Need opinion on unexpected closing cost (title insurance)

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This is in California. A question for those who understand title insurance, and how much can a final statement vary from the good-faith-estimate.

So, I was in the process of refinancing a construction loan. The loan was originally issued by bank S, and my company C1 owned the property.
I transferred the property then from C1 to a new company C2 and the loan was refinanced, again with bank S.
The other reason for the "refinance" was that the original loan had matured.

No construction has happened but an existing building was demolished in early November 2016 (more than 90 days ago).

Due to the "break in priority" (demolition had happened = work was done.. risk of mechanic's lien), I had to provide documentation who did the work, contact information, how much was the invoice, how much did I pay. (Demolition was paid in full, permit was finalized 11/17/2016, but of course no notice of completion for a demolition recorded)

When I signed the loan docs a week ago, all this had happened, my proposed general contractor signed some "lien release" form that title provided..
and I got a good-faith-estimate that showed title insurance to cost $10k. Which was a little more than expected but I shrug it off.
The loan amount is $3.7M and I had expected title + escrow fees to be around $7500.

The lender verified that all their conditions were met (incl adequate title insurance) and funded the loan.

Then something in the underwriter team happened. I heard someone had been out on vacation and a substitute had worked the week before.. not sure.. suddenly additional lien waivers were requested..
well, this morning the new loan was recorded.

And here it comes.

The new underwriter writes something about additional endorsements, fees for each loan draw (during future construction).. and wants an extra $8k for title insurance.

Do I really have to pay it?

The GFE said $10k
Now - after recording - it's $18k. (I think they are on record, but funds are not distributed yet.)

They're hung up about the fact that I demo'd the house in November, I get it.. but this was known to them when the produced the GFE.
And it's pretty easy to verify that the demo contractor was paid.

The loan balance is $1.1M.. so, until escrow releases the funds to pay off the old loan, I'm paying double interest ($366 a day vs $183).

I wonder what my rights are.

I had a similar situation in 2013.. different title company.. existing house was demolished, afterwards construction loan was put in place. FATCO issued policy once I provided proof of payment. Loan was $2.6M back then.. title+escrow were $5800 .. a lot less than the $18k that they want now!

Thanks for reading.

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Please keep us updated.

My two cents, if I was in your spot -

1. Knowing the amount of CYA / back-doors in the 2 inches of paperwork that the bank had you sign... I'd expect that they wrote in a clause that allows them to do this.

2. I'd talk to my banker (my advocate to the loan officer/underwriter) and explain my issue. You are getting multi-million $ loans, so I'm guessing you have a banker.

3. Before I talked to my banker, I'd call some of my other banks and see how interested they are in doing the deal. (Again, if you are doing deals of this size, I'm sure you've had them cold-call you... time to pull out those business cards they left.) That will at least let you know if you are forced to deal with your current bank or could possibly walk away and get your money elsewhere.

In the future, I'd go with Title Forward. No BS, and no superfluous fees/charges.

slappycakes said:   Please keep us updated.

1. Knowing the amount of CYA / back-doors in the 2 inches of paperwork that the bank had you sign [..]

2. I'd talk to my banker [..]

3. [..] I'd call some of my other banks and see how interested they are in doing the deal. [..]

this is not an issue with the bank. I actually spoke for quite some time yesterday afternoon with my banker, and he said, he was satisfied with the original coverage or endorsements. He gave me some pointers how I could negotiate the cost of title insurance.. one aspect is that this is a "short" term loan, and apparently, there is short-term title insurance at discounted rates available. Another aspect is that I had gotten a title policy from the same company for the same property (but with the old company C1 vs C2) (C1 and C2 have the exact same members/ percentage ownership)

I should keep the lender and switch to another title insurance company.

But the loan is already recorded. I doubt that I can change the title insurance at this point.

I once bought a house for $345k. Down payment was $165k and it was all cash, so to close, I had to bring in a cashier's check of $180k. I go to BofA and ask them to issue a cashier's check "from ptiemann to First American Title Company" ("FATCO"). Then I take this check to FATCO, and the next day the record the grant deed early in the morning. I'm the legal owner of the property.

In the afternoon, I got a call. "Something is wrong with the check. Check says "From FATCO to ptiemann" and the title company is unable to deposit it!

Technically, I could've played hard ball and refused. Nothing to gain for me though, as I had paid already $180k for the bogus cashier's check. So, I took the check back to the bank, and brought them a correct check.

In both cases the title company comes with a demand after recording. The $180k -- it was fair. The $8k this time, I don't think so.

We are already on record - the only leverage that they have is that they hold on to the funds that should pay off the old loan.

It sucks when the amount is not enough for a lawyer but enough to make it hurt.

Research TILA-RESPA. The bank is obligated to provide you the right insurance costs. So, do not budge down unless the whole deal is going to fall apart. Also, in CA, you can shop for your own title insurance. So if you end up paying the higher cost, it is tough to nail the bank for the last minute increase in costs. I would suggest shopping with another vendor (B&M or online) and/or asking to stick to previous provided #s (don't call them estimates! GFE does not exist anymore). If you pay the higher amount, you are toast. It will be pretty much impossible to recoup the additional $. Good luck

I can't help you OP but title confuses me too. I just did a refi and the original cost estimate for title was $3k. My title costs at closing turned out to be $1265. So it seems that the bank doesn't bother to get price quotes for title. The bank would rather make up the numbers and shoot high, which doesn't make sense to me because the bank has a preferred title company, FATCO. The loan officer said they have to list every potential cost for title. Otherwise, the bank will have to pay for any items that title charged and the bank failed to list. But why the bank would risk this? Why doesn't the bank just ask FATCO for the real numbers? I went with FATCO because I had a hard time getting price quotes for title on the Internet. Those websites assumed I was a lender and wanted me to provide lender information. /shrugs/ So I asked a real estate agent for advice. She said that the price for title insurance will be pretty much the same between different title companies because they are heavily regulated. All I know is, I just got an email titled "RESPA review" where the bank corrected the numbers in the Closing Disclosure document to account for the refund check from FATCO. And then everyone at the bank patted themselves on the back for the 100% accuracy.

dumeelpandian said:   Research TILA-RESPA. The bank is obligated to provide you the right insurance costs. So, do not budge down unless the whole deal is going to fall apart.

Bank does not provide cost of title insurance, the title company does this

TILA RESPA may not apply since this is a commercial loan, not consumer product. (May be worth to check.)

Deal cannot fall apart.. docs are already recorded and old loan is already paid off. I don't see what leverage the title company has now.

I will talk with our RE attorney on Monday. Might be worth paying $400 for an hour of his time.

confused how the costs changed AFTER recording?? they completed the transaction and everyone signed showing 10k, but now want 8k more? how do they have a leg to stand on, when nobody agreed to the extra costs? are they just playing hardball because they have attorneys in-house? i would elevate this to the top person and watch it go away. if it doesnt, then report them to their regulating body.

solarUS said:   how do they have a leg to stand on, when nobody agreed to the extra costs?
if it doesnt, then report them to their regulating body.

that's what I have been thinking.. what is their leg to stand on? It's not like they could put a mechanic's lien on my property.
They would have to sue me, win something in the suit and record a judgment. The judgment would be against the new LLC, which is a single-asset LLC.

That, by the way is why they are leary about my indemnification (against mechanic's lient = unpaid contractors). The borrower is an LLC that was formed only 8 months ago and has no tax returns yet, has not done any business, only owns this one property with about $60k cash shown. On the other hand, if the underwriter would do their job, they could request financial statements from the officers of the company. Or they could contact the 2 contractors who did the demolition and verify that they were paid.

If they could be convinced that there is no risk of a mechanic's lien coming, then they would not have these extra endorsements = extra $8k.

And then, the transfer from company C1 to C2 was via uninsured quit-claim deed. They probably don't like that part either.

By the way, the $10k/$18k number includes escrow and notary fees of ~$4k. So the cost of title insurance per signed GFE was $6k and now it's $14k. It's more than double than the estimate.

They did convince the bank though that the endorsements are worth it.. the bank agreed Friday evening to pay $3k of the $8k that title wants.
I still say, it's better to verify the contractors were paid and save $8k.

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