MORTGAGE e-ALERT©
(12-18-17)
MORTGAGEE LETTER 2017-18 CONFIRMS WHY I HAVE NEVER EVER RECOMMENDED PACE BE USED BY CONSUMERS
FACTS
Date: December 7, 2017
Mortgagee Letter 2017-18
To: All FHA-approved Mortgagees, All Direct Endorsement Underwriters, All FHA Roster Appraisers, All FHA Roster Inspectors, All FHA-approved 203(k) Consultants, All HUD-approved Housing Counselors, All HUD-approved Nonprofit Organizations, All Governmental Entity Participants, All Real Estate Brokers and All Closing Agents
This Mortgagee Letter (ML) transmits revised policies for insuring mortgages secured by Single Family 1-4 unit properties encumbered with Property Assessed Clean Energy (PACE) obligations.
This guidance is effective for case numbers issued thirty days after the date of this ML.
All policy updates will be incorporated into a forthcoming update of the HUD Single Family Housing Policy Handbook 4000.1 (Handbook 4000.1).
Mortgagee Letter 2017-18
This guidance applies to the origination of all FHA Title II forward mortgage programs, and the Home Equity Conversion Mortgage program (HECM).
The policies and procedures for the servicing of FHA-insured mortgages on properties encumbered with a PACE obligation as announced in ML 201606 are not impacted by this ML and remain in effect.
Mortgagee Letter 2017-18
The following is a summary of policy changes, which is provided for informational purposes only.
PROPERTIES ENCUMBERED WITH PACE OBLIGATIONS WILL NO LONGER BE ELIGIBLE FOR FHA-INSURED FORWARD MORTGAGES.
Clarification is provided to identify PACE obligations as existing debt that may be paid off using a Rate and Term Refinance.
Current policies allowing the use of a Cash-Out refinance to pay off PACE obligations remain unchanged.
The existing prohibition of properties encumbered with PACE obligations remains unchanged for HECMs.
Clarification is provided to identify PACE obligations as Mandatory Obligations that must be paid off at closing, and may be paid off using HECM proceeds.
Properties which will remain encumbered with a PACE obligation are not eligible for an FHA-insured HECM.
The payoff of a PACE obligation is a Mandatory Obligation and it must be paid off at closing, and may be paid off using HECM proceeds.
Mortgagee Letter 2017-18
MORAL
In the June 19, 2017 issue of the Mortgage e Alert I explained how PACE loans become a super priority lien that amounts to a tax lien such that it goes in front of even existing mortgages in most if not all cases. Be very carefully when interviewing a borrower about a new loan or refinancing an old one. Check to see if there is a PACE loan in place. The one caveat I suggest is: What if a lender does a first mortgage AND THEN THE BORROWER TAKES OUT A PACE LOAN? WHO HAS PRIORITY? What if a real estate licensee recommends a PACE loan? Is that person looking at a potential lawsuit?
A REMINDER ABOUT INVALID INDEPENDENT CONTRACTOR AGREEMENTS USED BY REAL ESTATE BROKERS
FACTS
As a real estate broker review any independent contractor agreements being used with licensed real estate sales people.
- Is there a written agreement?
- Does the agreement comply with Internal Revenue Code Section 3508?
- Does the agreement comply with California Unemployment Insurance Code Section 650?
- Was a copy of the agreement given to the salesperson?
- Did the broker obtain a signed receipt from the salesperson acknowledging receipt?
These are just a few of the items where the wrong answer can show the salesperson is an employee notwithstanding the agreement states independent contractor.
Now how can an audit of the Employing Broker be triggered?
- The salesperson is terminated and applies for unemployment. I have seen this done while the licensee was still registered with the broker.
- Salesperson is injured while going to or from a potential customer and applies for workers compensation benefits.
- Salesperson leaves the broker in an angry mood because feels did not get all commissions owed Then reports it to EDD, FTB, LABOR COMMISSIONER, IRS or allfour.
MORAL
Do not let a salesperson leave dissatisfied. It may cost the broker a few hundred more dollars, BUT it beats an audit that can go back three years for past due wages, plus penalties if the auditor determines the salesperson is an employee and not an independent contractor. Now multiply this by the number of salespeople the broker has had over the three years preceding the audit. Contact your attorney if you have questions.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
PERSONAL INJURY
Alan is a personal injury trial attorney with over 20 years’ experience and is recognized as a “Super Lawyer” by Super Lawyers since 2007. He is one of the top 10 California Motor Vehicle Personal Injury Lawyers in California.
CRIMINAL
Rudy is a certified specialist in Criminal law for over 26 years. He is listed as 1 of the top 10 criminal trial lawyers by the National Trial Lawyers Association.
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