[FoCHAT] Just got the closing documents - Long post - sorry but there are a lot of issues here for CHAT to discuss

[Karen Fontana]

Melanie,
Please contact me and let me know where you would like closing documents
faxed for CHAT's use.  I'm going to redact my identifying information so you
have a set to work with.   We need to deal with these documents before
people starting signing these without knowing what they are agreeing to.

	For example, the subrogation assignment which requires future
payments from insurance companies to be given to OCD also requires future
"payments" from SBA to go to OCD.  What????  SBA is a loan not a grant.   

	Second, the Homeowner is required to list OCD (Office of Community
Development)  as an additional insured on their Homeowner's Policy.  Why?
They are not a lender.  Can you imagine trying to process a Homeowner's
claim with your insurance company and having to get OCD to sign off on
release of your money?  How long do you think that would hold things up? 

	Third, the process for disbursement seems unrealistic for most and
perhaps impossible for those who are do-it-yourselfers.  You must get an
affidavit and W9 in addition to the contract from every contractor and
releases from each contractor and every one of his subs.  Can you imagine
trying to get each contractor before a notary?  There are no provisions in
there for the do it yourself types.  Unless you just wait until completion
of the house to request all of it.  My last construction loan was nowhere
near this onerous.

	There are many other pitfalls - particularly for those who are in
litigation.  READ THESE DOCUMENTS CAREFULLY BEFORE GOING TO CLOSING!!! If
you are in litigation be sure to show this to your lawyer before proceeding
because OCD takes not only any recovered insurance proceeds but also your
attorneys fees and any penalties.

	I called the First American title folks and they say "ask the Road
Home" but when I pointed out that is the equivalent of telling me to write
it down, stick it a bottle and throw it out to sea.. I got a supervisor who
says he will submit questions to his supervisors and see if they can get an
answer from RHP.

Here is a blow by blow of the documents - highlights only - read them when
we get them circulated:

First document:  The Road Home Grant Agreement

This includes a waiver of liability wherein the homeowner agrees not to hold
the Lender (mortgage co) liable for any actions taken by Lender relating to
this Grant so long as such actions are in good faith and in accordance with
the guidelines promulgated by OCD.  (Yes I'm still looking for those)  Also
Homeowner further agrees not to hold the State of Louisiana, US or any other
branch or agency of the state or federal government liable for their actions
relating to this Grant. (Notice no requirement that they act in good faith
etc).  If Homeowner attempts to take legal action against Lender, the State,
US etc, such entity shall have the right to recover attorneys fees and
expenses.

I wouldn't find this objectionable but for the fact that OCD is not required
to act in good faith or in accordance with any guidelines....

After this liability provision there is another Release of Liabiilty and
Indemnification provision which says that you irrevocably release, acquit
and forever discharge the State, its agencies, officers, etc. from any and
all actions or causes of action.doesn't even limit it to this property.
Hmm. if you are suing the State for any other reason at all consult your
lawyer before signing this document...

Second Document: Declaration of Covenants Running with the Land.

The Covenants are:

1.	Covenant Not to Sell Property:   [for three years from effective
date] Owner covenants and agrees not to sell, assign, transfer or otherwise
dispose of all or any portion of or any interest in the Property unless (a)
the transfer is made pursuant to the Covenants contained herein, (b) the
Owner has not violated the Covenants, and C the transferee agrees in the act
of transfer to abide by the Covenants from and after the date of transfer
and assumes the Owner's obligations under the Covenants and the Grant
Agreement...

2.	Covenant as to Property Use.  Basically says you need to use it as
your principal residence for three years.  

3.	Duties Accessory to Primary Covenants: 

	a	Covenant as to Homeowner Insurance - MUST HAVE OCD NAMED AS
AN ADDITIONAL INSURED!!!!!  WHY!!!!
	b	Covenant as to Compliance with Building Codes
	c	Covenant as to Manufactured Housing
	d	Covenant as to Flood Insurance - Note if you sell the
property you are required to tell the new owner in writing of the
requirement to carry flood insurance and must include this notice in the act
of sale.  If you fail to do so and the property is destroyed and federal
disaster relief is given to the new owner, you may be required to reimburse
the federal government for any aid given to that new owner.

"Due on Sale or Transfer: Acceleration"
	If you sell (without complying with their requirements) or the
property is foreclosed on, the owner owes to OCD the "prorated amount."
That "prorated amount" is  the amount of the Grant times a fraction, the
numerator of which is 1080 minus the number of days which have elapsed from
the Compliance Date to the date of the Transfer of the Property, and the
denominator of which is 1080"   (my comment:  glad to see it is at least
prorated!!!)  This payback provision does not apply if the transfer is from
a divorce, succession, donation to a lineal relative or bankruptcy of the
Owner.  See the document for details.

"Use and Disbursement of the Grant Proceeds"
In this we find the statement: "Nothing in the Covenants shall be construed
to require the Owner to repair, rebuild, relocate or sell the property."
??? Hmm. could be useful in negotiations with your lender who is holding the
escrow..except for the onerous disbursement requirements..

Third Document - Subrogation/Assignment Agreement.  In exchange for these
funds I must assign all of my claims and future rights to reimbursement and
all payments from insurance, from FEMA, SBA or any other federal agency,
including increased costs of compliance, penalties and attorneys fees.  So
if you are suing your insurance company, OCD gets your litigation proceeds
and your attorneys fees and everything else.  Do not sign this without
talking to your lawyer first!!!  This document "consitutes an irrevocable
power of attorney" allowing OCD to pursue or settle your insurance claims
(from which you will receive nothing).  You must agree to help OCD by giving
depos etc.  I have no litigation claim but I sure am not going to assign my
SBA loan to them.  Once again OCD has the right to recover attorneys fees
from you if they have to sue to enforce this agreement.

Fourth Document - Grant Recipient Affidavit   Just reaffirms everything in
the other documents but also mentions "To expedite the disbursement of
funds, I/we understand that the RHP may have released the funds prior to
verification of payouts relating to damage caused by Hurricane Katrina or
Hurrican Rita by the insurance company of [sic] companies that insured the
property."

Fifth Document - Grant Disbursement Agreement	This document sets forth who
will hold the money and is supposed to set forth an interest rate for
proceeds which the servicer holds for more than 30 days.  Of course that
number is  blank in mine.  

It also says work must be completed in 18 months but that can be extended.
The schedule for disbursement is 
1st: 10% of total grant proceeds or $7,500 whichever is less upon execution
of a contract to repair
2nd: grant proceeds up to 1/3 of the funds necessary to repair or rebuild
after inspection showing completion of 1/3
3rd: the next 1/3 portion on inspection
4th: All remaining funds upon completion

The requirements for contractor selection says you must use a properly
licensed and insured Contractor (what about do it yourself-ers) and you must
get a W-9 in advance of the work and signed agreement which the Servicer
must approve.  But worse - you have to submit an affidavit and lien waiver
from each contractor listing all subs and suppliers of materials.  The
subcontractors also have to submit an affidavit - can you see the logistical
problems here????

This is just a cursory review of the documents.  I wanted to get this
circulated asap so CHAT can follow up on some key issues before too many
people sign these things.  

Karen M. Fontana

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