There are major changes coming to real estate transactions starting on October 3, 2015. Any transaction involving a mortgage will use the new disclosure forms created by the Consumer Financial Protection Bureau (“CFPB”). The Truth-in-Lending Act/RESPA Integrated Disclosures (“TRID”) creates timing requirements for disclosures that lenders need to make to consumers.
The new forms must be used in transactions, and will affect the relationship between the lender and other parties like the closing agent and the mortgage broker. Starting on October 3, 2015, 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.
Under 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 October 3, 2015.
There are also tolerance limitations that may require a lender to refund fees paid by a consumer if the actual costs paid exceeds the estimated costs by certain factors. 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 3 business days after receiving the application from a consumer and the final Loan Estimate must be issued at least 7 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. 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 3 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%; 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 certain date. 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.
While real estate professionals do not have any direct duties under the TRID, they still have a role in the process. It’s best for Real estate professionals to educate their clients about what has changed and help them understand that the transaction will take longer. In addition, clients also need to be educated about the possibility for closing delays. Finally, real estate professionals need to help their clients understand that attempts at last minute negotiations could derail the closing and so the parties should try to have all issues resolved well in advance of closing. In particular, changes made within the three-day waiting could cause a delay to the closing.
In short, be ready for longer closings on real estate transactions beginning on October 3, 2015.