Refinance Closing with a Changed CD, a Judgment, and a Defective Power of Attorney
Your borrower is refinancing her primary residence to consolidate credit card debt. The Closing Disclosure was delivered on Monday, and closing is scheduled for Thursday. At the closing table, the settlement agent presents a new CD showing a $700 increase in the lender's rate-lock extension fee and a $12,000 judgment against the borrower's spouse. The spouse is on title but not on the loan and is out of state. The spouse signed a power of attorney that says it is valid only for "purchase transactions" and the notary block is blank. The borrower asks to sign now and sort out the judgment later. The loan is a 30-year fixed conventional refinance; the property is the borrower's principal residence.
1. Can the loan close today? Identify the disclosure and title problems.
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No. The new CD increases the lender's rate-lock extension fee by $700; that is a zero-tolerance lender fee and cannot be passed to the borrower without a cure. The CD also changed at the closing table, so the borrower has not received it at least three business days before consummation. On title, the $12,000 judgment against the spouse is a lien issue. Because the spouse is on title, the spouse must sign the mortgage or be bound by a valid power of attorney. The current power of attorney is limited to purchase transactions and is not notarized, so it is defective for this refinance. The title company cannot insure clear title while the judgment remains. The loan should not close or disburse until the CD is corrected and re-delivered, the judgment is paid, subordinated, or otherwise cleared, and a valid power of attorney or the spouse's signature is obtained.
2. What is the right of rescission timing, and how does it affect disbursement?
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This is a refinance of a principal residence, so the borrower has three business days after consummation to rescind. The rescission period also runs from delivery of the required disclosures and material disclosures, so if the CD changes, the period and the closing may need to be reset. The lender cannot disburse funds until the rescission period expires. Because the CD was delivered at the closing table and then changed, the transaction is not ready for consummation. Even if the borrower signs, the settlement agent should not fund. The corrected CD must be delivered, the three-business-day CD waiting period must be satisfied, and then the three-business-day rescission period must run before disbursement.
3. What should the settlement agent do with the $700 rate-lock extension fee?
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The $700 rate-lock extension fee is a lender fee subject to zero tolerance. The lender cannot collect it from the borrower unless it was properly disclosed on a valid revised Loan Estimate within the required timing and the change was due to a permissible changed circumstance. A rate-lock extension caused by the lender or closing delay is not a borrower-paid cost. The settlement agent should not collect the $700 at closing. The lender must cure the violation by absorbing the fee or providing a credit, and the corrected CD must show the accurate amount. If the corrected CD increases costs, the borrower must receive it at least three business days before consummation. The file should contain the tolerance calculation and evidence of the cure.