FINANCING/LOAN DOCUMENTS AND SELECTED STATUTES

By

JOHN J. JOSEPH

JOSEPH & JOSEPH

931 South Front Street

COLUMBUS, OHIO 43206

Phone:(614) 449-8282

Fax:(614) 449-8282

Email: Johnjoseph@josephandjoseph.com

INTRODUCTION

The documents required in a real estate closing may be as simple as a deed for cash, or may involve numerous loan documents. A cash transaction can almost seem too simple, compared to the transaction involving a lender. The lender's requirements help to fill the conference room table with documents. The lender's selling of loans on the secondary market has brought some form of uniformity to the documentation, but has added to the proliferation of paper and demise of many trees.

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THE PROMISSORY NOTE

The promissory note contains the borrower's promise to pay the lender. It is necessary to create the indebtedness required for the lender to obtain a valid lien upon the real estate under the mortgage. The promissory note in the residential real estate transaction is typically a uniform instrument. In the conventional loan an FNMA/FHLMC uniform instrument is usually used. There are also uniform instruments for the FHA and VA loans as well. The FHA form is very similar to the FNMA/FHLMC FORM. The VA form is simple compared to the other two. The commercial transaction has an endless variety of forms.

The basics of the loan transaction are spelled out in the promissory note. It includes the following:

1. Names of the parties;

2. Promise to Pay;

3. Interest rate (fixed, variable);

4. Payments (time, place, amount);

5. Prepayment right;

6. Borrowers failure to pay (late charges, default);

7. Notices; and

8. Waivers.

In the FNMA/FHLMC form the due on sale clause of the mortgage is repeated in the promissory notes.

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Usury: Selected statutes:

O.R.C. § 1343.01

(A) The parties to a bond, bill, promissory note, or other instrument of writing for the forbearance or payment of money at any future time, may stipulate therein for the payment of interest upon the amount thereof at any rate not exceeding eight per cent per annum payable annually, except as authorized in division (B) of this section.

(B) Any party may agree to pay a rate of interest in excess of the maximum rate provided in division (A) of this section when:

(1) The original amount of the principal indebtedness stipulated in the bond, bill, promissory note, or other instrument of writing exceeds one hundred thousand dollars;

(2) The payment is to a broker or dealer registered under the "Securities Exchange Act of 1934," 48 Stat. 881, 15 U.S.C. 78A, as amended, for carrying a debit balance in an account for a customer if such debit balance is payable on demand and secured by stocks, bonds or other securities;

(3) The instrument evidences a loan secured by a mortgage or deed of trust on real estate where the loan has been approved, insured, guaranteed, purchased, or for which an offer or commitment to insure, guarantee, or purchase, has been received, in whole or in part, by the federal government or any agency or instrumentality thereof, the federal national mortgage association, the federal home loan mortgage corporation, or the farmers home administration, all of which is authorized pursuant to the "National Housing Act," 12 U.S.C. 1701; the "Serviceman's Readjustment Act," 38 U.S.C. 1801; the "Federal Home Loan Bank Act," 12 U.S.C. 1421; and the "Rural Housing Act," 42 U.S.C. 1471, amendments thereto, reenactments thereof, enactments parallel thereto, or in substitution therefor, or regulations issued thereunder; or by the state or any agency or instrumentality thereof authorized pursuant to Chapter 122 of the Revised Code, or rules issued thereunder.

(4) The instrument evidences a loan secured by a mortgage, deed of trust or land installment contract on real estate which does not otherwise qualify for exemption from the provisions of this section, except that such rate of interest shall not exceed eight per cent in excess of the discount rate on ninety-day commercial paper in effect at the federal reserve bank in the fourth federal reserve district at the time the mortgage, deed of trust, or land installment contract is executed.

(5) The instrument is payable on demand or in one installment and is not secured by household furnishings or other goods used for personal, family, or household purposes.

(6)(a) The loan is a business loan to a business association or partnership, a person owning and operating a business as a sole proprietor; any persons owning and operating a business as joint venturers, joint tenants, or tenants in common; any limited partnership; or any trustee owning or operating a business or whose beneficiaries own or operate a business, except that:

(i) Any loan which is secured by an assignment of an individual obligor's salary, wages, commissions, or other compensation for services or by his household furniture or other goods used for his personal, family, or household purposes shall be deemed not a loan within the meaning of division (B)(6) of this section;

(ii) Any loan which otherwise qualifies as a business loan within the meaning of division (B)(6) of this section shall not be deemed disqualified because of the inclusion, with other security consisting of business assets of any such obligor, of real estate occupied by an individual obligor solely as his residence.

(b) As used in division (B)(6)(a) of this section, "business" means a commercial, agricultural, or industrial enterprise which is carried on for the purpose of investment or profit. "Business" does not mean the ownership or maintenance of real estate occupied by an individual obligor solely as his residence.

O.R.C. § 1109.20 Allowable interest rate, fees and charges; governing law.

(A) A bank may contract for and receive interest or finance charges at any rate or rates agreed upon or consented to by the parties to the loan contract, extension of credit, or revolving credit agreement, but not exceeding an annual percentage rate of twenty-five per cent. In addition, a bank may charge, collect, and receive, as interest, other fees and charges that are agreed upon by the bank and the borrower, including, but not limited to, periodic membership fees, cash advance fees, charges for exceeding a designated credit limit, charges for late payments, charges for the return of a dishonored check or other payment instrument, guarantee fees, origination fees, processing fees, application fees, and prepayment fees. Any fees and charges charged, collected, or received by a bank in accordance with this division shall not be included in the computation of the annual percentage rate or the rates of interest or finance charges for purposes of applying the twenty-five per cent limitation.

The computation of the loan balance on which interest and finance charges are assessed and the method of compounding interest on the balance shall be as agreed upon by the bank and the borrower.

(B) For the purposes of section 85 of the "National Bank Act," 48 Stat. 191 (1933), 12 U.S.C.A. 85, and section 521 of the "Depository Institutions Deregulation and Monetary Control Act of 1980," 94 Stat. 132, 12 U.S.C.A. 1831d, both of the following apply:

(1) All the interest and finance charges and other fees and charges authorized under division (A) of this section are deemed to be interest and may be charged, collected, and received as interest by a bank.

(2) All terms, conditions, and other provisions authorized by this section and other provisions contained in any agreement with the borrower, including, but not limited to, terms, conditions, and other provisions relating to the method of determining the balance upon which interest or finance charges are applied, time periods within which fees and charges may be avoided, reasons for default and rights to cure any default, rights to accelerate payments, account cancellation, choice of law, and change-in-terms requirements, are deemed to be material to the determination of the interest rate.

(C) Any agreement between a bank and a borrower, wherever the borrower's place of residence, shall be governed solely by the laws of this state and federal law, unless otherwise provided for in the agreement.

(D) Subject to any requirements under applicable federal law, a bank and a borrower may specify in their agreement any terms and conditions for modifying or amending the agreement.

(E) Except as provided in section 1343.011 of the Revised Code, the charging, collection, or receipt of the interest and finance charges, and other fees and charges authorized under this section are deemed not to violate any provision of the Revised Code that prescribes, regulates, or limits any fee, charge, rate of interest, or finance charges.

Criminal Usury O.R.C. § 2905.21 Definitions.

As used in sections 2905.21 to 2905.24 of the Revised Code: ***

(H) "Criminal usury" means illegally charging, taking, or receiving any money or other property as interest on an extension of credit at a rate exceeding twenty-five per cent per annum or the equivalent rate for a longer or shorter period, unless either:

(1) The rate of interest is otherwise authorized by law;

(2) The creditor and the debtor, or all the creditors and all the debtors are members of the same immediate family.

(I) "Immediate family" means a person's spouse residing in the person's household, brothers and sisters of the whole or of the half blood, and children, including adopted children.

O.R.C. § 2905.22 Extortionate extension of credit; criminal usury.

(A) No person shall:

(1) Knowingly make or participate in an extortionate extension of credit;

(2) Knowingly engage in criminal usury;

(3) Possess any writing, paper, instrument, or article used to record criminally usurious transactions, knowing that the contents record a criminally usurious transaction.

(B) Whoever violates division (A)(1) or (2) of this section is guilty of a felony of the fourth degree. Whoever violates division (A)(3) of this section is guilty of a misdemeanor of the first degree.

O.R.C. § 1701.68 Usury.

No domestic or foreign corporation, or anyone on its behalf, shall interpose the defense or make the claim of usury in any proceeding upon or with reference to any obligation of such corporation; nor shall any corporate note, bond, or other evidence of indebtedness, mortgage, pledge, or deed of trust, be set aside, impaired, or adjudged invalid by reason of anything contained in laws prohibiting usury or regulating interest rates.

O.R.C. § 1702.37 Usury.

No domestic or foreign corporation, or any one on its behalf, shall interpose the defense or make the claim of usury in any proceeding upon or with reference to any obligation of such corporation; nor shall any corporate note, bond, or other evidence of indebtedness, mortgage, pledge, or deed of trust, be set aside, impaired, or adjudged invalid by reason of anything contained in laws prohibiting usury or regulating interest rates.

O.R.C. § 1705.33 Usury laws not applicable.

No domestic or foreign limited liability company and no person acting on its behalf shall interpose the defense or make the claim of usury in any action or proceeding upon or with reference to any obligation of that company. The notes, bonds, other evidences of indebtedness, mortgages, pledges, and deeds of trust of a limited liability company shall not be set aside, impaired, or adjudged invalid by reason of anything contained in any laws prohibiting or otherwise pertaining to usury or regulating interest rates.

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Confession of Judgment

A cognovit note is a promissory note containing a provision for the confession of judgment or warrant of attorney. If a default occurs, the lender is capable of filing its complaint and simultaneously obtaining a judgment against the borrower. A cognovit note is common in an Ohio commercial transaction, but is invalid in the consumer transaction. Below is the statute governing the cognovit note:

O.R.C. § 2323.13 Warrant of attorney to confess.

(A) An attorney who confesses judgment in a case, at the time of making such confession, must produce the warrant of attorney for making it to the court before which he makes the confession. Notwithstanding any agreement to the contrary, if the maker or any of several makers resides within the territorial jurisdiction of a municipal court established under section 1901.01of the Revised Code, or signed the warrant of attorney authorizing confession of judgment in such territory, judgment on such warrant of attorney shall be confessed in a municipal court having jurisdiction in such territory, provided the court has jurisdiction over the subject matter; otherwise, judgment may be confessed in any court in the county where the maker or any of several makers resides or signed the warrant of attorney. The original or a copy of the warrant shall be filed with the clerk.

(B) The attorney who represents the judgment creditor shall include in the petition a statement setting forth to the best of his knowledge the last known address of the defendant.

(C) Immediately upon entering any such judgment the court shall notify the defendant of the entry of the judgment by personal service or by registered or certified letter mailed to him at the address set forth in the petition.

(D) A warrant of attorney to confess judgment contained in any promissory note, bond, security agreement, lease, contract, or other evidence of indebtedness executed on or after January 1, 1974, is invalid and the courts are without authority to render a judgment based upon such a warrant unless there appears on the instrument evidencing the indebtedness, directly above or below the space or spaces provided for the signature of the makers, or other person authorizing the confession, in such type size or distinctive marking that it appears more clearly and conspicuously than anything else on the document:

"Warning -- By signing this paper you give up your right to notice and court trial. If you do not pay on time a court judgment may be taken against you without your prior knowledge and the powers of a court can be used to collect from you regardless of any claims you may have against the creditor whether for returned goods, faulty goods, failure on his part to comply with the agreement, or any other cause."

(E) A warrant of attorney to confess judgment contained in any instrument executed on or after January 1, 1974, arising out of a consumer loan or consumer transaction, is invalid and the court shall have no jurisdiction to render a judgment based upon such a warrant. An action founded upon an instrument arising out of a consumer loan or a consumer transaction as defined in this section is commenced by the filing of a complaint as in any ordinary civil action.

Notice of the filing shall be served on the defendant and returned in the same manner as in other cases and shall read as follows:

"To" (Here insert the name of the defendant or defendants)

"(Here insert the name of plaintiff or plaintiffs) ask judgment in this court against you for (here insert the amount claimed in dollars and cents) upon the following claim (here insert the nature of the claim and description of the instrument).

"The court may enter judgment upon this claim if no answer is filed within the time allowed by law. If an answer is filed, a trial shall be held within sixty days of the date of filing of the answer.

"You have a right to retain an attorney. If you do not file an answer, judgment may be entered against you by default, and your earnings may be subjected to garnishment or your property may be attached to satisfy the judgment. If your defense is supported by witnesses, account books, receipts, or other documents, you must produce them at the trial. Subpoenas for witnesses and subpoenas duces tecum, if requested by a party, will be issued by the clerk."

If an answer is filed, a trial shall be held within sixty days of the date of filing of the answer, unless for good cause shown the court may continue the same.

As used in this section:

(1) "Consumer loan" means a loan to a natural person and the debt incurred is primarily for a personal, family, educational, or household purpose. The term "consumer loan" includes the creation of debt by the lender's payment of or agreement to pay money to the debtor or to a third party for the account of the debtor; the creation of a debt by a credit to an account with the lender upon which the debtor is entitled to draw; and the forebearance of debt arising from a consumer loan.

(2) "Consumer transaction" means a sale, lease, assignment, award by chance, or other transfer of an item of goods, a service, franchise, or an intangible, to an individual for purposes that are primarily personal, family, educational, or household.

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THE MORTGAGE

Just as the deed creates an interest in the real estate for the purchaser, the mortgage creates an interest in the real estate for the lender. There are two different types of states, title theory states and lien theory states. Deeds of trust are utilized in the title theory states. Here, title to the property is conveyed to a trustee. Upon default, the trustee conveys title to the lender. The trustee conveys title back to the borrower upon payment of the debt. In a lien theory state, the mortgage creates a lien on the property in favor of the lender. Upon default, a foreclosure action is necessary in order for the lender to acquire title to the property. The lender files a satisfaction of mortgage upon payment of the debt.

Ohio has been described as an intermediate theory state by some authorities. The mortgage creates a lien on the real property until its conditions are broken, at which time a conveyance of title to the lender occurs. In practice Ohio is a lien theory state requiring foreclosure and satisfaction of the mortgage.

The mortgage should be scrutinized carefully. The mortgagor's name should be identical to the name listed in the title commitment as to whom title will be vested (or to whom title is vested in the case of refinancing). The spouse should release his or her dower interest in the property by executing the mortgage. The legal description should be identical to the description in the title commitment. The mortgagor's signature must be witnessed by two witnesses and notarized. The preparer of the mortgage should be identified at the end.

Just as there are uniform promissory notes in the residential real estate transaction, there are also uniform mortgages. In the conventional loan transaction in Ohio, The OHIO-Single Family-FANNIE MAE/FREDDIE MAC UNIFORM INSTRUMENT is often used. There are also uniform instruments for FHA loans and for VA loans. It is helpful to those involved in residential closing to become familiar with the uniform documents in order to know what they contain and to be aware of when the documentation deviates from the uniform provisions.

The amount of the indebtedness and its maturity date should be stated in the mortgage. Without this indebtedness there cannot be a valid lien. The mortgage will expire the later of twenty-one years after the date of the mortgage, or twenty-one years after the stated maturity date.

Below are selected statutes governing the mortgage:

O.R.C. § 5301.30. Expiration of mortgage lien; limitation.

The record of any mortgage which remains unsatisfied or unreleased of record for more than twenty-one years after the date of the mortgage or twenty-one years after the stated maturity date of the principal sum, if a stated date of maturity is provided in the mortgage, whichever is later, secured as shown in the record of such mortgage, does not give notice to or put on inquiry any person dealing with the land described in such mortgage that such mortgage debt remains unpaid or has been extended or renewed. As to subsequent bona fide purchasers, mortgagees, and other persons dealing with such land for value, the lien of such mortgage has expired. The mortgage creditor may at any time refile in the county recorder's office the mortgage or a sworn copy thereof for record, together with an affidavit stating the amount remaining due thereon and the due date thereof, whether or not such date has been extended. Subject to the rights of bona fide purchasers, mortgagees, and other persons dealing with such land for value, whose rights were acquired or vested between such expiration and refiling, such refiling is constructive notice of such mortgage only for a period of twenty-one years after such refiling, or for twenty-one years after the stated maturity of the debt, whichever is the longer period.

O.R.C. § 5301.01 Acknowledgment of deed, mortgage, land contract, lease or memorandum of trust.

A deed, mortgage, land contract as referred to in division (B)(2) of section 317.08 of the Revised Code, or lease of any interest in real property and a memorandum of trust as described in division (A) of section 5301.25.5 of the Revised Code shall be signed by the grantor, mortgagor, vendor, or lessor in the case of a deed, mortgage, land contract, or lease or shall be signed by the settlor and trustee in the case of a memorandum of trust. The signing shall be acknowledged by the grantor, mortgagor, vendor, or lessor, or by the settlor and trustee, in the presence of two witnesses, who shall attest the signing and subscribe their names to the attestation. The signing shall be acknowledged by the grantor, mortgagor, vendor, or lessor, or by the settlor and trustee, before a judge or clerk of a court of record in this state, or a county auditor, county engineer, notary public, or mayor, who shall certify the acknowledgment and subscribe his the official’s name to the certificate of the acknowledgment.

(B)(1) If a deed, mortgage, land contract as referred to in division (B)(2) of section 317.08 of the Revised Code, lease of any interest in real property, or a memorandum of trust as described in division (A) of section 5301.255 of the Revised Code was executed prior to the effective date of this amendment and was not acknowledged in the presence of, or was not attested by, two witnesses as required by this section prior to that effective date, both of the following apply: (a) The instrument is deemed properly executed and is presumed to be valid unless the signature of the grantor, mortgagor, vendor, or lessor in the case of a deed, mortgage, land contract, or lease or of the settlor and trustee in the case of a memorandum of trust was obtained by fraud. (b) The recording of the instrument in the office of the county recorder of the county in which the subject property is situated is constructive notice of the instrument to all persons, including without limitation, a subsequent purchaser in good faith or any other subsequent holder of an interest in the property, regardless of whether the instrument was recorded prior to, on, or after the effective date of this amendment. (2) Division (B)(1) of this section does not affect any accrued substantive rights or vested rights that came into existence prior to the effective date of this amendment.

[2001 H 279, Section 3, effective 2-1-02 designated division (A); deleted the second sentence of newly designated division (A); added new division (B); and made changes to reflect gender neutral language.]

O.R.C. § 5301.04 Deed, mortgage, or lease of a married person.

A deed, mortgage, or lease of any interest of a married person in real property must shall be signed, attested, acknowledged, and certified as provided in section 5301.01 of the Revised Code.

[2001 H 279 substituted “shall” for “must” and deleted “attested,” before “acknowledged.”

O.R.C. § 5301.06 Instruments executed according to law of place where made.

All deeds, mortgages, powers of attorney, and other instruments of writing for the conveyance or encumbrance of lands, tenements, or hereditaments situated within this state, executed and acknowledged, or proved, in any other state, territory, or country in conformity with the laws of such state, territory, or country, or in conformity with the laws of this state, are as valid as if executed within this state, in conformity with sections 1337.01 5O 1337.03, inclusive, and 5301.01 to 5301.04, inclusive, of the Revised Code.

O.R.C. § 5301.07 Validating certain deeds; limitations.

When any instrument conveying real estate, or any interest therein, is of record for more than twenty-one years in the office of the county recorder of the county within this state in which such real estate is situated, and the record shows that there is a defect in such instrument, such instrument and the record thereof shall be cured of such defect and be effective in all respects as if such instrument had been legally made, executed, and acknowledged, if such defect is due to any one or more of the following:

(A) Such instrument was not properly witnessed.

(B) Such instrument contained no certificate of acknowledgment.

(C) The certificate of acknowledgment was defective in any respect.

Any person claiming adversely to such instrument, if not already barred by limitation or otherwise, may, at any time within twenty-one years after the time of recording such instrument, bring proceedings to contest the effect of such instrument.

This section does not affect any suit brought prior to November 9, 1959 in which the validity of the acknowledgment of any such instrument is drawn in question.

O.R.C. § 5301.071 Validity of instruments.

No instrument conveying real estate, or any interest therein, and of record in the office of the county recorder of the county within this state in which such real estate is situated shall be deemed defective nor shall the validity of such conveyance be affected because:

(A) The dower interest of the spouse of any grantor was not specifically released but such spouse executed said instrument in the manner provided in section 5301.01 of the Revised Code.

(B) The officer taking the acknowledgment of such instrument having an official seal did not affix such seal to the certificate of acknowledgment.

(C) The certificate of acknowledgment is not on the same sheet of paper as the instrument.

(D) The executor, administrator, guardian, assignee, or trustee making such instrument signed or acknowledged the same individually instead of in his representative or official capacity.

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O.R.C. § 5301.23 Effective date of mortgages; open-end mortgage; such mortgage a lien; limiting such mortgage.

(A) All properly executed mortgages shall be recorded in the office of the county recorder of the county in which the mortgaged premises are situated and shall take effect at the time they are delivered to the recorder for record. If two or more mortgages pertaining to the same premises are presented for record on the same day, they shall take effect in the order of their presentation. The first mortgage presented shall be the first recorded, and the first mortgage recorded shall have preference.

(B) A mortgage that is presented for record shall contain the then current mailing address of the mortgagee. The omission of this address or the inclusion of an incorrect address shall not affect the validity of the instrument or render it ineffective for purposes of constructive notice.

O.R.C. § 5301.231 Effective date of amendments, supplements, modifications, or extensions of mortgages.

(A) All amendments or supplements of mortgages, or modifications or extensions of mortgages or of the debt secured by mortgages, that have been executed in the manner provided in section 5301.01 of the Revised Code shall be recorded in the office of the county recorder of the county in which the mortgaged premises are situated and shall take effect at the time they are delivered to the recorder for record. Sections 317.08, 5301.23, and 5301.231 [5301.23.1] of the Revised Code do not affect the enforceability, validity, or legal effect of instruments recorded in those mortgage records prior to October 10, 1963.

(B) An amendment or supplement of a mortgage, or a modification or extension of a mortgage or of the debt secured by a mortgage, that is presented for record shall contain the then current mailing address of the mortgagee. The omission of this address or the inclusion of an incorrect address shall not affect the validity of the instrument or render it ineffective for purposes of constructive notice.

O.R.C. § 5301.232 Open-end mortgages.

(A) Whether or not it secures any other debt or obligation, a mortgage may secure unpaid balances of loan advances made after the mortgage is delivered to the recorder for record, to the extent that the total unpaid loan indebtedness, exclusive of interest thereon, does not exceed the maximum amount of loan indebtedness which the mortgage states may be outstanding at any time. With respect to such unpaid balances, division (B) of this section is applicable if the mortgage states, in substance or effect, that the parties thereto intend that the mortgage shall secure the same, the maximum amount of unpaid loan indebtedness, exclusive of interest thereon, which may be outstanding at any time, and contains at the beginning thereof the words "Open-end mortgage."

(B) A mortgage complying with division (A) of this section and securing unpaid balances of loan advances referred to in such division is a lien on the premises described therein from the time such mortgage is delivered to the recorder for record for the full amount of the total unpaid loan indebtedness, including the unpaid balances of such advances that are made under such mortgage, plus interest thereon, regardless of the time when such advances are made. If such an advance is made after the holder of the mortgage receives written notice of a lien or encumbrance on the mortgaged premises which is subordinate to the lien of the mortgage, and if such holder is not obligated to make such advance at the time such notice is received, then the lien of the mortgage for the unpaid balance of the advance so made is subordinate to such lien or encumbrance. If an advance is made after the holder of the mortgage receives written notice of work or labor performed or to be performed or machinery, material, or fuel furnished or to be furnished for the construction, alteration, repair, improvement, enhancement, or embellishment of any part of the mortgaged premises and if such holder is not obligated to make such advance at the time such notice is received, then the lien of the mortgage for the unpaid balance of the advance so made is subordinate to a valid mechanic's lien for the work or labor actually performed or machinery, material, or fuel actually furnished as specified in such notice.

(C) The mortgagor may limit the loan indebtedness secured by the mortgage to that in existence at the time of the delivery of a written notice to that effect to the recorder for record, if such notice is executed by the mortgagor in the manner provided in section 5301.01of the Revised Code, states the volume and initial page of the record or the recorder's file number of the mortgage, and a copy thereof is served upon the holder of the mortgage prior to the delivery of such notice to the recorder for record. Any such notice shall be recorded and indexed by the recorder as an amendment of the mortgage. Such right of the mortgagor to limit loan indebtedness secured by the mortgage is not applicable to interest subsequently accruing on loan indebtedness, loan advances the holder of the mortgage is obligated to make, or loan advances made after the delivery of any such notice to the recorder for record in order to pay for the cost of completing any construction, alteration, repair, improvement, enhancement, or embellishment of any part of the mortgaged premises the financing of which, in whole or in part, the mortgage was given to secure.

(D) The written notices provided for in division (B) of this section shall be signed by the holder of the lien or encumbrance or the person who has performed or intends to perform work or labor or who has furnished or intends to furnish machinery, material, or fuel, or by his agent or attorney, and shall set forth a description of the real property to which the notice relates, the date, parties to, the volume and initial page of the record or the recorder's file number of the mortgage over which priority is claimed for the lien or encumbrance, and the amount and nature of the claim to which the lien or encumbrance relates or the nature of the work or labor performed or to be performed or machinery, material, or fuel furnished or to be furnished and the amount claimed or to be claimed therefor. The written notices provided for in divisions (B) and (C) of this section shall be deemed to have been received by or served upon the holder of the mortgage when delivered to such holder personally or by registered or certified mail at the address of such holder appearing in the mortgage or an assignment thereof or, if no address is so given, at the principal place of business or residence of such holder or the statutory agent of such holder within this state or, if such holder has no principal place of business or residence or a statutory agent within this state, when posted in some conspicuous place on the mortgaged premises.

(E) As used in this section:

(1) "Mortgage" includes a mortgage, deed of trust, or other instrument in the nature of a mortgage.

(2) "Mortgagor" includes the mortgagor's successors in interest as disclosed by the records of the recorder or recorders of the county or counties in which the mortgaged premises are situated.

(3) "Holder of the mortgage" means the holder of the mortgage as disclosed by the records of the recorder or recorders of the county or counties in which the mortgaged premises are situated.

(4) A holder of a mortgage is "obligated" to make an advance if such holder or the person to whom the repayment of such advance is owed has a contractual commitment to do so, even though the making of such advance may be conditioned upon the occurrence or existence, or the failure to occur or exist, of any event or fact.

(5) "Statutory agent" means the statutory agent of a corporation as disclosed by the records of the secretary of state and provided for in sections 1701.07, 1702.06, and 1703.041 [1703.04.1] of the Revised Code.

(6) "Loan indebtedness" does not include unpaid balances of advances made for the payment of taxes, assessments, insurance premiums, and costs incurred for the protection of the mortgaged premises.

(F) This section is not exclusive, does not apply to any mortgage filed or recorded in conformity with section 1701.66 of the Revised Code, and does not prohibit the use of other types of mortgages permitted by law.

O.R.C. § 5301.233 Mortgages to secure certain advances.

In addition to any other debt or obligation, a mortgage may secure unpaid balances of advances made, with respect to the mortgaged premises, for the payment of taxes, assessments, insurance premiums, or costs incurred for the protection of the mortgaged premises, if such mortgage states that it shall secure such unpaid balances. A mortgage complying with this section is a lien on the premises described therein from the time such mortgage is delivered to the recorder for record for the full amount of the unpaid balances of such advances that are made under such mortgage, plus interest thereon, regardless of the time when such advances are made.

O.R.C. § 5301.234 Presumption that recorded mortgage is properly executed.

(A) Any recorded mortgage is irrebuttably presumed to be properly executed, regardless of any actual or alleged defect in the witnessing or acknowledgment on the mortgage, unless one of the following applies:

(1) The mortgagor, under oath, denies signing the mortgage.

(2) The mortgagor is not available, but there is other sworn evidence of a fraud upon the mortgagor.

(B) Evidence of an actual or alleged defect in the witnessing or acknowledgment on the mortgage is not evidence of fraud upon the mortgagor and does not rebut the presumption that a recorded mortgage is properly executed.

(C) The recording of a mortgage is constructive notice of the mortgage to all persons, including without limitation, a subsequent bona fide purchaser or any other subsequent holder of an interest in the property. An actual or alleged defect in the witnessing or acknowledgment on the recorded mortgage does not render the mortgage ineffective for purposes of constructive notice.

[This statute was repealed by 2001 H 279, effective 2-1-02]

O.R.C. § 5301.24 Acquisition of property by state not to affect mortgage lien; state, a party.

The lien or priority of any existing valid mortgage or lien shall not be affected by reason of the fact that this state or any political subdivision thereof acquires the property on which said lien exists, unless said property is acquired by regular judicial proceedings. The state, or any board or commission of the state, may be made a party in any court of common pleas or probate court, to any foreclosure proceedings, or other proceedings to sell real estate and marshal liens, to secure an adjudication concerning any claim, mortgage, or other lien which the state has or claims on the premises involved.

Service of summons shall be made by the clerk of the court who shall, by registered mail, send service of summons and a copy of the petition to the attorney general. The answer day and other proceedings thereafter shall be the same as though a personal service had been made as of the date the return receipt is signed, and thereafter the procedure shall be the same as though a private corporation had been sued under the laws of this state.

No subsequent statute shall modify or change this section unless such statute specifically provides that it is modifying or changing this section.

O.R.C. § 5301.31 Recording of assignment or partial release in margin of original record.

Except in counties in which a separate instrument is required to assign or partially release a mortgage as described in section 5301.32 of the Revised Code, a mortgage may be assigned or partially released by the holder of the mortgage, by writing the assignment or partial release on the original mortgage or upon the margin of the record of the original mortgage and signing it. The assignment or partial release need not be acknowledged or witnessed, but, if it is written upon the margin of the record of the original mortgage, the signing shall be attested by the county recorder. The assignment, whether it is upon the original mortgage, upon the margin of the record of the original mortgage, or by separate instrument, shall transfer not only the lien of the mortgage but also all interest in the land described in the mortgage. An assignment of a mortgage shall contain the then current mailing address of the assignee. The signature of a person on the assignment or partial release may be a facsimile of that person's signature. A facsimile of a signature on an assignment or partial release is equivalent to and constitutes the written signature of the person for all requirements regarding mortgage assignments or partial releases.

For entering an assignment or partial release of a mortgage upon the margin of the record of the original mortgage or for attesting it, the recorder shall be entitled to the fee provided by section 317.32 of the Revised Code for recording the assignment and satisfaction of mortgages.

[2001 H 279 deleted “or witnessed” after “acknowledged” in the second sentence of the first paragraph.]

O.R.C. § 5301.32 Assignment or partial release by separate instrument.

A mortgage may be assigned or partially released by a separate instrument of assignment or partial release, acknowledged and witnessed as provided by section 5301.01 of the Revised Code. The separate instrument of assignment or partial release shall be recorded in the book provided by section 5301.34 of the Revised Code for the recording of satisfactions of mortgages. The county recorder shall be entitled to charge the fee for that recording as provided by section 317.32 of the Revised Code for recording deeds. The signature of a person on the assignment or partial release may be a facsimile of that person's signature. A facsimile of a signature on an assignment or partial release is equivalent to and constitutes the written signature of the person for all requirements regarding mortgage assignments or partial releases.

In a county in which the recorder has determined to use the microfilm process as provided by section 9.01 of the Revised Code, the recorder may require that all assignments and partial releases of mortgages be by separate instruments. The original instrument bearing the proper endorsement may be used as the separate instrument.

An assignment of a mortgage shall contain the then current mailing address of the assignee.

[2001 H 279 deleted “and witnessed” after “acknowledged” in the first sentence, and made other non-substantive changes.]

O.R.C. § 5301.34 Release of mortgage on certificate of mortgagee or assignee.

A mortgage must must shall be discharged upon the record thereof of the mortgage by the county recorder when there is presented to him the county recorder a certificate executed by the mortgagee or his assigns, acknowledged and witnessed as provided in section 5301.01 of the Revised Code, or when there is presented to him the recorder a deed of release executed by the governor as provided in section 5301.19 of the Revised Code, certifying that the mortgage has been fully paid and satisfied. In addition to the discharge on the records by the recorder, such certificate shall be recorded in a book kept for that purpose by the recorder. Such The recorder is entitled to the fees for such recording as provided by section 317.32 of the Revised Code for recording deeds.

[2001 H 279 substituted “shall” for “must” and deleted “and witnessed” after “acknowledged” in the first sentence of the section; made changes to reflect gender neutral language; and made other non-substantive changes.]

O.R.C. § 5301.35 Waiver of priority of mortgages; execution and recording; fees.

The priority of the lien of a mortgage may be waived to the extent specified by the holder thereof of the lien in favor of any lien, mortgage, lease, easement, or other interest in the property covered by the mortgage, by writing such the waiver of priority on the original mortgage and signing it, by writing such waiver of priority upon the margin of the record of said mortgage and signing it, or by a separate instrument acknowledged and witnessed as provided by section 5301.01 of the Revised Code. Such That waiver, when recorded upon the margin of the record of such the mortgage, or when recorded as a separate instrument, is constructive notice to all persons dealing with either the property described in said that mortgage or the mortgage itself from the date of filing said the waiver for record. Such The waiver, if written upon said the mortgage or upon the margin of the record thereof, need not be acknowledged or witnessed, but if written upon the margin of the record, the signing must shall be attested by the county recorder.

If said the waiver of priority is by separate instrument, it shall be recorded in the book provided by section 5301.34 of the Revised Code for the recording of satisfactions of mortgages. For such the recording, the county recorder may charge the fee as provided by section 317.32 of the Revised Code for recording deeds. For entering any such waiver of priority upon the margin of the record of said the mortgage, or for attesting it, the recorder is entitled to the fees for recording such those waivers of priority as that are charged for assignments or satisfactions of mortgages under section 317.32 of the Revised Code.

In a county in which the county recorder has determined to use the microfilm process as provided by section 9.01 of the Revised Code, the recorder may require that all waivers of priority of mortgages be made by separate instrument. The original instrument bearing the proper indorsement endorsement may be used as such separate instrument.

[2001 H 279 deleted “and witnessed” after “by a separate instrument acknowledged” and “or witnessed” after “need not be acknowledged” in the first paragraph; substituted “endorsement” for “indorsement” in the last paragraph; and made other non-substantive changes.]

O.R.C. § 5301.36 Entry of satisfaction.

(A) Except in a county in which the county recorder has elected to require that all satisfactions of mortgages be recorded by separate instrument as allowed under section 5301.28 of the Revised Code, when recording a mortgage, county recorders shall leave space on the margin of the record for the entry of satisfaction, and record therein the satisfaction made on the mortgage, or permit the owner of the claim secured by the mortgage to enter such satisfaction. Such record shall have the same effect as the record of a release of the mortgage.

(B) Within ninety days from the date of the satisfaction of a residential mortgage, the mortgagee shall record the fact of the satisfaction in the appropriate county recorder's office and pay any fees required for the recording. The mortgagee may, by contract with the mortgagor, recover the cost of the fees required for the recording of the satisfaction by the county recorder.

(C) If the mortgagee fails to comply with division (B) of this section, the mortgagor may recover, in a civil action, damages of two hundred fifty dollars. This division does not preclude or affect any other legal remedies that may be available to the mortgagor.

(D) As used in this section, "residential mortgage" means an obligation to pay a sum of money evidenced by a note and secured by a lien upon real property located within this state containing two or fewer residential units or on which two or fewer residential units are to be constructed and shall include such an obligation on a residential condominium or cooperative unit.

O.R.C. § 5302.01 Creation of statutory forms; alteration.

The forms set forth in sections 5302.05, 5302.07, 5302.09, 5302.11, 5302.12, 5302.14, 5302.17, and 5302.22 of the Revised Code may be used and shall be sufficient for their respective purposes. They shall be known as "Statutory Forms" and may be referred to as such. They may be altered as circumstances require, and the authorization of such forms shall not prevent the use of other forms. Wherever the phrases defined in sections 5302.06, 5302.08, 5302.10, and 5302.13 of the Revised Code are to be incorporated in instruments by reference, the method of incorporation as indicated in the statutory forms shall be sufficient, but shall not preclude other methods.

O.R.C. § 5302.13 Mortgage covenants.

In mortgage of real estate, or any interest therein, the words "mortgage covenants" have the full force, meaning, and effect of the following words, and shall be applied and construed accordingly:

"The mortgagor covenants with the mortgagee and his heirs, assigns, and successors, that he is lawfully seized in fee simple of the granted premises; that they are free from all encumbrances; that the mortgagor has good right to sell and convey the same; and that he does warrant and will defend the same to the mortgagee and his heirs, assigns, and successors, forever, against the lawful claims and demands of all persons."

O.R.C. § 5302.14 Statutory condition.

In a mortgage of real estate, or any interest therein, the words "statutory condition" have the full force, meaning, and effect of the following words and shall be applied and construed accordingly:

"Provided, nevertheless, except as otherwise specifically stated in the mortgage, that if the mortgagor, or his heirs, executors, administrators, assigns, or successors, shall pay unto the mortgagee or his executors, administrators, assigns, or successors, the principal and interest secured by the mortgage, and shall perform all other obligations secured by the mortgage, and shall perform the condition of any prior mortgage, and until such payment and performance shall pay when due and payable all taxes and assessments on the mortgaged premises, shall keep the buildings on said premises insured against fire and other hazards commonly known as Extended Coverage Risks in a sum not less than the amount secured by the mortgage or as otherwise provided therein for the benefit of the mortgagee and his executors, administrators, assigns, and successors, in a company or companies authorized to write insurance business in the state of Ohio and acceptable to the mortgagee, shall pay all premiums therefor, and deliver all policies therefor, to the mortgagee or his executors, administrators, assigns, or successors, and, at least two days before the expiration of any policy on said premises, shall deliver to him or them a new and sufficient policy to take the place of the one so expiring; and shall not commit or suffer any waste of the mortgaged premises or any breach of any covenant contained in the mortgage or in any prior mortgage, then the mortgage shall be void."

O.R.C. § 5302.15 Master mortgage form; contents; recording.

An instrument containing a form or forms of covenants, conditions, obligations, powers, and other clauses of a mortgage, may be recorded in the record of mortgages of any county. Every such instrument shall be entitled "Master Mortgage Form Recorded By (name of the person causing the instrument to be recorded)" and shall be dated and signed by the person causing it to be recorded, but need not be acknowledged. Upon presentation for record and payment of the fees provided in section 317.32 of the Revised Code, the county recorder shall record any such master mortgage form in the record of mortgages of the county and shall index it in the general alphabetical index of grantees under the name appearing in the title, in the same manner as mortgages of real property.

O.R.C. § 5302.16 Incorporating master mortgage form by reference in mortgage; effect.

The provisions of a master mortgage form recorded pursuant to section 5302.15 of the Revised Code may be incorporated by reference in any mortgage of real property situated in the county where such master mortgage form is recorded, by stating in such mortgage the volume and page number of the record of mortgages where such master mortgage form is recorded, and, if only a part of such master mortgage form is to be incorporated in the mortgage, the part or parts to be excluded. A copy of such master mortgage form shall be furnished to the mortgagors prior to the execution of the mortgage, and receipt thereof shall be noted in such mortgage.

Any part or all of a master mortgage form incorporated by reference pursuant to this section in a mortgage of real property is a part of such mortgage the same as if fully rewritten therein, and need not be recorded with such mortgage to be effective.

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CLOSING STATEMENT AND THE HUD-1

The closing statement outlines how the funds of the closing are divided. It may take various forms depending on the type of transaction and who is submitting the statement. Pursuant to the Real Estate Settlement Procedures Act of 1974 ("RESPA") a HUD-1 Settlement Statement ("HUD-1") is required in most residential closings. The realtors, attorneys, title company or lender may each submit their own form to be signed at closing. If there is more than one form presented, each should be compared carefully. Regardless of the type presented, each should accomplish the same basic task. The statement adds all of the seller's credits and subtracts all of the seller's charges to arrive at the amount to be received by the seller at closing. It does the same for the buyer to arrive at the amount to be paid by buyer at closing. The closing statement must balance. The amounts coming in must equal the amounts going out.

Since most residential closings require the use of the HUD-1, for purposes of this discussion the HUD-1 will be analyzed. The first few sections of the HUD-1 describe the transaction. Section B describes the type of loan. Sections D through F identify the borrower, seller, lender and their addresses. Section G identifies the location of the property. Sections H through I identify the settlement agent, the place of settlement and the date.

The division of the proceeds of closing are outlined in sections J, K and L. Section L itemizes the settlement charges and brings them forward to sections J and K. Section J summarizes the borrower's transaction. Section K summarizes the seller's transaction.

A. SECTION J

Section J, Summary of Borrower's Transaction, is divided into three subsections. Lines 100 through 120 describe the borrower's charges to arrive at the gross amount due from borrower. Here, the statement adds up the contract sales price for both the real estate and personal property, the total of borrower's settlement charges from Section L, and adjustments for items paid by seller in advance. Lines 200 through 220 describe the borrower's credits to arrive at the total paid by or for the borrower. Here, the statement adds together the deposit, the principal amounts of new and assumed loans and adjustments for items unpaid by seller such as taxes and assessments. Lines 300 to 303 add the total charges (line 120) and subtracts the total credits (line 220) to arrive at the amount of cash to be paid by borrower at closing (or paid to borrower in those rare no money down transactions).

B. SECTION K

Section K, Summary of Seller's Transactions, is also divided into three subsections. Lines 400 through 420 describe the seller's credits to arrive at the gross amount due to the seller. Here, the statement adds up the contract sales price for both the real estate and personal property, and adjustments for items paid by the seller in advance. Lines 500 through 520 describe the seller's charges. Here, the statement adds up the deposit paid to seller, the total of seller's settlement charges from section L, the amounts of loans to be paid off or assumed by borrower, and adjustments for items unpaid by the seller such as taxes and assessments. Lines 600 to 603 add the total credits (line 420) and subtract the total charges (line 520) to arrive at the amount of cash the seller will walk away with from closing (or the amount of cash the seller must pay in those unfortunate situations where the seller must pay to get rid of the property).

C. SECTION L

Section L, Settlement Charges, is divided into seven subsections. It lists all closing costs and identifies whether each is to be paid from borrower's or seller's funds at closing. The borrower's charges and the seller's charges are totalled and carried forward to Section J (line 103 under Gross Amount Due From Borrower) and Section K (line 502 under Reductions in Amount Due To Seller).

D. SUBSECTION 700

Subsection 700 lists the charges related to the sales/broker's commission. This commission is usually a percentage of the purchase price, and, therefore the HUD-1 provides space for its computation. Space is also provided to list each broker in the event that there is more than one.

E. SUBSECTION 800

Subsection 800 lists the items payable in connection with the loan. Loan origination is listed on line 801. This is a fee to the lender to cover administrative costs in processing the loan. It is usually a percentage of the loan. Loan discount is listed on line 802. This is where the "points" are listed. Each point is equal to one percent of the loan amount. Points are charged by the lender to adjust the yield on the loan to what market conditions demand. Other charges include appraisal fee, credit report fee, lender's inspection fee, mortgage insurance application fee, and assumption fee. Private mortgage insurance may be required in certain loans where the borrower's down payment is not significant. An assumption fee is charged where the borrower is assuming the existing loan of the seller.

F. SUBSECTION 900

Subsection 900 lists the items that the lender requires to be paid in advance. One of these items listed on line 901 is interest to the end of the month. The borrower will usually pay interest in arrears. If the loan closes on February 15, the first payment under the loan will be April 1. The April 1 payment will contain the interest due for the period in the month of March. However, interest also accrues from the date of closing, February 15 to March 1. It is the interest for this period of time that the borrower will be required to pay in advance at closing. Other advanced payments may include premium payments for hazard insurance and mortgage insurance.

G. SUBSECTION 1000

Subsection 1000 lists the reserves deposited with lender. These are sometimes called escrow or impound accounts. They are accounts established to assure that there will be sufficient funds to pay when they become due: such things as hazard insurance, mortgage insurance, taxes and assessments.

H. SUBSECTION 1100

Subsection 1100 lists the title charges. This section includes fees for such people as the closing agent, attorneys, and notary, and for such things as document preparation, title examination, and title insurance.

I. SUBSECTION 1200

Subsection 1200 lists the government recording and transfer charges. There will be recording fees charged by the county recorder to record the deed and the mortgage. These fees are often determined by the number of pages of the instrument and charged to the buyer. There will also be transfer fees charged by the county auditor. These fees are usually related to the sales price (i.e., $1.00 for each $1,000.00) and often paid by the seller.

J. SUBSECTION 1300

Subsection 1300 lists additional settlement charges that do not fit under any other category. Here, charges for the survey and pest inspections are listed.

K. SUBSECTION 1400

Subsection 1400 is the line where the total of the settlement charges for both the borrower and the seller are listed. These amounts are then brought forward to the summary of borrower's transaction, gross amount due from borrower (Section J, line 103) and the summary of seller's transaction, reductions in amount due to seller (Section K, line 502).

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TRUTH IN LENDING DISCLOSURES

The Federal Truth-In-Lending disclosure statement is required under the Truth in Lending Simplification and Reform Act and Regulation Z. The purpose of this Act is to insure meaningful disclosures of credit costs so that consumers may have a meaningful method of comparison. The Federal Reserve Board has adopted Regulation Z to implement the Act and to provide disclosure rules.

The following is a general discussion of some of the disclosure requirements in the residential real estate closing under Regulation Z:

A. GENERAL DISCLOSURE REQUIREMENTS (§ 226.17)

(a) FORM OF DISCLOSURES: The disclosures must be clearly and conspicuously made in writing, in a form that the consumer may keep. The disclosures must be grouped together, segregated from everything else, and not contain any information not directly related to the disclosures required under § 226.18. Therefore, there can no longer be over disclosure without violating the Act. The itemization of the amount financed must be separate from the other disclosures. The terms "finance charge" and "annual percentage rate" must be more conspicuous than any other disclosure, except the creditors identity.

The disclosures may include an acknowledgment of receipt, the date of transaction, and the Borrower's name, address, and account number. The following disclosures may be made together or separately from other required disclosures: the creditor's identify, the variable rate example, insurance, and certain security interest charges under § 226.18(O) (see discussion of this provision below).

(b) TIME OF DISCLOSURES: The disclosures must be made before consummation of the transaction. In a residential mortgage transaction subject to the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et seq. the creditor must make good faith estimates of the disclosures required by § 226.18 before consummation, or must deliver or place them in the mail not later than three (3) business days after the creditor receives the consumer's written application, whichever is earlier. § 226.19.

(c) BASIS OF DISCLOSURES AND USE OF ESTIMATES: The disclosures must reflect the terms of the legal obligation between the parties. If any information necessary for an accurate disclosure is unknown, the disclosure must be based on the best information reasonably available, and shall disclose that it is an estimate. In making calculations the creditor may disregard the effects of certain matters, such as Leap Year, and that months have different numbers of days, etc.

(d) MULTIPLE CREDITORS; MULTIPLE CONSUMERS: If the transaction involves more than one creditor, only one set of disclosures needs to be given, and the creditors must agree among themselves which creditor will comply with the regulation. If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation. However, if the transaction is rescindable, the disclosures must be made to each consumer who has the right to rescind.

B. CONTENT OF DISCLOSURES § 226.18

The creditor must disclose the following information:

(a) CREDITOR: The identity of the creditor must be disclosed.

(b) AMOUNT FINANCED: The "amount financed" must be disclosed using those terms, and a brief description such as "the amount of credit provided to you or on your behalf." The amount financed is to be calculated by:

(1) Determining the principal loan amount or the cash price (subtracting any down payment);

(2) Adding any other amounts that are financed by the creditor and are not part of the finance charge; and

(3) Subtracting any prepaid finance charge.

(c) ITEMIZATION OF AMOUNT FINANCED: There must be a separate written itemization of the amount financed. This is to include:

(1) The amount of any proceed distributed directly to the consumer;

(2) The amount credited to the consumer's account with the creditor;

(3) Any amounts paid to other persons by the creditor on the consumer's behalf. The creditor must identify those persons, but may describe the following payees using generic or other general terms: public officials or government agencies, credit reporting agencies, appraisers, and insurance companies; and

(4) The prepaid finance charge.

The creditor does not need to comply with the itemization of amount financed if the consumer is provided with a statement that the consumer has a right to receive a written itemization of the amount financed, there is a space for the consumer to indicate whether it is desired, and the consumer does not request it.

Good faith estimates of settlement costs provided for transactions subject to the Real Estate Settlement Procedures Act (12 U.S.C. § 2601 et seq.) may be substituted for the disclosure of the itemization of the amount financed.

(d) FINANCE CHARGE: The "finance charge" must be disclosed, using that term, and a brief description such as "the dollar amount the credit will cost you."

(e) ANNUAL PERCENTAGE RATE: The "annual percentage rate" must be disclosed, using that term, and a brief description such as "the cost of your credit as a yearly rate."

(f) VARIABLE RATE: If the annual percentage rate may increase after consummation, it is considered a variable rate. Certain disclosures are required concerning the variable rate feature at the time a loan application form is provided, but prior to payment of a non-refundable fee. The Truth-In-Lending disclosure statement must state that the transaction contains a variable-rate and that the variable-rate disclosures have been provided earlier.

(g) PAYMENT SCHEDULE: The number, amounts, and timing of payments scheduled to repay the obligation must be disclosed. In a transaction in which a series of payments varies because a finance charge is applied to the unpaid principal balance, the payment schedule disclosure must contain the following information: The dollar amounts of the largest and smallest payments in the series; and a reference to the variations in the other payments in the series.

(h) TOTAL OF PAYMENTS: The "total of payments" must be disclosed, using that term, and a descriptive explanation such as "the amount you will have paid when you have made all scheduled payments."

(i) DEMAND FEATURE: If the obligation has a demand feature, that fact must be disclosed. When the disclosures are based on an assumed maturity of one (1) year as provided in § 226.17(c)(5), that fact must also be disclosed.

(j) INTENTIONALLY OMITTED

(K) PREPAYMENT: There must be a statement indicating whether or not a penalty may be imposed if the obligation is prepaid in full when an obligation includes a finance charge computed from time to time by application of a rate to the unpaid principal balance. When an obligation includes a finance charge other than the one just described, there must be a statement indicating whether or not the consumer is entitled to a rebate of any finance charge if the obligation is prepaid in full.

(l) LATE PAYMENT: Any dollar or percentage charge that may be imposed before maturity due to a late payment, other than a deferral or extension charge, must be disclosed.

(m) SECURITY INTEREST: The fact that the creditor has or will acquire a security interest in the property purchased as part of the transaction, or in other property identified by item or type, must be disclosed.

(n) INSURANCE: Certain insurance premiums must be disclosed. These are the insurance premiums which are excluded from the finance charge under § 226.4(d). Such premiums include premiums for credit life, accident, health or loss-of-income insurance where the following conditions are met:

(1) The insurance coverage is not required by the creditor, and this fact is disclosed.

(2) The premium for the initial term of insurance coverage is disclosed. If the term of the insurance is less than the term of the transaction, the term of insurance also shall be disclosed.

(3) The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified. Any consumer in the transaction may sign or initial the request.

Also included here are premiums for insurance against loss or damage to property, or against liability arising out of the ownership or use of property, where the following conditions are met:

(1) The insurance coverage may be obtained from a person of the consumer's choice, and this fact is disclosed. A creditor may reserve the right to refuse to accept, for reasonable cause, an insurer offered by the consumer.

(2) If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage must be disclosed. If the term of insurance is less than the term of the transaction, the term must be disclosed.

(o) CERTAIN SECURITY INTEREST CHARGES: There must be a disclosure of certain fees prescribed by law or certain premiums for insurance in lieu of perfecting a security interest which are excluded from the finance charge under § 226.4(e). These include the following:

(1) Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.

(2) The premium for insurance in lieu of perfecting a security interest to the extent that the premium does not exceed the fees described in (1) above that otherwise would be payable.

(p) CONTRACT REFERENCE: There must be a statement that the consumer should refer to the appropriate contract document for information about nonpayment, default, the right to accelerate the maturity of the obligation, and prepayment rebates and penalties. The creditor has the option to include in the statement a reference to the contract for further information about security interests and, in a residential mortgage transaction, about the creditor's policy regarding assumption of the obligation.

(q) ASSUMPTION POLICY: In a residential mortgage transaction, there must be a disclosure as to whether or not a subsequent purchaser of the dwelling from the consumer may be permitted to assume the remaining obligation on its original terms.

(r) REQUIRED DEPOSIT: Where a deposit is required, there must be a statement that the annual percentage rate does not reflect the effect of the required deposit. A required deposit does not include:

(1) An escrow account for items such as taxes, insurance or repairs;

(2) A deposit that earns not less than 5% per year; or

(3) Payments under a Morris Plan.

C. CERTAIN RESIDENTIAL MORTGAGE AND VARIABLE RATE TRANSACTIONS (§ 226.19)

(a) TIME OR DISCLOSURE: In a residential mortgage transaction subject to the Real Estate Settlement Procedures Act (12 U.S.C. § 2601 et seq.) there must be good faith estimate of the disclosures required by § 226.18 before consummation, or must deliver or place them in the mail not later than three (3) business days after the creditor receives the consumer's written application, whichever is earlier.

(b) REDISCLOSURE REQUIRED: If the annual rate in the consummated transaction varies from the annual rate disclosed by more than 1/8th of 1 percentage point in a regular transaction or more than 1/4th of 1 percentage point in an irregular transaction (as defined in § 226.22), the creditor must disclose the changed terms no later than consummation or settlement. An irregular transaction is one that includes one or more of the following features: Multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment).

Where the mortgage loan is a refinancing of the borrower's principal residence, in addition to the above disclosures, the borrower must receive a disclosure of his three day right of rescission. This right is a cooling off period allowing the borrower to rescind the refinanced loan. Each borrower to the refinancing must receive two copies of the notice of right to cancel. This notice will describe the borrower's right, explain how to cancel, provide a space for invoking the right, and provide an acknowledgment of receipt of two completed copies of the notice.

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REPORTING AND WITHHOLDING REQUIREMENTS

In the case of real estate transaction, the real estate reporting person has certain reporting requirements under the Internal Revenue Code. See 26 U.S.C. § 6045(e). A real estate transaction is defined as a transaction that consists of the sale or exchange of one-to-four family real estate for money, indebtedness, property, or services. The transaction is excluded from the reporting requirements where the transferor is a corporation or governmental unit.

The real estate reporting person is the person responsible for closing the transaction. Where a HUD-1 is prescribed, the real estate reporting person is the settlement agent listed on the HUD-1 (or the person who prepared the HUD-1 or closing statement if no settlement agent is listed). If there is no closing statement the real estate reporting person is the first-listed of the following persons who participates in the transaction:

1. Buyer's attorney;

2. Seller's attorney;

3. The disbursing title or escrow company;

4. The mortgage lender;

5. Seller's broker;

6. Buyer's broker; or

7. Buyer.

See 26 CFR §1.6045-3T(e)(3)(iii) - (e)(4)(iv).

The real estate reporting person may report the sale or exchange on form 1099 or a substitute 1099 form. The information is required to be submitted to the government on magnetic media, unless the reporting person expects to file fewer than 250 returns in the calendar year. A written statement of the information required to be shown on the return must also be provided to the seller.

The following information must be set forth on the 1099 form:

1. The name, address, and taxpayer identification number ("TIN") of the seller;

2. A general description of the real estate transferred;

3. The date of closing;

4. The gross proceeds with respect to the transaction;

5. Whether the seller received property, other than cash, or services as part of the consideration;

6. The real estate broker's name, address, and TIN;

7. Any other information required by the 1099 form or its instructions.

The real estate reporting person must solicit a TIN from the seller at or before the time of closing. The seller whose TIN is solicited must furnish it and certify that it is correct. The solicitation may be made using a W-9. See 26 CFR Ch. 1 §1.6045-3T for more information.

Where the Seller is a foreign person, the Buyer is required to withhold a tax equal to 10 percent of the amount realized on the disposition. This withholding is not required where the Buyer acquires the property as his residence and the sales price is less than $300,000.00. In those instances where the sales price is $300,000.00 or more, the Buyer can protect himself by requiring a non-foreign affidavit from the seller. Here, the seller states that he is not a foreign person and provides his TIN.

AFFIDAVITS

There are a number of affidavits that could appear at closing. The title company will require a closing affidavit from the seller in order to remove certain exceptions from the lender's title policy. The lender may require a similar affidavit from its borrower. The buyer may require the seller to provide an affidavit regarding off record title matters. These affidavits may address matters such as taxes, assessments, mechanics' liens, utilities, easements, tenants, debts, restrictions, encroachments, improvements, etc. In a construction loan an inspection of the property and an affidavit from the inspector may be required to affirm that no construction commenced before the recording of the mortgage.

The fear of mechanics' liens has encouraged the use of affidavits at closing. In the residential setting, the affidavit required to effect a mechanics' lien must be filed within sixty days from the date on which the last labor or work was performed or material was furnished by the person claiming the lien. O.R.C. § 1311.06(B)(1) establishes this time period for: (1) a one, or two-family dwelling; or (2) a residential unit of condominium property. However, the lien is effective from the date the first visible work or labor is performed, or the first materials are furnished by the contractor, subcontractor materialperson, or laborer at the site of the improvement. See O.R.C. § 1311.13. The problem facing the purchaser or lender in the transaction involving construction is that the closing may occur during the gap when the right to file mechanics' liens exists although nothing is of record, and the effectiveness of those liens date back to the date of the commencement of construction.



The legislature passed certain consumer protection legislation for the personal residence. O.R.C. 1311.011 povides as follows:

(1) "Home construction contract" means a contract entered into between an original contractor and an owner, part owner, or lessee for the improvement of any single- or double-family dwelling or portion of the dwelling or a residential unit of any condominium property that has been submitted to the provisions of Chapter 5311. of the Revised Code; an addition to any land; or the improvement of driveways, sidewalks, swimming pools, porches, garages, carports, landscaping, fences, fallout shelters, siding, roofing, storm windows, awnings, and other improvements that are adjacent to single- or double-family dwellings or upon lands that are adjacent to single- or double-family dwellings or residential units of condominium property, if the dwelling, residential unit of condominium property, or land is used or is intended to be used as a personal residence by the owner, part owner, or lessee.

(2) "Home purchase contract" means a contract for the purchase of any single- or double-family dwelling or residential unit of a condominium property that has been subjected to the provisions of Chapter 5311. of the Revised Code if the purchaser uses or intends to use the dwelling, a unit of a double dwelling, or the condominium unit as his personal residence.

(3) "Lending institution" means any person that enters into a contract with the owner, part owner, purchaser, or lessee to provide financing for a home construction contract or a home purchase contract, which financing is secured, in whole or in part, by a mortgage on the real estate upon which the improvements contemplated by the home construction contract are to be made or upon the property that is the subject of the home purchase contract, and that makes direct disbursements under the contract to any original contractor or the owner, part owner, purchaser, or lessee.

(4) "Original contractor" includes any person with whom the owner, part owner, lessee, or purchaser under a home purchase contract or a home construction contract has directly contracted.

(B) Notwithstanding sections 1311.02 to 1311.22 of the Revised Code, all liens, except mortgage liens, that secure payment for labor or work performed or materials furnished in connection with a home construction contract or in connection with a dwelling or residential unit of condominium property, that is the subject of a home purchase contract are subject to the following conditions:

(1) No original contractor, subcontractor, materialman, or laborer has a lien to secure payment for labor or work performed or materials furnished by the contractor, subcontractor, materialman, or laborer, in connection with a home construction contract between the original contractor and the owner, part owner, or lessee or in connection with a dwelling or residential unit of condominium property, that is the subject of a home purchase contract, if the owner, part owner, or lessee paid the original contractor in full or if the purchaser has paid in full for the amount of the home construction or home purchase contract price, and the payment was made prior to the owner's, part owner's, or lessee's receipt of a copy of an affidavit of mechanics' lien pursuant to section 1311.07 of the Revised Code.

An owner, part owner, or lessee may file with the county recorder of the county in which the property that is the subject of a home construction contract or a home purchase contract is situated an affidavit that the owner, part owner, or lessee has made payment in accordance with this division. Except if the owner, part owner, or lessee is guilty of fraud, any lien perfected on the property by any subcontractor, materialman, or laborer for labor or work performed or for materials furnished is void and the property wholly discharged from the lien, if the lien was perfected after full payment was made in accordance with this division. The recorder shall index and record the affidavit in the same manner that releases of mortgages and other liens are indexed and recorded, and shall receive the same fees for indexing and recording the affidavit that are provided for the recording of leases.

Nothing in this section shall adversely affect a mechanics' lien claimed against a prior owner if the lien is perfected prior to a conveyance under a home purchase contract.

(2) If the original contractor has not been paid in full as provided in division (B)(1) of this section, no subcontractor, materialman, or laborer has a lien to secure payment for labor or work performed or materials furnished by the subcontractor, materialman, or laborer for an amount greater than the amount due under the home construction contract that has not been paid to the original contractor for the work, labor, or materials or for an amount greater than the amount of the home purchase contract price that has not been paid to the original contractor. The total amount of all liens for labor or work performed or for materials furnished in connection with a home construction contract that may be enforced in lien foreclosure proceedings shall not exceed the amount due under the home construction contract that has not been paid to the original contractor or the amount due under the home purchase contract that has not been paid to the original contractor.

If the amount due under the home construction contract or under the home purchase contract to the original contractor is insufficient to secure the mechanics' liens of all lien claimants that arose out of the home construction contract or that arose out of a contract in connection with a dwelling or residential unit of condominium property, that is the subject of a home purchase contract, each mechanics' lien shall be secured by a pro rata share of the amount due to the original contractor, except that mechanics' liens filed by laborers have priority. The pro rata share shall be equal to the monetary amount of the amount due to the original contractor that is subject to all valid mechanics' liens on the property that is the subject of the home purchase contract or all valid mechanics' liens under the home construction contract multiplied by a fraction in which the denominator is the total monetary amount of all valid mechanics' liens on the property that is the subject of the home purchase contract or of all valid mechanics' liens that arose out of the home construction contract, and the numerator is the amount claimed to be due by the lien claimant under a contract in connection with a dwelling or residential unit of condominium property, that is the subject of the home purchase contract or under the home construction contract.

For the purpose of this section, the amount due under a home construction contract or a home purchase contract is the unpaid balance under the home construction contract or the home purchase contract, minus the cost to complete the contract according to its terms and conditions, including any warranty or repair work.

(3) If, after receiving written notice from an owner, part owner, purchaser, or lessee that full payment has been made by the owner, part owner, purchaser, or lessee to the original contractor for the amount of the home construction or home purchase contract and that payment was made prior to the owner's, part owner's, or lessee's receipt of a copy of an affidavit of mechanics' lien pursuant to section 1311.07 of the Revised Code, the lienholder fails within thirty days after receipt of the notice to cause the lien securing payment for the work, labor, or materials to be released of record, the lienholder is liable to the owner, part owner, or lessee for all damages arising from the lienholder's failure to cause the lien to be released.

(4) No lending institution shall make any payment to any original contractor until the original contractor has given the lending institution the original contractor's affidavit stating:

(a) That the original contractor has paid in full for all labor and work performed and for all materials furnished by the original contractor and all subcontractors, materialmen, and laborers prior to the date of the closing of the purchase or during and prior to the payment period, except such unpaid claims as the original contractor specifically sets forth and identifies both by claimant and by amount claimed;

(b) That no claims exist other than those claims set forth and identified in the affidavit required by division (B)(4) of this section.

(5) When making any payment under the home construction contract or on behalf of the owner or part owner under a home purchase contract, the lending institution may accept the affidavit of the original contractor required by division (B)(4) of this section and act in reliance upon it, unless it appears to be fraudulent on its face. The lending institution is not financially liable to the owner, part owner, purchaser, lessee, or any other person for any payments, except for gross negligence or fraud committed by the lending institution in making any payment to the original contractor.

After receipt of a written notice of a claim of a right to a mechanic's lien by a lending institution, failure of the lending institution to obtain a lien release from the subcontractor, materialman, or laborer who serves notice of such claim is prima-facie evidence of gross negligence.

(6) Any owner, part owner, purchaser, or lessee, who requests an original contractor to supply the affidavit required by division (B)(4) of this section, may withhold any payment that is due under the home construction contract or under the home purchase contract until the original contractor provides the owner, part owner, purchaser, or lessee with the affidavit. The owner's, part owner's, purchaser's, or lessee's remedies and rights under this section shall not be prejudiced by the owner's, part owner's, purchaser's, or lessee's failure to request or to obtain the affidavit provided for in division (B)(4) of this section.

(7) An owner, part owner, purchaser, lessee, or lending institution may make payment jointly to the original contractor and to a subcontractor, materialman, or laborer as a condition to their giving lien releases.

(8) If a subcontractor, materialman, or laborer refuses to supply a lien release to the original contractor, owner, part owner, lessee, or lending institution because the amount of money that the original contractor owes the subcontractor, materialman, or laborer is in dispute, the owner, part owner, lessee, and lending institution shall withhold from payment to the original contractor an amount of money equal to the amount of money claimed by the subcontractor, materialman, or laborer. If a subcontractor, materialman, or laborer refuses within ten days after receipt of a written request from either the original contractor or the lending institution to state the amount due and the last date that the lien claimant performed any labor or work or furnished any material in furtherance of the improvement which gives rise to the lien claimant's lien claim, the amount and the last date shall be stated by the original contractor. The owner, part owner, lessee, and lending institution shall pay the withheld amount of money to the original contractor when any of the following occur:

(a) The subcontractor, materialman, or laborer gives written notice to the owner, part owner, lessee, or lending institution that the amount of money claimed to be due has been paid.

(b) The subcontractor, materialman, or laborer delivers a lien release to the original contractor, owner, part owner, lessee, or lending institution.

(c) The original contractor provides the subcontractor, materialman, or laborer with a bond, in a form that is satisfactory to the owner, part owner, lessee, or lending institution and in an amount equal to the amount of money claimed to be due.

(d) The time for filing a lien by the subcontractor, materialman, or laborer has expired and no affidavit of lien has been recorded pursuant to section 1311.06 of the Revised Code.

(9) Any lien release given pursuant to this section is valid and enforceable without separate consideration for the release.

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CONCLUSION

Many more loan documents may appear at the closing that have not been discussed here. There may be a compliance agreement signed by the parties at closing requiring them to execute new documents in the event typographical errors prevent the lender from selling the loan on the secondary market. There may be various riders to the note and mortgage. There seems to be an additional document at every closing one attends.

Organization is the key to closing. A checklist will get you through the closing in an efficient manner. As you attend more and more closings your checklist may become longer an longer, but it will help in the orderly process of closing, and help you prevent a vital matter from slipping between the cracks of the closing table.

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