owe you for that service?
Ordinarily, closings occur through closing or settlement agents or title insurance companies. When you buy a home, the seller will deposit documents with this intermediary party that has the obligation to record and file documents, pay out funds and issue title insurance policies.
In some situations, homeowners decide to transfer title to their home when they refinance the property and these transfers may be for estate planning purposes; for example, where owners transfer title to their living trusts. In other cases, the transfers may be to add a spouse or other family member to the property’s title.
In each case, the title company or intermediary party may undertake that service as an accommodation but may not have any liability to you for their failure to record the document. Frequently, intermediary closing agents may not even charge for their service in recording the document. They simply take money that may be required by the local municipality for recording the document and bill you for it.
Now, if you requested of the title company or closing agent to issue you a title insurance policy in connection with the ownership change, the closing company undertakes to not only record the document but insure your ownership right to the property. If the company fails to record the document or some other title issue arises that affects your ownership rights, you would have insurance for these problems and a title insurance company to back you and assist you in resolving your problem.
Here’s what’s interesting: the issue you describe is not insurmountable. In fact, you should have had documentation from the time you either purchased the property or refinanced your home and had this deed recorded. Depending on your situation and the state in which you are located, the lender you were working with could have worked with the closing agent you previously used to have the document recorded or, in some states, issue a letter to the subsequent closing agent covering the issue to allow the closing to proceed.
Given these circumstances, your current lender may have been at fault in a delay in processing the documentation and finding out the problem relating to the “missing” deed early in the transaction. Had your current lender obtained the title report for your home early in your loan application process, the issue might have been resolved before your interest rate lock expired.
So, while the first closing agent caused the problem, it may not be the first closing agent’s fault that the second lender delayed in processing paperwork and getting documentation together to fix the issue or contact the first “lender” to get the issue corrected.
Finally, we always hear from our readers about lenders who should be held accountable for rising interest rates when loans don’t close on time. But it’s quite hard to actually pin “fault” with the current lender processing your loan.
When lenders blow their timing in processing a loan, it may be time to find a different lender to assist you in future loan refinances. And, if you close and find that interest rates head south again, you can always go through the pain of refinancing and locking in a lower rate down the line.