No! Not Pain in the Rear!

This is part 2 of my Title Issues posting. As I mentioned in my earlier post, I'm teaching a Comprehensive Title Issues class next Thursday, April 17^th. In researching for this class, I came across some interesting information that I thought you would like to know about.

Most of the escrow officers I interviewed said the top misunderstandings clients have is mortgage payments and payments in arrears.

Let's start by identifying what happens when a buyer closes escrow on a property. If the date of close is April 10^th, then the first payment will be scheduled on May 1^st. That payment will be loan money owed from April 10^th through April 30^th. 

This is the opposite of what happens when a tenant pays rent. They will typically pay on May 1^st   (upfront) for the following or subsequent 31 days (May 1-31^st).

Now let's use the example of a seller who has his property under contract and it is scheduled to close escrow on May 15^th.

If he makes a regularly scheduled payment on May 1st (Remember-this payment is for the month of April), then he will owe another 15 days of mortgage payments assuming escrow closes on the May 15^th.

This amount is typically calculated on the pay-off demand from the bank. If the transaction closes sooner, the difference between what was paid and what was owed will be refunded back to the seller. 

So there you have it-A simple explanation to a common question-Payment in arrears!