Legal Ease is the weekly Q&A from the IBAT Bottom Line. Go to the Legal Ease Archive.
Latest Additions to Legal Ease:
We have a couple of questions about the calculation of late charges. First, on what loans can we charge a late charge? Second, would the basis for the late charge calculation include a portion of the regular payment that is for escrow? And finally, would the late charge calculation include interest accrued through the date the payment was actually made?
First, on the question of if and when a late charge can be accessed, IBAT has a resource on our web page to help in making those decisions. See our Late Charges & Fees Chart by clicking here.
Second, the late charge calculation, or the amount of the payment that can be used in calculating the late charge, would be the regular "scheduled payment" amount of principal and interest due. It would not include a portion of the payment amount that is going into escrow for the payment of taxes and insurance on behalf of the borrower.
Finally, the late charge calculation, or the amount of the payment that can be used in calculating the late charge, would not include interest accrued but not yet due. For example, if the payment was due on August 1, and the payment was actually paid on August 16, the interest accrued from August 1 to August 16 would not be included in the "scheduled payment" for the late charge calculation because that accrued interest is not yet due and payable.
Should non-obligors to a residential mortgage receive the early Truth in Lending Disclosures?
Short answer: Yes! According to an informal CFPB opinion, “material disclosures” is defined in such a way as to include the early disclosures. For more background, click here to read the Cox Smith Banking blog featuring Karen Neeley.
I have two related questions. If a P.O.D. payee dies before the account owner, does the P.O.D. payee’s estate get the funds? I’ve heard that a P.O.D. payee would have to live at least 120-hours longer than the owner of the account or the P.O.D. payee isn’t entitled to the funds. Is this true?
If a P.O.D. payee dies before the account owner, the P.O.D. payee’s estate does not receive the funds when the account owner dies. If there is one or more surviving P.O.D. payees, they would each receive an equal share of the funds. If there aren’t any other surviving P.O.D. payees, then the funds belong to the deceased account owner’s estate. (See the Note below.)
Not surprisingly, the answer regarding the 120-hour rule isn't completely clear, and it while it may be arguable that the 120-hour rule applies to P.O.D. payees, it does not seem to be applicable.
The 120-day rule comes from Chapter 121 of the Estates Code, and Section 121.001 addresses the applicability of the chapter.
Sec. 121.001. APPLICABILITY OF CHAPTER. This chapter does not apply if provision has been made by will, living trust, deed, or insurance contract, or in any other manner, for a disposition of property that is different from the disposition of the property that would be made if the provisions of this chapter applied.
Section 121.152 deals with joint ownership with right of survivorship.
Sec. 121.152. DISTRIBUTION OF PROPERTY OWNED BY JOINT OWNERS. If property, including community property with a right of survivorship, is owned so that one of two joint owners is entitled to the whole of the property on the death of the other, but neither survives the other by 120 hours, one-half of the property shall be distributed as if one joint owner had survived, and the other one-half shall be distributed as if the other joint owner had survived. If there are more than two joint owners and all of the joint owners die within a period of less than 120 hours, the property shall be divided into as many equal portions as there are joint owners and the portions shall be distributed respectively to those who would have taken if each joint owner survived.
Because 121.152 specifically addresses joint ownership with right of survivorship and, with P.O.D. beneficiaries, provision has been made "in any other manner," it appears the P.O.D. beneficiary takes possession without regard to whether he/she survives by 120 hours.
Additionally, Chapter 113 addresses payment to heirs of P.O.D. payees and only requires that the P.O.D. beneficiary survive the deceased original payee (account owner). And it doesn't mention 120-hour rule.
Sec. 113.204. PAYMENT OF P.O.D. ACCOUNT. (a) A P.O.D. account may be paid, on request, to any original payee of the account.
(b) Payment may be made, on request, to the P.O.D. payee or to the personal representative or heirs of a deceased P.O.D. payee on the presentation to the financial institution of proof of death showing that the P.O.D. payee survived each person named as an original payee.
(c) Payment may be made to the personal representative or heirs of a deceased original payee if proof of death is presented to the financial institution showing that the deceased original payee was the survivor of each other person named on the account as an original payee or a P.O.D. payee.
The bank's best bet is to get the funds paid out as quickly as possible upon the death of the account owner so that it is not in the middle of this or other disagreements that may arise. If you learn that a P.O.D. payee dies shortly after the account owner, but before you pay the funds, consult legal counsel. However, a POD payee surviving an account owner by any amount of time owned the account; therefore, the funds are part of his/her estate. Regardless, be sure to check the account contract. Some bank account contracts providing for a 120-hour rule.
NOTE: Some banks will allow an owner of an account with multiple P.O.D. payees to designate a division of the funds to the P.O.D. payees that is not equal. Allowing account owners to specify percentages to multiple P.O.D. payees can complicate matters, but if the contract provides for it, and one of the P.O.D. payees predeceases the account owner, the bank would have to split the deceased P.O.D. payee’s portion into equal shares among the surviving P.O.D. payees. Take, for example, the death of an account owner on an account with $10,000 that had three P.O.D. payees who were to receive 50%, 30%, and 20% upon the account owner’s death. Let’s say the P.O.D. payee receiving 20% dies before the account owner. In addition to the percentage of the funds the contract says they receive, the two surviving P.O.D payees would also receive an equal split of the deceased P.O.D. payee’s 20% . So, if there were $10,000 in the account at the owner’s death, the P.O.D. payee who received 50% would get $5,000 (50%) plus an additional $1,000 (10%). And the P.O.D. payee who received 30% would get $3,000 plus an additional $1,000 (10%).
If a borrower with a home equity line of credit (HELOC) dies, can the executor of the estate continue to draw on the line if needed?
First and foremost, this is a very technical legal question that should be discussed with your own legal counsel after careful review of the loan documents. It involves both the Texas probate code and the homestead laws, as well as a decision about credit risk.
The Texas constitutional provisions on home equity lending do not specifically address this issue - it is neither permitted or prohibited. The Texas probate laws would likely give the executor the necessary authority to request an advance in accordance with the HELOC requirements.
The last (and perhaps just as important!) issue is credit risk, and it poses some questions that should be carefully thought out . A home equity line of credit loan is a non-recourse loan - any advances made against that loan increases that non-recourse risk. Would the estate be able to use anything other than the former homestead property itself for repayment? If it used income from another source, could the beneficiary of that income complain that it was an improper to use those funds to repay the loan? Could the beneficiary of the house complain that further draws reduced the value of the asset they were supposed to receive? If there are other surviving owners of the home that could certainly complicate matters. (These may not be your problem and are the responsibility of the executor, but your bank could be drawn into this.)
You do have the right to cease draws in the event a borrower passes away. Having said all that, it bears repeating: Before allowing an executor/administrator to draw on a HELOC always consult your bank’s legal counsel.