Timing Issues Related To Disbursement On A Non-Purchase Money Mortgage Loan - Q2 1999

By the Division of Banks

A licensed mortgage lender ("Lender") seeks to make disbursements directly on a non-purchase money mortgage loan in the Commonwealth. The Lender pays a title company's disbursement agent in Massachusetts a fee to conduct a loan closing, pay off existing mortgage loans and non-lien loans, prepare the final HUD-1 settlement statement, cut a check back to the Lender for lender fees, and send a check to the borrower for the net loan proceeds. It takes the title company 3-5 days from the funding date to disburse the necessary payments from the loan proceeds. The Lender seeks to wire funds directly to the title company in order to save the disbursement agent's fee as well as disburse loan proceeds to the borrower in 1-2 days.

Mass. Gen. Laws chapter 183, section 63B prohibits a mortgagee who makes a loan to be secured by a mortgage or lien on real estate in the Commonwealth from recording said mortgage unless, prior to the time of recording, the mortgagee transfers the full amount of the loan proceeds to the mortgagor, the mortgagor's attorney, or the mortgagee's attorney in the form of certified check, bank treasurer's check, cashier's check, or wire transfer. The purpose of said section 63B is to ensure that loan proceeds are available for disbursement to the borrower and third parties on the day of the closing. A disbursement agent who holds these funds for 3-5 days before disbursing is causing the Lender to be in violation of this statute. It is the position of the Division that the Lender cannot hold settlement proceeds and disburse these funds directly after recording the mortgage since the funds are required to be in the closing attorney's account before he or she can record the mortgage document. Any system of funding a loan which does not accomplish this result is a violation of said section 63B. In addition, the Lender, as a mortgagee, has the responsibility to ensure that its closing agents are disbursing loan proceeds in a timely manner in compliance with said section 63B.