Major changes are coming to real estate transactions starting Aug. 1. Any transaction involving a mortgage will use the new disclosure forms created by the Consumer Financial Protection Bureau.
The Truth-in-Lending Act/RESPA Integrated Disclosures (“TRID”) creates timing requirements for disclosures that lenders need to make to consumers. Not only will the new forms be used in transactions, the relationship between the lender and other parties like the closing agent and the mortgage broker is now altered because the lender can be liable if certain costs exceed the tolerance limitations set forth in the TRID.
In addition, the changes may also delay a transaction if certain changes occur near closing, as TRID requires a three-day waiting period prior to closing and certain changes may cause lender delays.
Through the Dodd-Frank Act, Congress ordered the creation of TRID in order to improve the loan disclosures made to consumers. TRID combines the prior TILA and RESPA disclosures into two forms: the Loan Estimate and the Closing Disclosure. The new forms are required to be used in all transactions starting Aug. 1 and cannot be used for transactions prior to that date.
The Loan Estimate is how consumers will apply for a loan. A lender cannot charge a fee except for the credit report until after a consumer has received a Loan Estimate from a lender and has decided to proceed with the transaction. The lender must send the Loan Estimate within three business days after receiving the application from a consumer and the final Loan Estimate must be issued at least seven business days prior to the closing.
The cost estimates used by the lender in calculating the Loan Estimate must be made in “good faith,” meaning that the numbers will be presumed to be based on the best information available, and the lender may have to refund to the consumer certain amounts if the amounts vary between the Loan Estimate and the Closing Disclosure. A consumer has 10 business days after it is deemed to have received the Loan Estimate to decide whether to proceed with the transaction.
The consumer must receive the Closing Disclosure within three business days of closing. The Closing Disclosure captures all of the costs paid by the consumer, and so any alterations made at the closing table must be reflected in an amended Closing Disclosure following the closing. Three changes will require a new Closing Disclosure and will require a new three-day waiting period: APR changes by more than 1/8 percent; loan product changes; or a pre-payment penalty is added.
One important issue that may need to be addressed is the buyer’s duty to close the transaction on a date certain. Since TRID may cause delays in the transaction through no fault of the buyer, purchase contracts need to be adjusted so that the buyer is not in breach of the agreement for not closing on a certain date. As stated above, TRID will cause a reset in the three-day waiting period in certain instances, but the lender may also cause delays due to the new tolerance limitations.
For example, a problem with the home’s plumbing could potentially require the lender to seek a new valuation of the property, which in turn could require new disclosures and a delay in the transaction. Thus, the buyer’s obligation to close should not be required on a certain date since the potential for delays can cause this date to move so buyers and sellers should be wary of scheduling back-to-back closings and last minute negotiations could derail the closing as well.
TRID disclosures will change the timing for real estate transactions involving a mortgage.
* Taken from National Association of Realtors, May 4
— Reyne Stapelmann is a broker associate with Berkshire Hathaway Home Services, California Properties and the 2015 president of the Santa Barbara Association of Realtors. Contact her at reynestapelmann@cox.net or 805.705.4353. The opinions expressed are her own.