The Story of a Mortgage Loan

Notaries who have not been through the personal agony of applying for a mortgage loan have missed learning opportunities.  Every mortgage loan has a story!  Being that involved in the process personally helps notaries understand what their borrowers have recently endured.  

Without that experience, a new loan signing agent may not understand some of the impatience that borrowers have.  Applying for a loan isn’t for the faint at heart.  It can be grueling and frustrating.  With that in mind, I’d like to do an overview of how a mortgage loan begins and evolves into a neat stack of loan documents on a borrower’s cluttered kitchen table.

Definition of a mortgage

A mortgage is a legal agreement by which a lender lends money at interest in exchange for taking title of the real property until the debt is paid.  

All mortgage loans are secured by real property.  Once the loan is paid off, the title is returned to the owner who took out the loan against the property.

If the loan is a residential mortgage, the loan is secured by a residence rather than just real property.

Mortgage loans happen because of an idea, want, or need.

Before there is a loan, there is a reason to take out a loan. Here are a few examples.

• Peggy wants a new house.  She will need a purchase loan to pay for it.
• Joe wants to remodel his home; he might look into a home improvement loan.
• Otis is 82 and needs money to help him pay his bills on a fixed low income. Otis wants to hear more about reverse mortgage loans.
• Perhaps Stu needs money to start a business.  He may inquire about a home equity loan to acquire working capital for that business.

Step one is applying for a  mortgage loan.

Mortgage loans begin with a hopeful applicant filling out a Uniform Residential Mortgage Application (also called an “URLA 1003” or just “1003”) and submitting the completed application to a bank, credit union, mortgage broker, or lender.  For the purpose of this article, we will just use the term “lender.”

Loan Estimate Disclosure

If the borrowers can pass a preliminary credit check and meet other criteria (based on the information provided in the 1003), the lender will send out a Loan Estimate to show the borrowers how much the loan will cost.  

Intent to Proceed

If the borrower agrees with the loan estimate and costs, an “Intent to Proceed” is signed and returned to the lender.

Title Company Involvement

At this point, or even before this point, some lenders engage a title company to handle several facets of the mortgage loan closing process–getting a mobile notary scheduled is just one of the many tasks that title companies perform or delegate.

As an aside comment, even though a couple of weeks may have passed at this point, the mortgage loan is not even close to being ready for the notary to head for the borrower’s home to notarize loan documents.  

Mortgage Processing Tasks

To collect all the required documentation from the borrowers, appraisers, employers, etc., the lender has assistance from a professional called a “mortgage processor” who makes all the necessary contacts to collect the information required for the loan approval.

• Deep credit history check–more than the pre-approval credit check
• Appraisal is ordered to see how much the property is worth.
• Employment is verified (both current and previous employers).
• Checking how much money the borrower has to close the deal

If all of the tests above result in meeting the lender’s high standards, the lender assumes the deal will close.  If all seems in line, the lender submits the loan packet for approval to its board or other authority. The loan will soon be be approved or denied.  

Title Company – Investigating Borrowers History and the Subject Property

While the lender’s mortgage processor is investigating the borrower’s credit history, financial history, and value of the subject property, the title company must reach out to several professionals to play their roles in ascertaining if the loan will be a viable mortgage and good investment for the lender.  

For these types of tasks, a title company will be supported by title abstractors, title examiners, possibly even lawyers and surveyors.

They will handle —

• Review of property tax records of previous property owners
• Conducting a property ownership history search of previous property owners
• Looking for clouds on the property’s title
• Watching for unknown  liens, lawsuits, divorces, probate issues
• Consideration of name issues, if any, for instance:
  • If there are names that match the borrowers’ names and those were not expected, the title company must determine if the names belong to the actual borrowers or someone with a similar name.
  • If there are names that vary from the borrowers’ names in the records, but actually are the borrowers, there must be additional documentation of the loan to clarify the difference(s) in names.
• Obtaining a survey (if requested by lender or buyer/borrower)

Issuing the Title Commitment 

After passing all of the above tests, it will be time to issue the title commitment.  The title commitment (generally speaking) guarantees that the title company has looked into all the necessary public records and it finds no blemish on the property’s title. If a blemish pops up, the title insurance represented by the title commitment will probably be able to cover the lender’s losses.

Title Company – Preparing to Close

• Using instructions from lender, plus findings from the property searches conducted, the loan documents are ordered, usually from an attorney. (Some states don’t require lawyers for document preparation. Many states do.)
• The title company collects amounts to be paid off at closing from various sources.
• It orders the insurance endorsement(s) and termite report
• The title company handles the closing disclosure and the ALTA Statement.

It’s Finally Notary Time!

Once the title company knows that the loan will close,  it will schedule the execution of the documents (with the lender’s input, of course).  That’s when a notary must be contacted to handle the signing appointment. The first three items below are examples of internal handling.  There will not be a loan signing agent involved. The last four items describe how assignments of this type may reach an independent loan signing agent.

• An escrow officer or assistant who has a notary commission and is an employee of the title company may handle the signing of loan documents at the title company office.
• At times, documents are signed in a law office using a legal assistant as the notary.
• Documents may be signed at the lender’s location before a lender’s employee who is a notary.
• The title company may call a notary directly to handle the signing of documents.
• The title company may ask a signing service to locate a notary public for the signing.
• The title company or the signing service may engage a service like Snap Docs, Notary Dash, Signing Order or other platforms of this type where notaries sign up to receive text messages about assignments in their area.
• At times, a title company will do what’s called a “mail-away” and ship the documents directly to the borrower and the borrower is instructed to find a notary.

Please be aware that this was a basic overview of how mortgage loans develop.  This was not meant to be a legal guide or detailed explanation.

Did this make you think about becoming a loan signing agent?  Don’t hesitate to look into Notary.net’s online class which is an overview for loan signing agents. The price is right and the material is sound!