What Is a Compliance Agreement in a Mortgage?

Understanding Compliance Agreements

A compliance agreement in a mortgage context is a formal document used in real estate transactions. It serves as a written promise by the borrower to cooperate with the lender or title company after the mortgage closing. This agreement addresses minor issues that may arise, ensuring all loan documents align with legal and lender requirements.

This legally binding document primarily aims to rectify small discrepancies, errors, or unfulfilled conditions identified during or immediately after the mortgage closing process. Its purpose is to avoid the extensive process of re-signing the entire set of loan documents. By signing, the borrower affirms their commitment to assist in correcting these identified issues.

Common Scenarios for Use

Compliance agreements are typically requested when minor clerical errors are discovered in loan documents. These errors might include misspelled names, incorrect property addresses, or minor date discrepancies that do not materially alter the loan terms. Such an agreement allows for the efficient correction of these administrative oversights.

Another common scenario involves the need for additional documentation that could not be fully provided or verified at closing. For instance, a lender might require a specific form or an updated verification of employment that was pending. The agreement ensures the borrower will promptly supply these essential documents.

These agreements can also address conditions not completely met by closing but necessary for the lender to properly fund or sell the loan to an investor. This ensures that the loan package is complete and accurate, meeting all underwriting and regulatory standards. The agreement facilitates the finalization of the loan without significantly delaying the closing process.

Key Provisions of the Agreement

A compliance agreement typically identifies all parties involved, including the borrower, the lender, and often the title company. It establishes a clear reference to the original mortgage and loan documents executed at closing. This foundational information ensures the agreement is directly tied to the specific transaction.

The agreement then explicitly details the specific error or condition that needs to be addressed. This could range from a typographical mistake in a legal description to a missing signature on a minor addendum. It outlines the precise actions required from the borrower, such as signing a corrected promissory note or providing missing financial information.

Additionally, the document includes a statement affirming the borrower’s understanding and agreement to comply with the stated requirements. It specifies a timeframe within which the borrower must complete the requested actions, typically ranging from a few days to a few weeks. The agreement underscores that the original loan terms and conditions remain in full force and effect, even with the identified discrepancy.

Borrower Considerations

When presented with a compliance agreement, it is important for the borrower to carefully read and fully understand its contents. Verifying the specific details of the error or condition it seeks to address is a crucial first step. Borrowers should ensure the described issue accurately reflects what was communicated to them.

Understanding the implications of signing, or not signing, the document is also paramount. While these agreements usually pertain to minor issues, they are legally binding commitments. Refusal to sign could potentially lead to complications with the loan, as the lender may require the corrections to finalize the loan package.

Consulting with a legal professional or real estate attorney before signing is a prudent option, especially if there are any uncertainties or if the borrower feels the requested correction is substantial. An attorney can explain the agreement’s terms and ensure it does not introduce new obligations or alter the original loan terms detrimentally.