May 2006 "FDIC Changes, Mortgage Messes & Title Insurance Concerns"

PLANNING FOR WEALTH & SECURITY
By attorneys Jennifer & Jeff Hawkins
FDIC CHANGES, MORTGAGE MESSES & TITLE INSURANCE CONCERNS

FDIC Increases Deposit Insurance Coverage

The FDIC amended its deposit insurance regulations this spring to implement revisions to the Federal Deposit Insurance Act made by the Federal Deposit Insurance Reform Act of 2005 and the Federal Deposit Insurance Reform Conforming Amendments Act of 2005. The interim rule:

Provides for consideration of inflation adjustments to increase the current standard maximum deposit insurance amount of $100,000 on a five-year cycle beginning in 2010;

Increases the deposit insurance limit for certain retirement accounts from $100,000 to $250,000, also subject to inflation adjustments; and

Provides per-participant insurance coverage to employee benefit plan accounts, even if the depository institution at which the deposits are placed is not authorized to accept employee benefit plan deposits.

The interim rule became effective on April 1, 2006.

Some Mortgage Companies Hide Fees and Foul Up Estate Plans

Mortgage companies are popping up like mushrooms. They promise great interest rates, but some of them hurt their borrowers during the lending process.

Mortgage company rates may seem lower than bank rates, but most mortgage companies are paid fees that resemble commissions to the complete loans. The commission is often camouflaged and charged to the borrower as “closing fees”, “origination fees”, “document preparation fees”, “application fees”, and other obscurely labeled items. A person with bad credit history may not qualify for a regular bank loan, but a solid borrower should be able to borrower less expensively from a regular bank. Always compare both rates and fees before committing to a lender.

Some lenders are also hurting borrowers by forcing borrowers to reorganize their estate plan. Many borrowers that have set up trusts in their estate plans have titled their real estate in those trusts. Unfortunately, many careless lenders require the borrowers to transfer their real estate out of the trusts before closing the mortgage loan. This process dismantles an estate plan unnecessarily because the trust should work just fine in the loan transaction. Therefore, a borrower with an estate plan should consult the estate planning attorney before closing a new mortgage loan.

Read Carefully – All Title Insurance Is NOT Created Equal

A national title insurance trend has hit Indiana. Many title insurance underwriters have responded to the rush to finish real estate deals quickly by offering title insurance policies with big insurance coverage exclusions. A rushed title insurance “commitment”, the insurance company’s written promise to insure the real estate title, may exclude insurance coverage items like the following:

“Covenants, conditions, easements, leases, sewer service agreements, sewer construction agreements, restrictions with or without a homeowner's association, party wall agreements, riparian rights, if any appearing in the public records.”

Careful buyers should always ask their attorneys to examine title insurance commitments to ensure that this language does not appear there. Otherwise, they may end up with title insurance that provides very little protection.

THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN.