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Home My WebLink AboutAudit - Downpayment Assistance Loan Program - Price, Kristin Kristine D. Price February 11, 1995 Connie Brockway City Clerk City of Huntington Beach 2000 Main Street Huntington Beach, Ca. 92648 Dear Ms. Brockway, I have enclosed one original and two copies of the final report covering the loan documentation audit. This was not an easy report to complete from a banker's perspective because the type and frequency of errors found during the audit would typically result in a harsh grading. Since these loans have been generated by individuals whose background and experience do not prepare them for this type of detailed work, I have allowed some leeway and rated the exam a bit higher than I would normally. Even so, the overall rating of "Needs Improvement" points to significant problems within this unit in regards to documentation and should be cause for concern among management. I have appreciated the time spent with you and your staff and if you have any questions after reviewing the report, please don't hesitate to call me. Regards, Kristine D. Price 412 Fourth Street Encinitas, California 92024 (619) 942-6851 Fax (619) 942-8128 #77rr6i ine of k,2 4). One-day on-site training seminar covering the new policies and procedures. Fee $750.00. I have several samples of bank policy and procedure manuals that I can show you to help you evaluate the quality of my work. Let me know if you would like to view them in order to make your decision easier. Don't hesitate to give me a call if you have any questions. Regards, ristine D. Price 412 Fourth Street Encinitas, California 92024 (619) 942-6851 Fax (619) 942-8128 �I rT 1B CITY OF HUNTINGTON BEACH INTER-DEPARTMENT COMMUNICATION HUNTINGTON BEACH To: Honorable Mayor and City Councilmembers From: Connie Brockway, City Clerk Date: February 23, 1995 Subject: Down Payment Assistance Loan Program Procedure Audit - Authorized by City Council on 8/15/95 Pursuant to Council direction I am transmitting the City/Agency Downpayment Assistance Loan Documentation Audit to the City Councilmembers. The item will appear in the March 20, 1995 Agenda. This audit was authorized by the City Council at the request of the City Clerk on August 15, 1994. My 3/20/95 RCA to Council will recommend that the City Council approve the Auditor's Recommendations set out on Audit Recommendations -Page#8. As you can see, obtaining all missing documents is my greatest concern. I have already been able to locate some of the missing original documents at different escrow companies. I am currently looking for others. Additionally, I am reviewing the auditor's February 15, 1995 communication which was provided at my request. Of the four Follow-up Items, Work Item#1 in the first and third paragraphs (attached) is the most important to me. As I can accept these documents for official filing on behalf of the City Council only if the necessary repair work is done, by the Economic Development staff with the assistance of the City Clerk; documented by the auditor and returned for final approval by Council. Progress has been made. Following the City Council's approval of the City Clerk's request for a procedural audit, Administration hired a part-time Loan Document Processor for the Economic Development Department. When I learned of this I was very relieved. Ms. Price, as part of her audit performance, met with members of the Economic Development Department. Ms. Price informed me that Ms. Liz Talbot, the new part-time loan processor is knowledgeable and that she and Denise Wylie, an Economic Development Department clerical employee are enthusiastic and anxious to do a good job . for the city. After meeting Ms. Talbot I fully agree, and I have for many years known Ms. Wylie to be a valuable city employee. Ms. Price informed me these employees will need the resources and support of the Economic Development Department. Also, following the August 15, 1994 City Council audit approval, a meeting was held between the City Clerk, Deputy City Attorney Sarah Lazarus, City Administrator and Barbara Kaiser former Economic Development Director. One of the agreements reached in the meeting was that -r-rA ck nn e n4- 3 all documents (not just a one-time sample document) will go before the City Council and that Administration will not again authorize the Economic Development Department to handle documents outside the custody of the City Clerk's Office. Additionally I asked the auditor if she would briefly check the Resolution Trust Corporation- Town Square Agreement which had arrived in my office to file during the time the auditor was here. She did so on an informal basis, as this agreement was not a part of the audit. The auditor informed me that agreement provides that the City have the on inal loan documents rather than a copy. Also there was not a Title Policy, Settlement Statement and Insurance Policy. The Clerk's Office is working with the Economic Development Department to obtain these documents. The Council may wish to consider approval of Items 2,3, and 4 of the auditor's 2/15/95 letter, as the City's new loan processors' efforts are on each of the Sassounian loans currently receiving approval by Council. Also, if the Sassounian Development is to be the last project containing these type loans it may be that Items 2,3, and 4 are not necessary. However, if Administration or Council determines that there are other type City/Agency loans, agreements or complicated documents, I would recommend a Procedures Manual (2, 3, & 4) similar to that outlined by the auditor in order to protect the city's financial interests and preserve the integrity of City Council approved documents. In order to provide background information for Councilmembers Dettloff, Garofalo, Green and Harman I have attached minutes of the City Council meeting at which the Council authorized the audit. I will prepare an RCA to Council for the March 20, 1995 Council Meeting. If I may be of assistance in this matter please do not hesitate to call me at 536-5404. Respectfully, Connie Brockway, City Clerk cc: Michael Uberuaga, City Administrator Sarah Lazarus, Deputy City Attorney GM/cbmem/audit ' J Page 19 - Council/Agency Minutes - 08/15/94 A motion was made by Leipzig, seconded by Moulton-Patterson to increase the authorized Change Order limit by $18,338 to fulfill the city's obligation to Gentosi Brothers, Incorporated for the improvements of the Central Library Expansion Project (Phase 1) CC-740. The motion carried by the following roll call vote: . AYES: Bauer, Robitaille, Moulton-Patterson, Winchell, Leipzig, Sullivan NOES: None ABSENT: Silva (City Council/Redevelopment Agency) DOWN PAYMENT ASSISTANCE PROGRAM ORIGINAL LOAN DOCUMENTS TRANSMITTED FOR THE CUSTODY OF THE OFFICE OF THE CITY CLERK - DOCUMENTATION AND PROCESSING AUDIT REQUESTED -APPROVED (340.70) The City Clerk presented a communication regarding Down Payment Assistance Program original loan d uments transmitted by Administration and Economic Development/Redevelopment for responsi ility and official custody of the Office of the City Clerk. Announced earlier in the meeting pursuant to the Brown Act was a communication dated August 15, 1994 received and distributed to Council,from the Economic Development Director pertaining to the Down Payment Assistance Program and recommending an alternative action to form a committee. Also, a communication from Ray Silva, Assistant City Administrator, dated August 11, 1994 requesting Council to pull the item to allow a staff meeting to take place prior to Council review and decision of the City Clerk's request. The City Clerk presented a staff report. Councilmember Leipzig commended the City Clerk for her attention to detail and procedural correctness. He requested that the item be continued for two weeks for further study. The City Clerk presented reasons why she did not agree to Administration's recommendation for continuance. Councilmember Bauer suggested a Council Committee to study the problem, the City Administrator could recommend firms qualified to conduct the study, and the City Council retain a firm to investigate the problem. Councilmember Sullivan spoke in support of the City Clerk's request and stated that attempts have been made to resolve this with the departments but it has not been handled to the satisfaction of the City Clerk. A motion was made by Sullivan, seconded by Robitaille, to enable the Office of the City Clerk to utilize an outside Loan Documentation Expert to conduct a Documentation and Processing Audit of all original City of Huntington Beach/Redevelopment Agency Down Payment Assistance Loan Agreements and related documents for which the City Clerk is now being asked to assume responsibility and official custody at a cost not to exceed $2,500. T R ck mp�_ � .207 Page 21 -Council/Agency Minutes - 08/15/94 The amended motion carried by the following roll call vote: AYES: Sauer, Robitaille, Moulton-Patterson, Winchell, Leipzig, Sullivan NOES: None ABSENT: Silva (City Council DEED RESTRICTION ON PARCELS TRANSFERRED TO COU F ORANGE - BOLSA CHICA REGIONAL PARK PHASE 1A-APPROVED (650.10) The City Clerk presented a communication from the City Administrato egarding deed restriction on parcels transferred to the County of Orange for the Bolsa Chic egional Park. Communications that have been distributed to Council on the bject as follows: Sierra Club, Preserve Bolsa Chica Task Force dated July 12, 1994, Sea iff Coalition dated August 15, 1994, Jan Vandersloot regarding Upper Newport Bay dated Au st 15, 1994, three communications Robert E. Winchell, Huntington Beach Tomorrow, date August 11, 1994 and August 12, 1994, Marcia Hanscom dated August 5, 1994, Robert Fish , Orange County Environmental Management Agency, dated August 11, 1994, Har ' tt Wieder, Orange County Supervisor, dated August 10, 1994, Tom Matthews entitled Orange ounty Environmental Management Agency press bulletin dated August 15, 1994 and Exec tive Summary Bolsa Chica Local Coastal Program and three color illustrations of the B sa Chica 1993 Koll Land Use Plans for 2,500, 3,200, and 4,286 units. The Community Development Director resented a staff report stating that on May 2, 1994, the City Council approved the Condition Use Permit No. 94-3 and Coastal Development Permit No. 93-28 for Phase 1A of the Bol Chica Regional Park and requested that staff look into the possibility of incorporating deed strictions requiring that landscaping on the parcels be restricted to native vegetation. On May , 1994, a request for legal services was submitted to the City Attorney's Office to provide ' formation on the possibility of incorporating deed restrictions on the parcels to be transferred t the County for Phase 1A of the Bolsa Chica Regional Park. However, in June of this year the uncil approved transfer of the subject parcels without consideration of the deed restrictions. ransmitted for your review is the City Attorney's determination regarding the implementation restrictive deed provisions. The City Attorn apologized for not being able to provide a legal opinion regarding the proposed deed restrictio s due to the high volume activities and priorities in the last weeks. She stated that it was not th City Attorney's or Council's intention to approve a deed that did not contain these kinds of r trictions, if legally possible and that it was regrettable that the deeds were presented to Coun it and approved without the restrictions. She stated that the city had grounds for refo ng a deed if it was not the intent to grant that deed as presented and the city would also havi grounds through litigation. She stated that the enforcement of conditions on Conditional U e Permits is not always as effective as the city would like it to be. She stated that the Coastal ommission also supports those kinds of conditions. Mayor Moulton-Patterson stated that the Coastal Commission agreed in concept but no conditions were put on. 2D9 r,9-CA P� Ll .Y REQULST FOR CITY COUNU ACTION /4- - ., . Date August 15. 1994 Submitted to: Honorable Mayor and Councilmembers APPROVED BY CITY COUNCIL Submitted by: Connie Brockway, City Clerk GB aS arnewJ4 f�/9' 199`/ Prepared by: Connie Brockway, City Clerk G� "' C TY CL JR K Subject: Down Payment Assistance Program Originals Loan Documents Transmitted For Custody of the Office of the City Clerk Consistent with Council Policy? [X].Yes [] New Policy gr Exception SO i "%a( ItJ�M 4 ae�►s.i.y/iVli con3'v/fy!n ` . ffmm CC AliM a- 0wa twis* eft 4 G;ovn4I Epri�tr OR 0. S tatement of Issue, Recommendation, Analysis, Funding Source, Alternative Actions, STATEMENT OF ISSUE On August 2, 1994, Original Loan Documents in the custody of City Administration(Economic Development/ Redevelopment Department)were given to the Office of the City Clerk for official responsibility and custody. These documents are Loan Agreements, Deeds of Trust with Assignment of Rents, Promissory Notes and related documents. These are documents for transactions occurring from November 1993 to June 1994. The City Clerk's Office did not have custody of these documents as required by the Huntington Beach City Charter. Due to the manner in which these documents were processed,the Office of the City Clerk must ensure that these documents are complete. RECOMMENDED ACTION: Enable the Office of the City Clerk to utilize an outside Loan Documentation Expert to conduct a Documentation and Processing Audit of all original City of Huntington Beach/Redevelopment Agency Downpayment Assistance Loan Agreements and related documents for which the City Clerk is now being asked to assume responsibility and official custody at a cost not to exceed$2500.. ANALYSIS: On October 25, 1993, City Administration/Economic Development/Redevelopment Department recommended for Council/Agency approval a process whereby agreements and documents pertaining to Downpayment Assistance Program Loans would not be provided to the Office of the City Clerk for processing on the City Council Agenda and for custody of prior to and following City Council meetings. The process does not require the loan documents to be presented to the City Council at the time of Participant approval which allows the Economic Development/Redevelopment Department to have custody of documents and to process the loan documents as has been done since the program's inception. This procedure caused and continues to cause incomplete and inconsistent loan documents to be submitted to the Office of the City Clerk for official custody. The Office of the City Clerk did not have a part in the establishment of this procedure which has resulted in many problems including Deed of Trust with Assignment of Rents on a Loan Document not being recorded although escrow on the loan closed several months ago. Other missing information includes: Loan Agreements executed on behalf of the City/Agency by persons not authorized to do so, omissions of the official city Seal,the official Redevelopment Agency seal, legal descriptions of property, dates, initials and percentages. 7-7-4 ch �Li y .::.............. CITY ADMINISTRATOR MEMO To: Honorable Mayor& Members of the City Council From: Ray Sdver, .Assistant City.Administrator X0 Date: August 11, 1994 Subject: Proceduresfor Agreements & Contracts The City Clerk has agendized item F-3, "Down Payment Assistance Program Original Loan Documents Transmitted for Custody of the Office of the City Clerk," for the August 15th Council agenda. This item was not discussed at agenda review. Staff had not, therefore,. had an opportunity to discuss this issue. Prior to this, a meeting to review procedures for handling contracts and agreements was scheduled for 10:00 A.M. on August 29th. Discussion is to include the Down Payment Assistance Program loan documents. Because of this, I would respectfully request that the City Council pull this item to allow the staff meeting to take place prior to the Council's review and a decision on this request. RS:PD:pad xc: N ichael T. Uberuaga, City Administrator Connie Brockway, City Clerk t CITY OF HUNTINGTON BEACH INTER-DEPARTMENT COMMUNICATION HUNTINGTON BEACH TO: CONNIE BROCKWAY, CITY CLERK FROM: RAY SILVER, ASSISTANT CITY ADMINISTRATOR DATE: MARCH 7, 1995 SUBJECT: IMPLEMENTATION OF AUDIT RECOMENDATIONS #'S 3,4, &5 BY CONSULTANT ON STANDARD PROCEDURES FOR CITY/AGENCY LOAN DOCUMENTATION I have reviewed the audit results from the work performed by Kristine D. Price. I believe that it is in the City's/Agency's best interest to have her perform the work outlined in recommendations #'s 2, 3 &4. Since the amount is no more than $6.000.00 and needs to be performed for the Economic Development Department, I believe that the City Clerk's Office , Administration and the Economic Development Department can go forward and have this done as soon as possible. The Economic Development Department will defer other tasks to use already appropriated funds for this scope of work. It appears that this is consistent with your recommendation to the City Council. It is also further understood that from now on all such original loan documents within the Economic Development Department shall be forwarded to the City Clerk's Office. We look forward to working with you as soon as possible to implement these ideas and stand ready to meet with the consultant as soon as possible to get started. Please feel free to contact me if you have any questions or comments regrading the above. cc: Mayor and City Council Michael T. Uberuaga, City Administrator Gail Hutton, City Attorney Stephen Kohler, Project Manager Dan Bruening, Housing Rehabilitation Manager 47-7-ackman+ 4-.5 March 17, 1995 Honorable Mayor and City Council Members City of Huntington Beach 2000 Main Street Huntington Beach, CA 92648 Re: Downpayment Assistance Loan Program Audit Dear Mayor and Council Members: I understand that this evening you will be reviewing the audit of the downpayment assistance program as prepared by Kristine Price under contract to Connie Brockway. It is unfortunate that I never had an opportunity to meet with Ms. Price or Connie and explain the history of this very worthwhile program and the system established to administer it. Ms. Price's problems begin with the statement that her review of our files are "from a banker's perspective". It is important to note that the downpayment assistance program was not established as an independent program to be administered only by city staff. It was set up to work in conjunction with lender's programs and reduce the need for additional staff to be hired. The files must be reviewed both as those within the Economic Development Department and those maintained by the lender. We never intended to be a full service lending organization. That is why the lender files contain the appraisals, credit reports, escrow opening and closing statements, title reports, etc. These files, however, were not reviewed by Ms. Price. Keep in mind that the lenders were making loans of$100,000 or more and our loans were in second position totaling up to $25,000. We believed that if a borrower and the property were acceptable to the bank for their amount, then the borrower would be acceptable to us as well. The program was set up to be administered by both the lender and city staff, not one independent of the other. Problems with documentation such as inconsistent clauses, notarizations or inappropriate signatures should be addressed by the City Attorney since all documents were approved by the City Attorney. In addition, all the documents were approved by the City Council for use in the program. Amendments were made several times as the City Council directed changes in lending guidelines. No unnecessary documents were used since lenders and Fannie Mae had different requirements and we did as they requested (i.e. rescission notices). The audit also fails to address how the permanent documents are transmitted and kept by the City Clerk. {� �I V While there is room in any program for improvement and adding new staff to administer programs is helpful, the audit as completed by Kristine Price fails to give a complete picture of the situation. Sincerely, Barbara A. Kaiser • Loan Documentation Audit prepared for the CityHuntingtonof Beach February 11, 1995 t Kristine D. Price 412 Fourth Street*Encinitas*California 92024 �h m n e, � ��a i Loan Documentation Audit Purpose of Audit The purpose of this audit was to determine if specific loan documentation is adequate to protect the City's security interest in property taken as collateral for funding under various down payment assistance programs. Additionally, the audit was to provide recommendations to correct any deficiencies noted. Documents for each loan were examined for the following: ► Appropriateness to the transaction; its function and requirements ► Accuracy in preparation; correct names, approved terms and conditions ► Accuracy of execution; appropriate signatures, notaries, dates ► Missing original documentation ► Fair Lending, Regulation Z, RESPA and Flood Act regulations Specific documents were also reviewed as follows: ► Escrow opening and closing statements for appropriate funding requirements, ► Title Insurance to determine lien position and accurate document preparation. This report is directed to and intended for the sole use of the City of Huntington Beach. City of Huntington Beach February 10, 1995 Page 1 T T,19-C� Loan Documentation Audit Scope The audit examined 19 borrowers consisting of a total of 27 notes with an aggregate outstanding balance of$400,876. This encompassed 100% of the list of borrowers provided to the auditor.' The audit was performed at the office of the City Clerk of the City of Huntington Beach at 2000 Main Street, Huntington Beach during the period January 25, 1995 through January 27, 1995. Original documents and credit files were provided for review. List was dated 9/28/94 and attached to memorandum dated 10/4/94 from Gail Hutton to Michael Uberuaga. City of Huntington Beach February 10, 1995 Page 2 I %- �� T .2 l Kristine D. Price February 15, 1995 Connie Brockway City Clerk City of Huntington Beach 2000 Main Street Huntington Beach, Ca. 92648 Dear Connie, This letter will outline a proposal for the additional work we discussed during the audit. You asked that I provide you with an estimate of the cost for several projects, 1) review the material not available at the time of the audit and examine the corrected documents to insure that the appropriate corrections had been done, 2) create a policy and procedure manual for the granting of credit and documenting loans, 3) create forms and checklists to implement new procedures, and 4) provide training to staff. The following items can be provided separately or together. If the entire package of work is contracted, a 15% discount can be taken off the total fee. 1). Review material obtained subsequent to the audit and document repair work. This can ue completed during a one day on-siie visii. Fee $750.00. 2). Produce a written policy and procedures manual containing all topics described within the Recommendations section of the Audit Report. This would include a minimum one day on-site with staff interviews, five manuals produced on WordPerfect 6.1 or Word 6.0, duplexed text, housed in 3 ring binders and full copies on disk for future revisions. Examples of current work are available upon request. Fee $3,000. 3). Create forms or checklists described and recommended in the Audit Report. Each form is estimated to require 4 hours at $85.00 per hour. If the City elected to have all of the forms created, the fee would be $1,500. 412 Fourth Street Encinitas, California 92024 (619) 942-6851 Fax (619) 942-8128 PTTCu-au 4 ,L Page 2 RCA-August 15, 1994 Down Payment Assistance Program FUNDING SOURCE: Redevelopment Agency Funds. Approximately$2,500 ALTERNATIVE ACTION: There is not an alternative to the City Charter mandate that official agreements be maintained by the City Clerk. However,the City Clerk shall not maintain on behalf of the City, documents which have not been in the City Clerk's official custody. The City Clerk shall preserve and maintain said documents at such time as they are verified as to completeness and satisfaction of the city. ATTACHMENT: City Charter S.310 g:cdrea9408 CITY- OF HUNTINCTON BEACH INTER-DEPARTMENT COMMUNICATION HUNTtNOON BEACH TO:. Michael T. Uberuaga, City Administrator FROM: Barbara X Kaiser, Director of Economic Development DATE: August 15, 1994 SUBJECT: DOWN PAYMENT ASSISTANCE PROGRAM ITEM F-3 CITY COUNCIL AGENDA For the past year, the Economic Development Department has been operating a housing down payment assistance program for low and moderate income families. Due to various City Council approvals and changes in the program, there are now three different loan programs for down payment assistance and second trust deed mortgages. A fourth loan program will be added shortly with opening of the Bijan Sassounian project. The four loan programs are either City or Redevelopment Agency funded. A borrower may be eligible to participate in one or two loan programs depending upon their qualifications and the location of their new home (for example, Brisas del Mar). For each loan, there are as"many as six different loan documents. Typically these include the Loan Agreement, Deed of Trust, Rider to the Deed, Promissory Note, Disclosure Statement and Rescission Notices. A borrower participating in two loan programs may have as many as:12 different loan documents to execute. In addition to city staff, other parties involved in the transaction include the borrower, lender, escrow officer and County recorder. Since the process is complex and specific to each borrower, Economic Development staff has taken the lead in coordinating all documents and trying to simplify the process as much as possible. To undertake an audit of all documents before staff review would involve intensive staff time and may be a duplication of effort since staff would need to walk an auditor through the entire process, as applicable, for each borrower. As an alternative, I would recommend that a staff committee be formed with representatives of the City Clerk's office, the City Attorney's office and Economic Development to review each loan file and determine if inadequacies exist. Additional actions needed, including an audit, can be determined after the committee has completed their work. Any follow-up requirements may also be met by the escrow officer or lender's representative. BAKdw xc: Mayor and City Council City Clerk 4TT+C,--7 y i, CITY OF HUNTINGTON BEACH 2000 MAIN STREET CALIFORNIA 92648 OFFICE OF THE CITY CLERK CONNIE BROCKWAY CITY CLERK TO: Honorable Mayor and City Councilmembers FROM: Connie Brockway, City Clerk DATE: August 12, 1994 SUBJECT: Agenda Item F-3 8/15194 Meeting I am providing the City Council with a resume of a Loan Policies and Procedures Documentation Review Expert whose services would allow the City Clerk's office to officially accept the Down Payment Assistance Program loan documents which have been transmitted by Administration into the custody of the City Clerk. This review will provide assurance of the completeness of the city's loan documents that are to be entrusted to the City Clerk's Office. This Documentation Expert would also provide the Economic Development/Redevelopment Department with a comprehensive policies and procedures manual so that the city's best interests are served. I have also provided Council with Minutes from the LAFCO wherein similar services have been employed by that Agency. This request by the Office of the City Clerk is very urgent and I urge Council to approve this request for documentation services as this will ensure the integrity of the 30-year agreements. I have heard from Administration that a meeting regarding Down Payment Loan Assistance Documents is to be scheduled,which I look forward to attending, while the Department of Economic Development/Redevelopment, City Clerk's Office and the Loan Documentation Expert work together to improve the documentation process. g:eskbmem\F381594 4TI � L (Telephone:714.5353227) Loan Documentation Audit Borrower: Bastou: Valerie Borrower #: 94-11 Note Date: 6/94 Property Address: Program and Loan Amount: 409 Utica D-43 1). Agency $25,000 2). CDBG $ 5,000 .... .............. .._.-......_. ....-._.._..... _...._.......... .............._.__................_......................... _.._....... ......_....._.........._. ..>.<em It `? < Enta n:ate .:: 1 UTL tax returns for three years. 1992 only in file. 2 UTL hazard insurance showing City as loss payee. 3 UTL evidence that flood zone was determined 4 UTL certified escrow instructions 5 UTL copy of settlement statement 6 UTL evidence that Fair Lending Notice was provided to applicant 7 UTL title insurance policy. 8 Loan Agreements refer to exhibits which are not attached (A, B, C, D). Agreements are not dated. Borrower initialed statement within the agreement which says that the property is not affordable housing. Other records indicate that this property is a recorded affordable housing project. 9 Disclosures are not dated. 10 Promissory notes are not dated. 11 Deed of Trust is missing exhibit A, legal description. City of Huntington Beach February 10, 1995 Page 11 Loan Documentation Audit Borrower: Culaciati, Diana C. Borrower #: 93-1 Note Date: 12/93 Property Address: Program and Loan Amount: 1200 Pacific Coast Highway #104 1). CDBG $13,000 1 Copy of primary bank application for credit is on fax paper. Any fax paper items should be recopied on plain paper to avoid deterioration. 2 UTL copy of credit report. 3 UTL copy of primary bank appraisal. 4 UTL hazard insurance showing City as loss payee. 5 UTL evidence that flood zone was determined. 6 UTL certified escrow instructions. 7 UTL copy of settlement statement. 8 UTL evidence that Fair Lending Notice was provided to applicant. 9 UTL title insurance policy. 10 Loan Agreement refers to exhibits which are not attached (A, B, C, D). 11 Disclosure refers to a minimum cash down payment required. Percentage amount is not filled in. 12 Deed of trust Rider is signed by Mayor. No attest by City Clerk. Signature of trustor was signed over an area of white-out. This practice is not advisable. City of Huntington Beach February 10, 1995 Page 12 Loan Documentation Audit Borrower: Diekmeyer, Barbara J. Borrower #: 94-06 Note Date: Unknown Property Address: Program and Loan Amount: 409 Utica B-21 1). CDBG $10,000 2). Agency $23,000 1 UTL hazard insurance showing City as loss payee. 2 UTL evidence that flood zone was determined. 3 UTL copy of settlement statement. 4 UTL evidence that Fair Lending Notice was provided to applicant. 5 Title insurance: Insured is incorrect for both loans. Lien position is listed incorrectly, but recording sequence is correct. Policy coverage is limited; would recommend obtaining CLTA coverage for any purchase money transaction. 6 Loan Agreements refer to exhibits which are not attached (A, B, C, D). 7 Disclosure refers to a minimum cash down payment required. Percentage amount is not filled in for loan #1. 8 Documents do not contain full name of trustor. Middle initial "J" is not included. 9 Deed of trust contains a white out area with retyping that was not initialed by trustor. The clause is benign and has no material effect on the transaction. Exhibit A, legal description, is not attached. 10 Credit file worksheet refers to the primary loan amount of$71,300. Recorded lien was $71,000. City of Huntington Beach February 10, 1995 Page 13 Loan Documentation Audit Borrower: Dixson, David C. Borrower #: 93-10 Note Date: 1/5/94 Property Address: Program and Loan Amount: 6600 Warner #176 1). CDBG $10,000 :: :::::Item: :.: :..::I3ocumentatto.:.::ass....e...::::::.::::::.::::::::::.::::::..::::::.:::::::::::::::.::::::::::.:::::::::::::::::::::.:::::::::.::::>::.:::.;:.;:.;:.;:.;:.;:.::.;;;>:.:::...:: 1 UTL copy of credit report. 2 UTL copy of primary bank appraisal. 3 UTL hazard insurance showing City as loss payee. 4 UTL evidence that flood zone was determined. 5 UTL certified escrow instructions. 6 UTL copy of settlement statement. 7 UTL evidence that Fair Lending Notice was provided to applicant. 8 The following original documents were found at Hallmark Escrow during the audit: Promissory Note, Disclosure, Loan Agreement and the Rider to the Deed of Trust. 9 Loan Agreement refers to exhibits which are not attached (A, B, C, D). Affordable housing clause not initialed. Participant address not completed. 10 Disclosure refers to a minimum cash down payment required. Percentage amount is not filled in. 11 Rider to the Deed of Trust was not attached to recorded document and was found, along with the other original documents, at Hallmark Escrow. Apparently, escrow did not record the Rider along with the deed of trust. 12 Credit file contains fax paper. Copies should be made to avoid deterioration. City of Huntington Beach February 10, 1995 Page 14 Loan Documentation Audit Borrower: Griffin, Olga Cristina Borrower #: 94-17 Note Date: 10/4/94 Property Address: Program and Loan Amount: 409 Utica C-23 1). CDBG $ 5,300 2). Agency $25,000 > :.It " `< >> »<::: cum nt ue m..#........... .. ........ . ..............:..............:::::::::::::::::..............::::::::::::...:::.......::........:::::.:.::..........::::::.:::.:......::::::::.:.:.... 1 UTL copy of credit report. 2 Tax returns are not signed. 3 UTL copy of primary bank appraisal. 4 UTL hazard insurance showing City as loss payee. 5 UTL evidence that flood zone was determined. 6 UTL certified escrow instructions. 7 UTL copy of settlement statement. 8 Loan Agreements refer to exhibits which are not attached (A, B, C, D). 9 Rider to the deed of trust does not contain the complete address of the collateral (city and state are missing). City of Huntington Beach February 10, 1995 Page 15 Loan Documentation Audit Borrower: Hoang, Tam Borrower ##: 94-10 Note Date: 3/16/94 Property Address: Program and Loan Amount: 409 Utica D-37 1). CDBG $ 6,143 2). Agency $23,000 ut .;. . :. .DocIIrnentattr3tt Issue.;:.;..::::::.::::::::::::: _..... ..... ....._......._.. .. _.........................................................._.. . .. _.........._.............. 1 Only two years tax returns in file. 2 UTL copy of primary bank appraisal. 3 UTL hazard insurance showing City as loss payee. 4 UTL evidence that flood zone was determined. 5 UTL copy of purchase contract. 6 UTL certified escrow instructions. 7 UTL copy of settlement statement. 8 UTL evidence that Fair Lending Notice was provided to applicant. 9 Property vesting is Tam Nho Hoang; all documents are in the name of Tam Hoang. Should be the same. 10 Loan Agreements refer to exhibits which are not attached (A, B, C, D). 11 Disclosure for loan ##1 refers to a minimum cash down payment required. Percentage amount is not filled in. 12 Promissory note amount has been erased and re-typed without borrower's initials. 13 UTL commitment/approval letter to applicant. 14 Rider is signed by the Mayor without City Clerk attest. City of Huntington Beach February 10, 1995 Page 16 Loan Documentation Audit Borrower: Kormeluk, Nicholas Borrower #: 93-9 Note Date: 12/29/93 Property Address: Program and Loan Amount: 17202 Corbina Lane #201 1). CDBG $10,600 . .:#<:.:...:. ..::.:::.:.:::...:::.:.:::.::::.;.::<.::.......::.:::::.:::.::..:.::;.:.::.;:.......Ulna#ionss�ue:.......:::.:::.::::.:;;:.:::.::.:::...:.::.:.,.:...:. ::.::.;:.... 1 UTL copy of credit report. 2 UTL copy of primary bank appraisal. 3 UTL hazard insurance showing City as loss payee. 4 UTL evidence that flood zone was determined. 5 UTL evidence that Fair Lending Notice was provided to applicant. 6 Loan Agreements refer to exhibits which are not attached (A, B, C, D). 7 Disclosure refers to a minimum cash down payment required. Percentage amount is not filled in. 8 Promissory note date is typed 12/29/92, with 1993 preprinted after date. Date referring to loan agreement is blank. 9 Rider to deed of trust refers to loan agreement; date of loan agreement is blank. 10 Deed of Trust exhibit A, legal description, is not attached. City of Huntington Beach February 10, 1995 Page 17 Loan Documentation Audit Borrower: Lawson, Sally Borrower #: 94-4 Note Date: 2/94 Property Address: Program and Loan Amount: 409 Utica A-1 1). CDBG $ 6,000 2). Agency $23,000 t ezn ::.....:.:.: .::: ::.::.;;:::.:,:.;:: D�cumen# ... . Lss ::.::.:,:.:<.;::... 1 UTL hazard insurance showing City as loss payee. 2 UTL evidence that Fair Lending Notice was provided to applicant. 3 UTL title insurance policy. 4 Loan Agreements refer to exhibits which are not attached (A, B, C, D). 5 Disclosure refers to a minimum cash down payment required. Percentage amount is not filled in. 6 Property is vested "Sally S. Lawson", documents drawn "Sally Lawson". Should be the same. 7 Rider to the Deed of Trust signed by Mayor; no attest by City Clerk. City of Huntington Beach February 10, 1995 Page 18 Loan Documentation Audit Borrower: Love, Treva Borrower #: 94-2 Note Date: 1/10/94 Property Address: Program and Loan Amount: 7881 Woodlake Dr. #370 1). CDBG $14,000 .......................... ... ... .............. ...... teu ........................ ...... .............................. . . ... ... ...... ...... ...... . ....... ... :: !:............ be...... ........... CUMM A 0., ..... .... a aim ....... .... . ................. ... ......... ...... .......... ........... ... ........... . .... .. ...... . .:M . ........ ..... ....................... ............. 1 UTL copy of primary bank appraisal. 2 UTL hazard insurance showing City as loss payee. 3 UTL evidence that flood zone was determined. 4 UTL evidence that Fair Lending Notice was provided to applicant. 5 UTL title insurance policy. 6 Loan Agreements refer to exhibits which are not attached (A, B, C, D). Agreement indicates that property is not affordable housing, yet list of attachments includes exhibit D, the affordable housing agreement. City of Huntington Beach February 10, 1995 Page 19 Loan Documentation Audit Borrower: Melvin: Patrick & Nelide Borrower #l: 94-13 Note Date: 7/94 Property Address: Program and Loan Amount: 409 Utica D-39 1). CDBG $10,000 2). Agency $35,000 It Dt i�mf�n#a ton )issue..... ... .............. All documents were prepared by hand writing in names, amounts, dates, etc. 1 UTL copy of credit report. 2 UTL copy of primary bank appraisal. 3 UTL hazard insurance showing City as loss payee. 4 UTL evidence that flood zone was determined. 5 Settlement statement was obtained from escrow during audit. Disclosure states borrower is to provide 8% cash down; actual cash down 7.5 6 UTL evidence that Fair Lending Notice was provided to applicant. 7 Title insurance policy shows property vested in Patrick M. Melvin and Nelide Ito, H/W 7/T. Deed of trust drawn as "Patrick & Nelide Melvin.", and has no document date. Preprinted year is 1993 instead of 1994, date is not filled in for the loan agreement date within the body, no name inserted for trustor in the rider, names, dates and loan amounts are all handwritten. 8 Loan Agreements refer to exhibits which are not attached (A, B, C, D). 9 Disclosure states minimum cash down payment of 8% is required. Loan Agreement states 3% required. Inconsistent. City of Huntington Beach February 10, 1995 Page 20 Loan Documentation Audit Borrower: Ommondson: Ellen Borrower #: 94-3 Note Date: 1/94 Property Address: Program and Loan Amount: 21372 Brookhurst#323 1). CDBG $9,000 ..>....I # ....... .. .0CU z nta . �.1<ssr ......... .. ................................ . 1 UTL copy of credit report. 2 UTL copy of primary bank appraisal. 3 UTL hazard insurance showing City as loss payee. 4 UTL evidence that flood zone was determined. 5 UTL copy of purchase contract (Counter offer signed only by one party). 6 UTL certified escrow instructions. 7 UTL copy of settlement statement. 8 UTL evidence that Fair Lending Notice was provided to applicant. 9 Title insurance policy shows vesting Helen C. Ommondson. Deed of trust is missing middle initial "C". Document recorded 10 months after escrow closed. 10 Loan Agreement refers to exhibits which are not attached (A, B, C, D). City of Huntington Beach February 10, 1995 Page 21 Loan Documentation Audit Borrower: Otto: Thomas & Borrower #: 94-8 Note Date: 2/94 Shorb: Ray Property Address: Program and Loan Amount: 409 Utica A-7 1). CDBG $ 8,831 2). Agency $23,000 _.......... .. .. ...__ . - .._......_ .._.._...._..........._.. __.... _............................_......................_........................._....._. ....._... _... 1 UTL tax returns. 2 UTL hazard insurance showing City as loss payee. 3 UTL evidence that flood zone was determined. 4 UTL evidence that Fair Lending Notice was provided to applicant. 5 UTL title insurance policy. 6 Loan Agreements refer to exhibits which are not attached (A, B, C, D). Kaiser's signature on #1 loan not dated. 7 Disclosure for loan #1 refers to a minimum cash down payment required. Percentage amount is not filled in. 8 Promissory note for loan #1 is not dated. City of Huntington Beach February 10, 1995 Page 22 Loan Documentation Audit Borrower: Quick: Shauna C. Borrower #: 94-5 Note Date: 2/94 Property Address: Program and Loan Amount: 409 Utica Ave C-32 1). Agency $16,717 ....... ......... ........ . ......... ............... ........ .. . .........- ............ . ...... .... .. ..... . . ...... .............. .......... ..... ......... . .. ..... .. �*......*.-.'.-.'...'...:.,."', I ..... .em deumen WM9. ......... ............... ad" 1 UTL hazard insurance showing City as loss payee. 2 UTL copy of settlement statement. 3 UTL evidence that Fair Lending Notice was provided to applicant. 4 Title insurance policy shows incorrect recording sequence number 94- 168378. It should be 94-168379. Lien position is shown correctly. 5 Loan Agreements refer to exhibits which are not attached (A, B, C, D). City of Huntington Beach February 10, 1995 Page 23 Loan Documentation Audit Borrower: Quick: Teresa Borrower #: 94-12 Note Date: Property Address: Program and Loan Amount: 409 Utica A-9 1). Agency $25,000 .... ..... ..... ...... ........ ...... ... .... ....... . . ...... .. ... .. ..... . ......... .. . . ... . ..... . .. ....... . ......: I . ..-, ..I--ii. ........ ... . . ........... .... ............ . . . .. ..... .... . ................. ... .. . ....... .... . ... . MINM ............ .. ...... .. . . .. ...... ........... ... ...... .......... . .......... . .... . ... .. ..... .................... en i-'. .*. :- : -,; .:.. ........ .......... ........... . .... . . .... ...........I.:i.",................ . . ....... ... .. Unable to locate original or copies of documentation during audit. City of Huntington Beach February 10, 1995 Page 24 Loan Documentation Audit Borrower: Rivera: Hector & Borrower#: 94-14 Note Date: 9/94 Cuesta-Aparicio: Itziar Property Address: Program and Loan Amount: 409 Utica A-5 1). CDBG $ 5,000 2). Agency $25,000 All documents were prepared by hand writing names, amounts, dates, etc. Borrower names were handwritten as "Hector & Iciar Rivera". Mrs. Rivera's name is actually Itziar Cuesta-Aparicio, which is how the property is vested. 1 UTL copy of credit report. 2 Tax returns not signed. 3 UTL copy of primary bank appraisal. 4 UTL hazard insurance showing City as loss payee. 5 UTL evidence that flood zone was determined. 6 UTL certified escrow instructions. 7 UTL copy of settlement statement. 8 Deed of trust has been corrected to reflect Mrs. Rivera's proper name, however, white-out and the changes were not initialed by the trustors. The address of the property should be completely described. The city is handwritten as "HB" on loan #2. No city is indicated on loan#1. Page 5 of rider does not contain trustor's initials and Mrs. Rivera's name was not corrected. 9 Loan Agreement for loan#1 has no document date; loan#2 Mrs. Rivera's signature not dated. Loan#2 contains formatting problems, the text on pages 6-8 is off-center due to incorrect margins or tabs. Both loan agreements refer to exhibits which are not attached (B, C, D). 10 Promissory notes are not dated. Loan#1 wife's signature is not dated. Date of loan agreement not filled in. 11 Disclosure for loan#1 is not dated. City of Huntington Beach February 10, 1995 Page 25 Loan Documentation Audit Borrower: Schmederer: Michelle Borrower #: 93-7 Note Date: 12/93 Property Address: Program and Loan Amount: 660 Warner #199 1). CDBG $14,400 1 Credit file worksheet lists primary loan amount as $99,000; actual loan amount $99,200. Cash down requirement by borrower is short $582. 2 UTL copy of credit report. 3 UTL copy of primary bank appraisal. 4 UTL hazard insurance showing City as loss payee. 5 UTL evidence that flood zone was determined. 6 UTL certified escrow instructions. 7 UTL evidence that Fair Lending Notice was provided to applicant. 8 UTL title insurance policy. 9 Original loan documents were not in City's possession at time of audit and they were located at escrow company and were requested during audit. Original loan agreement document was not located. Escrow company to provide a certified copy for the City's file. 10 Loan Agreement refers to exhibits which are not attached (A, B, C, D). Affordable housing clause not initialed by borrower. 11 Disclosure refers to a minimum cash down payment required. Percentage amount is not filled in. 12 Promissory note refers to the loan agreement date. Not filled in. 13 Rider to the deed of trust is signed by the Mayor but not attested by City Clerk. City of Huntington Beach February 10, 1995 Page 26 Loan Documentation Audit Borrower: Sutherland: Caroline Borrower #: 93-6 TNote Date: 11/93 Property Address: Program and Loan Amount: 21372 Brookhurst #332 1). CDBG $6,825 men, ................ ......... ........... .......... .. ... ..................... . ......... ................... .... ... ...................... ... ....... ................................... ...... ta ... ................... il"'.-'Iiii-""I!iiiii�"I'-.......".1'....1 ................. ............................ ..... ........ ................... ...................................... ..... .... .... . ............................... ...... ......... ..... .................................................... .. ............ ..... ..... . 1 UTL copy of credit report. 2 UTL tax returns-copies of W-2s only. 3 UTL copy of primary bank appraisal. 4 UTL hazard insurance showing City as loss payee. 5 UTL evidence that flood zone was determined. 6 UTL copy of purchase contract. 7 UTL certified escrow instructions. 8 UTL evidence that Fair Lending Notice was provided to applicant. 9 Loan Agreements refer to exhibits which are not attached (A, B, C, D). Borrower initialed statement within the agreement which says that the property is not affordable housing, yet exhibit "D", the affordable housing agreement was in list of attachments. 10 Deed of trust reference to loan agreement date is blank. "Certificate of Acceptance " is signed by Ray Silver. City Clerk should have signed this document. 11 Most of the income verifications and correspondence are on fax paper which will deteriorate over time. City of Huntington Beach February 10, 1995 Page 27 Loan Documentation Audit Borrower: Taban: Osmond Borrower #: 93-3 Note Date: 11/93 Property Address: Program and Loan Amount: 8311 Magic Circle 1). CDBG $15,000 ..... . .... ................... ... ;.............. ....... ........ ..... .. ... .. ...... ........... ... ...... . ......... ................. ............... ....... ....... ........... ....... ........ ... .. .............. ............ . . .. .... ........... ......................... ................ ....thhen, th ... .... ...... ............... ....... ... ............ ..............X.- .......................Iterii ...............V.............. -:-Xv.................. .. .......... .... ........ 1 UTL copy of credit report. 2 UTL tax returns or any other verification of income. 3 UTL evidence that flood zone was determined. 4 UTL certified escrow instructions. 5 UTL copy of settlement statement. 6 UTL evidence that Fair Lending Notice was provided to applicant. 7 UTL title insurance policy. 8 UTL the following original documents: Disclosure 9 Loan Agreements refer to exhibits which are not attached (A, B, C, D). Borrower initialed statement within the agreement which says that the property is not affordable housing yet exhibit D, affordable housing agreement, is listed as attached. 10 Disclosure refers to a minimum cash down payment of 12% required. Loan Agreement states 3%. Inconsistent. 11 Fax papers are in credit file and will deteriorate over time. City of Huntington Beach February 10, 1995 Page 28 Loan Documentation Audit -T- Borrower: Young: Judy Borrower #: 94-1 Note Date: 1/94 Property Address: Program and Loan Amount: 16972 Limelight #B 1). CDBG $8,000 X.,. ................................................... .. ...... ...... . . . . ........ ...... . .................................. ............ ...... . ...... ... ... ............ .... .. .. . . ::: ............... : : .................... ... X-1., .. ...X ........... .. . ........... :X ......... .....X:........ . ...................... ... . . ... .. .. ... ................. ..... X...... ..... ................: ... .:............................ .............................. . ..... ............................. ...... .. ................................. —.:........... ............................ .. ... ..... ................................ .................... ... ............ .... ......... ..... .... .... ... .... ... W Octon ............ ...................... ..... xx.. ....................... ...... ....................... X D .....6hM .. ....................... . ..... ...................................... ... . ...... I UTL copy of credit report. 2 UTL copy of primary bank appraisal. 3 UTL hazard insurance showing City as loss payee. 4 UTL evidence that flood zone was determined. 5 UTL evidence that Fair Lending Notice was provided to applicant. 6 UTL title insurance policy. 7 Loan Agreements refer to exhibits which are not attached (A, B, C, D). 8 Disclosure refers to a minimum cash down payment required. Percentage amount is not filled in. 9 Borrower to provide matching funds for down payment. Borrower provided $7,108, City provided $8,000. Borrower was refunded $891 out of escrow at closing. City of Huntington Beach February 10, 1995 Page 29 Ratings I i 'i { 1 1'I ,j i a ' i it 1 I 1 Loan Documentation Audit Ratings eni Adherence to generally accepted practices to document loans. N/A Needs Improvement Adequacy and consistency in choosing the appropriate documents for the N/A Satisfactory particular loan transaction. Accuracy in preparing documents; completing the document and N/A Unsatisfactory obtaining correct signatures. s Quality of follow-up and file completion. N/A Unsatisfactory Adherence to federal consumer laws and regulations, as applicable to the N/A Needs type of loan and specific documentation contained in the file. Improvement Quality and condition of the Bank's credit files. N/A Satisfactory Overall Documentation.Quality N/A Needs Improvement Ratings Definitions Good Consistent adherence to generally accepted loan documentation procedures. No regulatory deficiencies or violations of law. Satisfactory Generally consistent adherence to generally accepted documentation policies and procedures or to prudent documentation practices with deviations/deficiencies not of a serious nature and with a minimal number of occurrences. If there are regulatory deficiencies they are minor and not violations of law. Needs Inconsistent or lack of adherence to generally accepted documentation policies and Improvement procedures with deviations/deficiencies significant enough to warrant appropriate management attention. If there are regulatory deficiencies they are minor and are not violations of law but are a large percentage of the sample or a violation of law which appears to be an isolated incident. Unsatisfactory Consistent lack of adherence to generally accepted documentation policies and procedures significant enough to require immediate corrective action by City management. If there are regulatory deficiencies, they may include consistent regulatory violations of law. City of Huntington Beach February 10, 1995 Page 3 a Exception P q, 7 Frequency j :i 'i i i i i � Loan Documentation Audit Exception Frequency <; : ::... :::::::.:::::::::::::,:::::::.....:::::.:.::.:::::::::.:::::::::.:::::::::::::.::::.:::.:::::......::::.:::: .:.:::::::.: .. .. .. :.. . M. ....... .. . ........ .... ....... .. . . .... UTO hazard insurance showing City as loss payee 17 Documents refer to exhibits which are not attached 17 UTL evidence that flood zone was determined 16 Documents not dated, incomplete or have blanks 16 UTL evidence that Fair Lending Notice was provided to applicant 15 UTL copy of credit report 11 UTL copy of primary bank appraisal 11 Disclosure cash down payment % not filled in or is inconsistent with other documents 11 UTL certified escrow instructions 10 UTL copy of settlement statement 10 UTL title insurance policy 8 Trustor's name not complete on deed of trust 5 UTL tax returns or insufficient number of years in file 5 Document contains corrections, white-out, etc. without borrower's initials 5 Fax paper in credit file 4 UTL original documents, or originals were found at escrow company 4 Mayor's signature is not attested by City Clerk 4 Deed of Trust missing Exhibit A, legal description 3 UTL copy of purchase contract 3 Deed of trust and/or rider not recorded 2 Credit file worksheet lists primary loan amount incorrectly 2 Down payment amount is less than City matching funds 2 Tax returns not signed 2 Title insurance policy is incorrect 2 UTL commitment/approval letter to applicant 1 Z Unable to locate City of Huntington Beach February 10, 1995 Page 4 ? ,+ r � tip,++`t`'��t i •�,�^ •CieneTal ti! ; ,'• �; , t Findings ' 'f •'1 .I �I II i r i Loan Documentation Audit General Findings The City of Huntington Beach's Down Payment Assistance Program is currently operated under three basic assumptions, all of which carry some risk. Depending upon the City's goal for this program, these risks may be unacceptable. The first assumption is that the primary Iender will underwrite and qualify the borrower and the collateral adequately and that the City does not need to perform independent due diligence in these areas. Generally, if working with a highly reputable lender, this assumption may be safe. However, junior lenders have historically been the recipients of "bad deals" when it comes to taking a junior position behind a primary lender. The senior lender does not care if the junior lender has perfected his position or if the junior lender ever gets paid. Lending behind an unfamiliar senior lender, not reviewing the senior lender's appraisal or obtaining certified escrow instructions could inadvertently result in the City's Down Payment Assistance Program providing the borrower with 100% financing. The second assumption is that brokers and escrow companies will protect the City's interests during the funding process. These individuals are motivated only to close the deal. An escrow company is obligated to perform only to the extent of the written instructions they receive from the City. They are not required to record the deed of trust or rider (they didn't in two cases), return original documents (not in four cases), provide settlement statements (ten cases) or provide title insurance policies (eight cases). Unless told so, they will also not insure that the borrower provides the correct down payment. As an entity acting in a fiduciary role, there are important reasons why the City has attached specific eligibility requirements to these loans. If the funding is not reviewed, how does the City know that their down payment assistance program is providing funds properly? A relaxed approach to the settlement of funds by the lender can also result in potential fraud on the part of borrowers and service providers. An unethical escrow company knowing that the City never asks for settlement statements, title insurance or the original documents will quickly determine that this is a potential source for easy money. The third assumption is that these loans may never be repaid. Whether the City expects to ever be repaid is not the issue. Often lenders provide financing for community benefit with the full knowledge that the loans may not be repaid. That doesn't deter them from documenting the credit accurately and fully. They know that any loan that is repaid will create an opportunity to lend those funds to someone else. City of Huntington Beach February 10, 1995 Page 5 Loan Documentation Audit This examination clearly reflects the operation of these three assumptions. Specifically, there is far too much expectation by staff that the other parties to the transaction will do their tasks properly and will act on the City's behalf. In many cases, the escrow companies failed to complete documents properly, record documents, return original documents to the City and provide basic reporting. In turn, the City failed to follow-up for these items and provide adequate review of the completed transactions. This points to systemic problems within the documentation and funding delivery system. Systemic issues are those practices which tend to be continuous, and are not by themselves major documentation errors but when grouped together or with other systemic issues can become a problem for a lender and may eventually result in loss. It is this reviewer's opinion that the City's systemic issues are primarily the result of the lack of well-defined written policies and procedures for the approval, documentation, funding and maintenance of the loan portfolio. Specifically, the audit revealed the following: ► the existence of a significant number of documentation preparation errors, such as percentages, dates, addresses and names left off entirely, incomplete or incorrect. ► inconsistent clauses within the documentation, where one document instructs one way and another instructs differently. ► attachments are listed, described and incorporated into various documents, but were not attached and made a part of the document. ► the failure to instruct escrow of the minimum requirements for funding and to obtain basic post funding documentation, such as title reports, settlement statements, and in some cases, original City documents. ► the failure to review settlement statements to confirm borrower's down payment amount and that other funding conditions were met. In one case, the borrower received a refund from escrow reducing his contribution to the transaction to less than the City's matching funds. City of Huntington Beach February 10, 1995 Page 6 Loan Documentation Audit ► the failure to determine correct borrower's names before drawing loan documents. ► the failure to obtain basic underwriting documentation from the primary lender, such as credit reports, appraisals, certified escrow instructions, etc. ► the failure to obtain verification of flood map status before funding the loan. As a lender of federal funds, the City may also be covered by the Flood Protection Act and must obtain this verification as any other federally regulated lender would. ► the failure to provide California Fair Lending Notices to applicants. ► the failure to confirm property insurance coverage listing the City as an additional loss payee before or as a condition of loan funding. ► the retention of fax paper underwriting documentation in the credit file, which will rapidly deteriorate eventually resulting in an empty file. ► the confusion regarding the authorization of certain individuals to sign on behalf of the City. Documents prepared prior to February 1994, generally did not have Mayor or City Clerk signatures. Documents post 2/94 often had the Mayor's signature but without the City Clerk's attest. ► requiring unnecessary documents, such as rescission notices, or having signatures unnecessarily notarized. City of Huntington Beach February 10, 1995 Page 7 ce Recommend i l i i t i I Loan Documentation Audit Recommendations -► Obtain all missing title policies, settlement statements and property insurance policies to complete the review of those specific loans. -� Upon the advice of counsel, repair any documents which, without repair, could cause a potential loss to the City. --► Establish a detailed written policy and procedures manual for the use of all staff involved in any manner with the granting of credit. Topics should include, but not be limited to: ► Specific program descriptions and borrower requirements ► Criteria and methods to approve primary lenders, mortgage brokers and escrow companies. ► Underwriting procedures and minimum documentation requirements ► Credit file organization ► Approval authority, process to obtain approval and approval procedures for exceptions to policy ► Documentation preparation, including approval and signature requirements ► Requirements for flood, hazard and title insurance ► Funding the loan, including preparation of escrow instructions ► Post funding auditing requirements ► Safe keeping procedures, including specific responsibilities of City Clerk's office and safekeeping file organization. ► Default procedures ► Payoff procedures City of Huntington Beach February 10, 1995 Page 8 Loan Documentation Audit —► Create a series of checklists to enable staff to implement these policies and procedures; for example: ► Create a simple form with a format to follow for underwriting the loan request. This form should show all underwriting criteria and analysis. List specific program requirements, the borrower's method of meeting those conditions and the source within the credit file; for example: "First time homeowner: Borrower provided three year's tax returns which do not show any mortgage interest deductions" ► Create an "Approval Worksheet" which is initiated at the time the loan is recommended for approval and follows the loan documents from drafting, City Council approval, City officials' signatures, transmittal to escrow by the City CIerk, and finally return for review and safekeeping. The worksheet should have specific instructions for each stage and should be laid out in a sequential manner. ► Create a "Document Request" form to be used to order documents from the City Attorney. Should contain a list of all approved documents by form ## or revision date. The objective is to have two groups responsible for proper documentation, both the Agency staff and the City Attorney. This should avoid inconsistencies within documents and to provide all appropriate attachments. ► Create a "Pre-funding Audit Checklist" to be used by the Agency staff to check all loan approval conditions and to help prepare the escrow/title instructions. ► Create or use a commercially prepared title company/escrow instruction form. This form accompanies the funding check to escrow and specifically describes the City's conditions for funding, including down payment requirements, lien position, hazard insurance, and title insurance requirements. ► Create a "Post-funding Documentation Checklist" for Agency staff to check all original loan documents upon their return from escrow, prior to transmittal to the City Clerk for safekeeping. Includes title policy review, settlement statement review and hazard insurance policy review. ► Create a "Safekeeping Documentation Checklist" for City Clerk's office listing each document to be held for safekeeping and the signature/approval requirements. City of Huntington Beach February 10, 1995 Page 9 r `<< Limiting t� ditl• on ons i Loan Documentation Audit Limiting Conditions This documentation review and any recommendations that the reviewer may make in respect to specific documentation practices are the sole opinion of the reviewer. It is expected that the City will take whatever prudent action necessary in regards to loan documentation considering the requirements of the transaction, including seeking the advice of internal or outside counsel. Recommendations contained in this report are necessarily general in nature and may not be appropriate for all loan transactions. Because of the large number of title policies and settlement statements unavailable for review, those particular loans have not had the benefit of a complete audit. For that reason this audit cannot provide the City with full assurance that all possible documentation errors have been found. Areas not reviewed include the accounting and control procedures for the release of loan funds, procedures for the monitoring of loan balances or program funding limits, or specific underwriting policies for each loan program. All of these issues were outside of the scope of this audit but are valid subjects for review considering the general lack of written operating policies and procedures. Finally, the audit methods and procedures were not intended or expected to uncover fraud or malfeasance of any kind. Kristine D. Price Date City of Huntington Beach February 10, 1995 Page 10 Contract I PROFESSIONAL SERVICES CONTRACT BETWEEN THE CITY OF HUNTINGTON BEACH AND KRISTINE D. PRICE FOR DOCUMENT REVIEW SERVICES ' 1 � 1 . PROFESSIONAL SERVICES CONTRACT BETWEEN THE CITY OF HUNTINGTON BEACH AND KRISTINE D. PRICE FOR DOCUMENTATION REVIEW SERVICES Table of Contents 1 Work Statement................................................................................................... 1 2 City Staff Assistance............................................................................................2 3 Time of Performance...........................................................................................2 4 Compensation .....................................................................................................2 5. Extra Work...........................................................................................................2 6 Method of Payment .............................................................................................2 7 Disposition of Plans, Estimates and Other Documents........................................4 8 Indemnification and Hold Harmless.....................................................................4 9 Independent Contractor.......................................................................................4 ' 10 Termination of Agreement........................................ ............................................ 11 Assignment and Subcontracting..........................................................................5 12 Copyrights/Patents.............................................................................................. 5 13 City Employees and Officials............................................................................... 5 14 Notices.................................................................................................................5 15 Immigration..........................................................................................................6 16 Legal Services Subcontracting Prohibited...........................................................6 17 Entirety...............................................................................................................:6 i PROFESSIONAL SERVICES CONTRACT BETWEEN THE CITY OF HUNTINGTON BEACH AND KRISTINE D. PRICE FOR DOCUMENT REVIEW SERVICES THIS AGREEMENT, made and entered into this day of 1994, by and between the City of Huntington Beach, a municipal corporation of the State of California, hereinafter referred to as "CITY", and KRISTINE D. PRICE, hereinafter referred to as "CONTRACTOR." WHEREAS, CITY desires to engage the services of a contractor to conduct a .r documentation and processing audit of fifteen (15) original City of Huntington ' Beach/Redevelopment Agency Down Payment Assistance Loan Agreements and related documents; and The provisions of HBMC Chapter 3.03 relating to procurement of professional service contracts has been complied with in that the services shall be less than Ten Thousand Dollars ($10,000) and the City Administrator has given his approval and the City Council has given its approval to this agreement; and CONTRACTOR has been selected to perform said services, NOW, THEREFORE, it is agreed by CITY and CONTRACTOR as follows: 1. WORK STATEMENT CONTRACTOR shall provide all services as described in the letter dated August 24, 1994, (hereinafter referred to as Exhibit "A"), which is attached hereto and incorporated into this Agreement by this reference. Said services shall sometimes .hereinafter be referred to as "PROJECT." CONTRACTOR hereby designates Ms. Kristine D. Price, who shall represent it and be its sole contact and agent in all consultations with CITY during the performance of this Agreement. 1 7/pricd1 0/19/94 r 2. CITY STAFF ASSISTANCE The City Clerk shall work directly with CONTRACTOR in the performance of this Agreement, with assistance as may be required from the Department of Economic Development. 3. TIME OF PERFORMANCE Time is of the essence of this Agreement. The services of the CONTRACTOR are to commence as soon as practicable after the execution of this Agreement and all tasks specified in Exhibit"A" shall be completed within three weeks from the date of this Agreement. These times may be extended with the written permission of the CITY. The time for performance of the tasks identified in Exhibit "A" are generally to be shown in the Scope of Services on the Work Program/Project Schedule. This schedule may be amended to benefit the PROJECT if mutually agreed by the CITY and CONTRACTOR. 4. COMPENSATION In consideration of the performance of the services described herein, CITY agrees to pay CONTRACTOR a fee not to exceed Two Thousand Five Hundred Dollars ($2,500). 5. EXTRA WORK In the event CITY requires additional services not included in Exhibit "A," or changes in the scope of services described in Exhibit "A," CONTRACTOR will undertake such work after receiving written authorization from CITY. Additional compensation for such extra work shall be allowed only if the prior written approval of CITY is obtained. 6. METHOD OF PAYMENT A. CONTRACTOR shall be entitled to payments for time and materials expended. Invoicing will be per the procedure below. 2 7/price/1 O/19194 B. Delivery of work product: A copy of every technical memo and report prepared by CONTRACTOR shall be submitted to the CITY to demonstrate progress toward completion of tasks. In the event CITY rejects or has comments on any such product, CITY shall identify specific requirements for satisfactory completion. Any such product which has not been formally accepted or rejected by CITY shall be deemed accepted. C. The CONTRACTOR shall submit to the CITY an invoice for each progress payment due. Such invoice shall: 1) Reference this Agreement; 2) Describe the services performed; 3) Show the total amount of the payment due; 4) Include a certification by a principal member of the CONTRACTOR's firm that the work has been performed in accordance with the provisions of this Agreement; and Upon submission of any such invoice, if CITY is satisfied that CONTRACTOR is making satisfactory progress toward completion of tasks in accordance with this Agreement, CITY shall promptly approve the invoice, in which event payment shall be made within thirty (30) days of receipt of the invoice by CITY. Such approval shall not be unreasonably withheld. If the CITY does not approve an invoice, CITY shall notify CONTRACTOR in writing of the reasons for non-approval, within seven (7) calendar days of receipt of the invoice, and the schedule of performance set forth in Exhibit "A" shall be suspended until the parties agree that past performance by CONTRACTOR is in, or has been brought into compliance, or until this Agreement is terminated as provided herein. D. Any billings for extra work or additional services authorized by CITY shall be invoiced separately to the CITY. Such invoice shall contain all of the information required above, and in addition shall list the hours expended and hourly 3 7/prfce/10/19/94 rate charged for such time. Such invoices shall be approved by CITY if the work performed is in accordance with the extra work or additional services requested, and if CITY is satisfied that the statement of hours worked and costs incurred is accurate. Such approval shall not be unreasonably withheld. Any dispute between the parties concerning payment of such an invoice shall be treated as separate and apart from the ongoing performance of the remainder of this Agreement. 7. DISPOSITION OF PLANS, ESTIMATES AND OTHER DOCUMENTS CONTRACTOR agrees that all materials prepared hereunder, including all original drawings, designs, reports, both field and office notices, calculations, maps and other documents, shall be turned over to CITY upon payment in full of all outstanding invoices, termination of this Agreement or upon PROJECT completion, whichever shall occur first. In the event this Agreement is terminated, said materials may be used by CITY in the completion of PROJECT or as it otherwise sees fit. Title to said materials shall pass to the CITY upon payment of fees determined to be earned by CONTRACTOR to the point of termination or completion of the PROJECT, whichever is applicable. CONTRACTOR shall be entitled to retain copies of all data prepared hereunder. S. INDEMNIFICATION AND HOLD HARMLESS CONTRACTOR hereby agrees to indemnify, protect, and hold and save harmless CITY, its officers and employees against any and all liability, including any claim of liability and any and all losses or costs solely arising out of the negligent performance of this Agreement by CONTRACTOR, its officers or employees. 9. INDEPENDENT CONTRACTOR CONTRACTOR is, and shall be, acting at all times in the performance of this Agreement as an independent contractor. CONTRACTOR shall secure at its expense, and be responsible for any and all payment of all taxes, social security, state disability insurance compensation, unemployment compensation and other payroll 4 7/price/10/19/94 deductions for CONTRACTOR and its officers, agents and employees and all business licenses, if any, in connection with the services to be performed hereunder. 10. TERMINATION OF AGREEMENT All work required hereunder shall be performed in a good and workmanlike manner. CITY may terminate CONTRACTOR's services hereunder at any time with or without cause, and whether or not PROJECT is fully complete. Any termination of this Agreement by CITY shall be made in writing, notice of which shall be delivered to CONTRACTOR as provided herein. 11. ASSIGNMENT AND SUBCONTRACTING This Agreement is a personal service contract and the supervisory work hereunder shall not be delegated by CONTRACTOR to any other person or entity without the consent of CITY. 12. COPYRIGHTS/PATENTS CITY shall own all rights to any patent or copyright on any work, item or material produced as a result of this Agreement. 13. CITY EMPLOYEES AND OFFICIALS CONTRACTOR shall employ no CITY official nor any regular CITY employee in the work performed pursuant to this Agreement. No officer or employee of CITY shall have any financial interest in this Agreement in violation of the applicable provisions of the California Government Code. 14. NOTICES Any notice or special instructions required to be given in writing under this Agreement shall be given either by personal delivery to CONTRACTOR's agent (as designated in Section 1 hereinabove) or to the City Clerk as the situation shall warrant, or by enclosing the same in a sealed envelope, postage prepaid, and depositing the same in the United States Postal Service, addressed as follows: 5 7/price/10/19/94 TO CITY: TO CONTRACTOR: Connie Brockway Kristine D. Price City Clerk 412 Fourth Street City of Huntington Beach Encinitas, CA 92024 2000 Main Street Huntington Beach, CA 92648 15. IMMIGRATION CONTRACTOR SHALL be responsible for full compliance with the immigration and naturalization laws of the United States and shall, in particular, i comply with the provisions of the United States Code regarding employment L verification. 16. LEGAL SERVICES SUBCONTRACTING PROHIBITED CONTRACTOR and CITY agree that CITY is not liable for payment of any subcontractor work involving legal services, and that such legal services are expressly outside the scope of services contemplated hereunder. CONTRACTOR understands that pursuant to Huntington Beach City Charter Section 309, the City Attorney is the exclusive legal counsel for CITY; and CITY shall not be liable for payment of any legal services expenses incurred by CONTRACTOR. 17. ENTIRETY The foregoing, and Exhibit "A": attached hereto, set forth the entire Agreement between the parties. 6 7/pdce/1 MOM IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by and through their authorized offices the day, month and year first above written. CONTRACTOR: CITY OF HUNTINGTON BEACH, A municipal corporation of the State of KRISTINE D. PRICE California K,Vstine D. Price City Clerk City—Acreiffiitrator ATTEST: City Clerk APPROVED AS TO FORM: City Attorney�yr,q p-;L l.� / 7 7/price/10/19/94 Kristine'D.•Price •, Loud PoltE7es .P�Pcecliires Credtt Super on.; -jam ;�• . t�cra7; ...`.:• 412 Founh Sire. r Bnctaitas; Califonlla•,9� ,. :.: ::%��' xa:• ' '' •Tel: (619)942-9?Zt�' Fax: (610)94Z-$12; .,•: 08-11-94 02:41PM P03 Kristine D. Price August 24, 1994 Connie Brockway City Clerk City of Huntington Beach 2000 Maui Street Huntington Beach, Ca. 92648 Dear Ms. Brockway, As we have discussed I am providing you with a brief outline of the process I will undertake to review the loan documentation generated by the City's Down Payment Assistance Program. It is my understanding that this portfolio currently consists of approximately 12-15 individual loans and that they are all collateral'L?ed by real property and contain thn attrnilml dncumentation generally found within real property secured transactions. I also understand from the material provided to me that the loans are gcneratcd under several different loan programs and that the documentation is likely to be customized for the particular loan program, specifically as it relates to rates, terms and maturities. You have told me that your primary area of concern is that the existing loan documents have been properly drawn and executed refleetvng.ihe appropriate signatures, terms and conditions of approval and that the real property security Interests have been properly perfected. You have indicated to me that the credit underwriting process is not a subject of concern and that this aspect of the lending process will not be reviewed. You have requested that a detailed review of each loan be performed to ascertain documentation accuracy and that the current documentation preparation process be evaluated for any procedural revisions or additions. If you elect to engage my services for this project, I will evaluate each loan as follows: Using a proprietary documentation review checklist, I will evaluate each document for the following: ► Appropriateness to the transaction; its function and requirement ► Accuracy in preparation; correct names, approved terms and conditions ► Accuracy of execution; appropriate signatures, notaries, dates 412 Fourth Street Encinitas, California 92024 (619)942-9226 Fax(619)942.8128 0 Brockway. City of liuntington Beach Pago T�vo _ in Additinn. I will review: • Escrow opening and closing statements for appropriate funding requirements, • Any documents required to satisfy federal and state regulatory requirements such as HMDA, RESPA and Reg Z, and • Lien position through review of title policies or other materials, depending on existing file content. 1 will also note any necessary documents which were not obtained and recommend action for document repair, including the suggestion to seek legal counsel.assistance, If necessary. You should be aware that I am not an attorney and my review of theitsan documents does not extend to the Intricacies of boiler plate verbiage contained in most form documents. I will assume that the City has taken the steps necessary to insure that these documents meet any particular legal requirements unique to municipal lending. In addition, ua-no%vn to me there may be exemptions or waivers of certain requirements common to federally regulated banks but not required by municipalities. If I note federal or state regulatory issues which may be exempted, I would expect the City to allow me these errors of omission. After review of the loan documentation I will provide you with a synopsis of each loan and a two to three page report containing my opinion of the current documentation process and specific recommendations for new or enhanced procedures and controls. If desired, full written policies and procedures covering this operational unit can be discussed at that time. I expect that the review process will require approximately three on-site work days with off-site report preparation of approximately 1/2 day. Billing Is at the rate of$85.00 per hour for actual hours expended up to a maximum of$2.500.00. If you have any further questions please don't hesitate to contact me at any time. Sincerely, 75� ristitte D. Price 412 fourth Street Encinitas, California 92024 (619)942-9226 Fax(619)942-8128 (11) Page 11 -Council/Agency Agenda-8/15/94 F-3. (City Council/Redevelopment Agency) DOWN PAYMENT ASSISTANCE PROGRAM ORIGINAL LOAN DOCUMENTS TRANSMITTED FOR THE CUSTODY OF THE OFFICE OF THE CITY CLERK - DOCUMENTATION AND PROCESSING AUDIT REQUESTED Communication from the City Clerk regarding Down Payment Assistance Program original loan documents transmitted by Administration and Economic Development/Redevelopment for responsibility and official custody of the Office of the City Clerk. RECOMMENDED ACTION: Enable the Office of the City Clerk to utilize an outside Loan Documentation Expert to conduct a Documentation and Processing Audit of all original City of Huntington Beach/Redevelopment Agency Down Payment Assistance Loan Agreements and related documents for which the City Clerk is now being asked to assume responsibility and official custody at a cost not to exceed $2500. eI d ��ck. C.a"s U I �+-t- 1M a- COO,, I GG.r.t�►��2. rior �o owrnW.�-t t an roc,e sS. //4��n-dcl� F-4. (City Council) DEED RESTRICTION ON PARCELS TRANSFERRED TO COUNTY OF ORANGE - BOLSA CHICA REGIONAL PARK PHASE I (650.10) Communication from Director of Administrative Services and Director of Community Development regarding deed restriction on parcels transferred to the County of Orange for the Bolsa Chica Regional Park. RECOMMENDED ACTION: To re-affirm the transfer and release of the subject parcels for recordation by the County of Orange for Phase IA of the Bolsa Chica Regional Park without deed restrictions and finding that the conditions of approval restricting plant materials to native species is sufficient counc.f �lfe ct siA4L, -fo1urSve- 'fiie- bed rm3+, .c4%onS - s+r+vc iPS--D 03�% �'rV �n2. TiC}icr� e-4'ti•dr' w•ThWOr�1r�°� -�r0.1�-}}�e { �f'S $Jbw► �{D l4�' "��•'S M?1 f'"h� 6-e- . F-5. DELETED �,,�oQ{�eD:bvi- wkh ;;M �S-taf-� w: '+ prec�s� �a��a �. V6 b-e- or, APPRoVA c• Ph nd CCLxe. hoc b:�i Les/ Lu helG ir1 pCr�cFii�4-y/CcrcnP.lr��ca�.rZH�`C �'�C', F-6. (City Council)ADOPTION OF TAX RATE FOR 1994/95 - RESOLUTION NO 6626 -APPROVAL OF DRAFT LETTER FROM COUNCIL TO COUNTY AUDITOR (340.90) Communication from Director of Administrative Services transmitting Resolution No. 6626 setting the tax rate for Charter approved indebtedness. RECOMMENDED ACTION: 1. Adopt Resolution No. 6626 -"A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH FIXING THE FISCAL YEAR 1994/1995 TAX RATE." 2. Approve the final form of the draft letter to the Auditor Controller which is Attachment#9 to the RCA dated 8/15/94 and authorize the Mayor to sign said letter. �� t� . caw, g- 1 R 0 aM,),,� --�a WC5 on S U t 0 Y\ N o C (11) HB CITY OF HUNTINGTON BEACH INTER-DEPARTMENT COMMUNICATION TO: SETTLEMENT COMMITTEE MEMBERS FROM: JOE BARRON, Deputy City Attorney DATE: September 16, 1994 SUBJECT: Insurance wavier, Kristine Price This is to ask you to consider waiving the insurance requirements in connection with a professional service agreement between the city and Kristine Price. Ms. Price will audit certain records which are in the possession of the City Clerk's office. The contract price is less than $2,500 and the job is expected to take only about three days. The review of the records may Ia a outside of City Hall, therefore the exposure to liability is minimal. RRON, puty City Attorney B/SL/k Insurance Waiver Approved: .% dated / dated dated dated dated The foregoing instrument 'is a correct copy of the on final on file in this office. .Attest 19�� CONNIE J3RQCKWAY City Clerk and Ex-cfficio Clerk of the City Council of the City of HuQtington Beach, California. _ By Deputy