One of the biggest concerns that mortgage lenders have had for years is that they send their mortgage funds and collateral security documents to complete strangers who gather together and manage a process where there is no seat for them at the table.
Even though the closing of a mortgage loan involves significant sums of money important legal agreements and disclosures, and sensitive personal information, the lender must wait and hope that the event took place on time, with the proper parties present, and without incident. Then the lender must wait and hope that money was properly disbursed and the documents properly executed, recorded and returned.
When mistakes are made or outright fraud takes place who can a lender rely upon to notice and to take measures to protect its interests and those of its borrowers?
The men and women who manage the closing of mortgage loans are generally experienced, honest and trustworthy. However a lender has little idea whether the person assigned to handle its funds and documents and manage the process for any one transaction is going to also be its advocate against errors and fraud.
One of the problems for a lender is that there are no uniform rules or education and training requirements to establish common expectations of professionalism. A closing can be managed by an attorney, a notary, a title agent employee, an escrow officer or even a real estate agent in some states. Each of these have different levels of minimum education, training, licensing standards, insurance and bonding requirements.
Lenders are also hampered by the absence of generally accepted principals of agency and fiduciary duty. Title agencies who issue closing protection letters disclaim any agency relationship established by the letter between the closing agent and the lender or borrower. Courts have no universal opinion whether a closing agent acts as an agent of the lender or the title company beyond their duties to act for their buyer or seller clients.
Where does all of this leave lenders? Waiting patiently post-closing hoping that the loan package returns completed and the mortgage proceeds went where they were intended to go. After years with increasing numbers of title and closing fraud incidents, it seems about time that the lender has an advocate and seat at the closing table.