Action Plan #16 – The Final Post – Changes

So here we are; week sixteen of a step by step process to be prepared and have your clients, referral partners, and your team fully prepared for the TRID changes and how to still close transactions in thirty days or less. While others travel the country telling everyone just to add fifteen or thirty days to their contracts, I wanted my people to offer a plan by which the people and the process go better so that the customers didn’t have to suffer through a longer transaction process. Three webinars, an ebook, a joint webinar with Realtor®, trainer, and coach, Terri Murphy, a podcast, and these sixteen sessions will set you apart from the competition. All you have to do is implement the plan and share the solution!

While the main changes are the LE replacing the GFE & TIL, the biggest issue will remain providing the CD (which replaces the old HUD-1 on most transactions) three business days prior to closing. Once you understand that we need everything to come together five days prior to closing so the CD can be issued, you have the makings of a plan. So follow the plan, share the solutions, and become the expert in your market. Once you do, business will come looking for you!

This week we end the discussion with changes. While it is impossible to forecast everything that will take place during the purchase process, most things are foreseeable. In fact, most things should have been planned for. However, changes are going to happen and when they do; we need to be sure everyone is communicating this information back to the loan originator. Some changes are never going to be an issue. Some changes will always be an issue; while other changes might or might not be an issue. The important point is that whatever it is, no matter how small, it is important to share this information quickly with the loan originator so that they can determine course of action.

As we have talked about before, repairs are the most likely change we will encounter. Handling repairs can no longer be an item left for a simple closing table adjustment. In some cases, it won’t be allowed. In many cases it could cause for a new set of disclosures and an additional three day wait. In rare cases, it may kill the deal entirely! So be sure that everyone gets on the same page with the lender about repairs and how they must be handled.

We also have product or program changes, rate and closing cost changes, insurance and tax changes, all of which could cause a re-disclosure and a new three day wait! So let’s all get out in front of the process. Let’s identify all the players and set forth the timeline of events. If along the line there is a change of any kind, it is important that the lender be made aware of these changes and make any adjustments quickly so that all the parties know if there is going to be a delay!

Everyone wants to close on time. Nobody wants to delay a closing. Delays can cost thousands of dollars in addition to a great deal of stress and unfortunately, Drama! Nobody wants or needs real estate drama. Follow these steps and you will be closing on time!

  • Set the proper expectations with all parties early!
  • Provide a transaction timeline and be sure everyone is clear about their responsibilities toward the transaction timeline.
  • If any changes or delays occur, communicate with the lender immediately.
  • Bad news is like a dead fish, it doesn’t get better with time!
  • If you don’t know the answer, go get help!
  • Monitor the transaction timeline and be sure to communicate effectively if someone or something misses the timeline.

TRID is here and you can either provide a higher quality of service and prosper, or complain about it and be bitter. The choice is yours!

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Action Plan #15 – The Walk Through

Before we get into our point for the week, let me just make a comment about all the talk about another extension or grace period for TRID enforcement; “Go get some cheese to go with all that whining!” You were supposed to have been ready in AUGUST! Then you got an extension to OCTOBER! If you spent half the time doing the work that you did complaining and fear mongering, you would have been ready back in MAY like most of my clients were that had followed the plan we laid out last FEBRUARY!!!

For all of you that have been connected and have paid close attention and done the work; CONGRATULATIONS! You are now ready to compete at a completely different level than your competition. In fact, I am not even sure you can call it competition? So while the conversation continues to be about avoiding or delaying the work needed to comply with these regulations, some people have done the work and have been ready to go for quite some time. That is what having a plan is all about. While others are trying to figure out how to avoid or delay doing the work needing to get done, you have done the work and are ready to close transactions!

We said back in February that we could all see billions of dollars in business changing hands, along with thousands of relationships of referral partners who were not going to settle for 45 or 60 day closings. So while we did the work, a vast majority of our industry is either unprepared or uninformed. You are neither!

That brings us to this week’s action plan step which is the final walk through. While not likely to be an issue in most cases, properties with needed repairs or items that were supposed to stay with the property that are now gone or damaged, may cause challenges. Remember, any significant changes to the transaction may not be as simple as just a closing credit for a set number of dollars. Changes to the transaction could significantly impact the deal to the point of re-disclosure causing a delay! In this volatile rate environment, delays could cause rate lock extensions which cost money! What if there is no money to pay for the extension? What if a higher rate delays the transaction for re-disclosure or worse, what if the borrower no longer qualifies?

What was once fairly simple can become quite a challenge if left unattended or unaddressed. So please, let’s take the time in advance to spot issues early and get them addressed. Waiting until the final walk through to see if issues are corrected or to just assume you can change your mind and everything will be okay, but it might not. As we have spoken about in earlier posts and in the series of webinars, everyone has to do a better job upfront communicating and resolving issues in a timely manner. Listing agents need to prepare their clients and the property. Buyer’s agents need to negotiate repairs and timelines. Sellers need to understand that they can’t just change their minds and resolve the issue with a last minute credit because it might change the transaction enough to delay or prevent the closing!

Go back and look at earlier posts. We have set forward a real plan to deal with TRID in a professional manner that will still allow for properties to change hands in thirty days or less if everyone does their job and follows a plan for success!

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Action Plan #14 – Insurance

Many of you are thinking to yourselves what the heck insurance has to do with preparing a successful TRID strategy. When you get down to it, much more then you think! Simply not having the correct numbers can derail your closing timetable. Remembering that we need to disclose numbers three business days prior to closing under the new regulations. Not having the correct information could certainly cause an issue.

More significantly however, is that sometimes the client gets the WRONG kinds of coverage, the wrong dollar values, or missing vital coverages completely! The other problem can be, what if they get insurance that is very expensive and the monthly payments are far higher then you estimated and now your borrower no longer qualifies for the loan? Before you laugh this one off as a joke, it HAS happened! Sometimes between changes in taxes and insurance changes, the borrower could get pushed out of qualifying for the loan! Oh yes, what if we find out that the property requires flood insurance? Just because the old owner didn’t have flood insurance, or the property was once not in a designated flood plain; that doesn’t mean it isn’t now!

So how do we prepare ourselves and our clients to avoid issues that could delay or derail their transactions? The steps are pretty simple.

#1) At the very beginning of your time with the client you need to set expectations and timelines. You have to prepare them for what actions need to be taken and when they must be done! You must explain insurance carefully. Homeowner’s insurance, flood insurance, and mortgage insurance all can play a part in the budget and in the monthly payments. Since the total monthly payment is what we use to determine critical ratios. Getting this number right is significant; so don’t be casual or cavalier about these numbers.

#2) It is your job to explain how these numbers are determined and what may or may not be within their control. Sometimes just changing the deductible a few hundred dollars can change their monthly payment significantly! Also, you need to caution your clients against being over-insured. Share with them that you will be providing them with a copy of their appraisal which will contain key information regarding the property as well as what the total costs to insure will be.

#3) When you get the appraisal back and review it, you can walk your people through the appraisal and then share with them the instructions on what coverages they will need and the lender requirements for their policy. At the same time it would have been good to do a flood certification to be sure FEMA hasn’t changed a line on a map and now caused a challenge.

#4) Now that your client is clear about what they need to satisfy their insurance obligations, you must give them a BUDGET! If you estimated $50 per month for insurance, then they have a budget of $600 for their policy. If you are not clear about the budget, you could have real issues at the closing table! You may have to re-disclose and delay the closing! A delay in the closing could cause a loan lock to expire! A higher rate may cause a delay or even prevent the borrower from qualifying for a loan at all!

Clearly it isn’t likely any of these things will happen. But why take a chance? You know insurance is required. You know the challenges are possible. Take away the possibility of an issue by setting the proper expectations and creating a path to success that avoids the drama of bad information, higher payments, delayed closings, and unhappy clients. As a true professional, it is up to you to guide your client to a successful and hassle free transaction!

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Action Plan #13 – Repairs

One of the often most overlooked items when it comes to the sale of property are clearly repairs. Listing agents don’t do a great job creating a detailed list of items needing attention for the home seller to correct before listing the property or they just allow obvious issues to go unattended in hopes that nobody will notice. It is sad to think that the day of a professional process by which listing agents take the time to look at the property and really learn about it are sliding away from us all.

In my opinion, one of the most valuable things a listing agent can do before taking on the marketing of a property is to share with the seller what things can be repaired or replaced before entering into a sales agreement so that the property can bring the highest offer. Sometimes just a little cleaning and painting is all that would be needed, but issues like a rusty or leaking water heater can turn a potential buyer away. In many cases, the lack of simple maintenance items being addressed can cause thousands of dollars to disappear from offers. Let’s be honest, I am not talking about a complete renovation here; I am looking at cleaning, painting, and a few simple repairs. However, if you have a house that has ageing or out of date appliances or mechanicals, it might just be a great investment to replace them before putting the house on the market.

Now I know that there are going to be times when making repairs before hitting the market may not be possible. I also understand that some items may not be obvious at first look and may only turn up during the inspection process. This is where we need to work quickly to determine what or if any repairs are going to be made by the seller, or if a price reduction to offset these items will be agreed to. Please note, that some types of loans do not allow certain items to go unrepaired prior to closing, or may require an escrow to be held until such repairs are completed. Please be sure that everyone is clear about what may or may not be allowed.

In the case where repairs are going to be made, it is very important that everyone agreed as to what the specific remedy is and when it will be addressed. Again, certain times the lender may have to re-inspect the property to be sure all repairs were made correctly. In a case where the appraiser does not call for these repairs, but the home inspector named them and the seller agreed to make corrections; it is important that all of those details are worked out prior to closing and with full knowledge and approval of the lender! You just can’t wait to the last minute to decide these things, or just ignore them and hope to work out a solution at the closing table. What may seem like a small issue could create a huge problem if left to the last minute. In some cases, trying to offer a credit at closing may not be allowed or could cause the loan to been re-disclosed and trigger a three business day delay in closing! Again, not all situations are likely to cause a delay, but in some cases it could cause a delay or maybe even worse!

So let’s try to avoid issues if we can. Listing agents, please take the time to look for potential issues. If you find them, talk to your client and share with them the value in making repairs or even replacement before the property has its first showing. If repairs are required by the inspection or the appraiser, please be sure everyone is on the same page as to what has to be done, who is going to do it, and when it will be done by!

Taking care of repairs early saves time and money. Why risk the transaction for an item or two that you will have to correct anyway? If the issues are larger, you will need to consult with your lender to be sure that the solution to the challenge is acceptable and within loan product guidelines for this specific transaction!

With TRID just a few weeks away, we all want to do a better job up front on our transactions to save time and avoid closing delays!

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Action Plan #12 – Appraisals

With TRID requiring the Closing Disclosure to be issued three business days prior to closing; it is really important to be aware early what could cause delays to your timeline. One of the issues that may cause a delay for any number of reasons is appraisals.

Appraisals present a number of touchy points of contention. First there is the issue with ordering the appraisal and getting the physical inspection done. Since lenders are NOT in control of the appraisal process; by law all appraisals are ordered by an independent third party NOT in the control of the lender and selected from a previously approved panel of appraisers, it is best if the listing agent notify the loan originator within 48 hours of contract that an appointment wasn’t scheduled. This will help the originator start the process of finding out why this hasn’t been done, remember, it is ILLEGAL for the originator to have direct contact with the appraiser about the subject property, all the originator can do is contact the appraisal management company and ask for an update.

The second area of possible concern is your current market turn-around time for appraisals. In some markets appraisal turn times are just a few days. In other markets appraisals can often take a few weeks from order to delivery! So being very clear up front with your current market turn times is critical to understanding the timeline for which the loan can close.

Third issue we can see is TYPE of appraisal being done. Depending on the loan being applied for, or property type, you may see even longer delays in getting the appraisal done. It is really important that the Listing Agent is accurate with the property specifics. A condo may not be a condo. A townhouse may not be a legal townhouse. A single family home may very well be part of a PUD. All of these things matter because they can cause possible challenges and delays! Different loan programs require different appraisals. These may require different appraisers or longer times to conduct. Switching loan programs may also require a new appraisal and addition time and cost to the borrower. Remember that appraisal fees are one of the items that are NOT allowed to change during the loan process.

Fourth item we need to discuss is value. Once again, the lender does not control the appraisal. It is up to Both Realtors® to supply accurate information to the appraisal at the point of inspection as to how and why they came to the price point agreed too. The person meeting the appraiser for the inspection should have that information to give to the appraiser. They should also ask the appraiser at the end of the inspection if they saw any issues with the property and share with them their contact information if the appraiser has any issues reaching value. Again, short appraisals are an issue for the REALTORS® not the3 lender!!!

Fifth issue can be one everyone misses, re-inspections. If an appraiser has to go back for a re-inspection of the property either to look at repairs or job completion in the case of new construction, the originator will have had to disclose these fees and the potential number of inspections needed. Once the loan is disclosed to the borrower, you can’t change the fee structure of the appraisal costs. This makes it important for everyone to know what program the borrower is using, what condition the property is in, if the property is going to require re-inspections and that when the re-inspection is called for, the property is complete and ready.

These are some of the potential things that can cause delays in your transaction timeline. Being aware of them before a transaction gets started can help avoid delays and potential for missed closing dates. Everyone wants a smooth and hassle free transaction. Having everyone aware of the issues that can cause delays is the first step in this process.

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Action Plan #11 – Inspections

Property inspections are a vital part of the process but in general, we really don’t do a great job getting ready for the inspection, and allow far too much time to get it done or to negotiate repairs. Not that I have an issue with people taking their time, it’s just unreasonable to believe that you can enter into a contract allowing ten days for the inspection, then run the possibility for a few days of back and forth negotiating before the buyer is willing to accept the final terms and agree to authorize the appraisal chargers. Remember, if the customer doesn’t authorize the charge for the appraisal, the deal is essentially on hold until they do. While we will talk at length about appraisals next week, it is an important factor to remember that a delay in ordering the appraisal is a delay in the file timeline!

So let’s start with looking at the time needed for the inspection. First, there is no reason the all buyers do not have their inspector in place and ready to go to do the inspection. Most inspectors can schedule an inspection within 48 hours and get your report back in 72 hours. Nobody needs ten days to get an inspection done.

Next we deal with the inspection report and any defects that may need addressing. If you can’t get an agreement as to what needs to be done, who is paying for it, and who will be the judge as to if needed repairs were done satisfactorily, needs to be addressed early in the process so that all needed work is done and approved a minimum of ten days prior to closing and challenges can be dealt with without delaying the closing!

We have already covered the importance of the Listing Agent knowing the issues with the property BEFORE listing the property and being sure that the sellers understand the likely issues that need to be addressed PRIOR to listing the property. If those issues are left unresolved, it is up to the LISTING AGENT to explain to the SELLERS the importance of timely repairs or an extension of the time needed to close and the acceptance of any fees incurred by the borrower due to these delays. In a volatile interest rate environment, expired rate locks could get very expensive!

We all need to be more proactive in the selling process to understand all the issues that the home may have prior to listing it. Some people even bring in an inspector to do an inspection prior to selling so they can see what items require attention before listing the property. While many won’t bear that cost, a good Listing Agent can take the time to go through the house and find some of the blatant issues and ask some important questions about maintenance and repairs.

Working together and setting reasonable expectations and being prepared for making adjustments to the closing timeline are very important. Understanding that doing the work as early as possible can reduce the risk of delays. Nobody wants to delay a closing. The things we do in the very beginning of the deal can make all the difference. You might be able to recover from a loss of a day or two at the very start of the transaction; but toward the end you run the risk of missing the date completely and all the risks and expenses that may be incurred. Planning ahead and being prepared are the best chance you have to close on time and without drama.

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Action Plan Step 10 – Programs

The very loan program the customer is using can further complicate the TRID timeline. We all know that each program can contain different elements that have to be paid attention to, or we run the risk of complications and delays. Since we use the FNMA/FHLMC program as our base model, we can all be pretty sure everyone knows the fundamentals. When you start to move into the other loan programs you have to watch for potential trouble. Let’s go through a few of the other programs so you can get an idea what I am talking about here.

FHA can create a challenge because of appraisal requirements and repair issues. If we know the transaction will be done using a FHA loan, we need to pay extra attention to things that will trigger repairs like broken windows, missing handrails, peeling paint, etc. All of these are potentially an issue. Realtors® and lenders all need to be careful to review the appraisal and QUICKLY make and repairs and get the re-inspection done as soon as possible. We also need to account that ALL the called for repairs are made because a second re-inspection adds costs to the transaction that will have to be dealt with. Remember, appraisal fees are one of the costs that can’t be changed. So if we don’t disclose re-inspections, the customer can’t be charged for it. That means someone else is on the hook for the money. So be prepared!

Much like FHA, VA loans can also have appraisal challenges. They can also have other issues like eligibility, service verification, and if the veteran is active duty, you may have issues with proper Power of Attorney forms and confirmation that the veteran is still alive if deployed. These issues can cause delays if not accounted for. So doing a great job at pre-approval for those using a VA loan, especially active duty, will really go a long way in avoiding potential delays.

USDA/Bond Programs have potential for challenges. Depending on where you live and the current market conditions, you may have significant delays getting these loans done. In many cases, turn-around times with these programs can be significant. They also can change dramatically from one day to the next. It is not uncommon in some parts of the country right now that USDA approval turn times are three weeks or more!

In certain bond or grant programs you may have the same issues or may even be dealing with the fact that the interest rate on the loan may not be “locked” until after the loan is approved. If the loan rate is not locked, you may have an issue if rates go up, causing a re-disclosure and an additional three-business day delay.

So it becomes very important to be clear with your client and those other professionals involved in your transaction about what loan program you have approved this borrower for, and what potential issues may be involved. Setting the proper expectations with your clients, your referral partners, and all the supporting people in each transaction can save a great many challenges down the line!

You are the loan professional and it is up to you to orchestrate a smooth and hassle free transaction. It starts with a great full document pre-approval, a clear and specific pre-approval letter and setting the proper expectation for everyone involved as early as possible. Do the work up front, and save yourself a lot of time and aggravation later!

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