New TILA-RESPA Disclosures

As the requirements of the 2010 Dodd-Frank Act continue to be implemented throughout the country, most Colorado REALTORS® have a basic familiarity with the new federally mandated mortgage loan disclosures that will be required be-ginning August 1st of this year.

The Consumer Financial Protection Bureau (CFPB), an independent federal agency with oversight of the US financial industry, was created by the Dodd-Frank Act to regulate banks and other lenders in an effort to protect consumers.  Pursuant CFPB mandates, the HUD-1, Good Faith Estimate (GFE), and other Truth-in-Lending forms will be go-ing away August 1, 2015 and will be replaced with new TILA-RESPA Inte-grated Disclosure Forms.

New TILA-RESPA Integrated Dis-closures include essentially two documents.  First, the new Loan Estimate (LE) form incorporates the former GFE and initial Truth-In-Lending disclosure.  The new LE form must be provided to consumers, by the lender, no more than 3 business days after the consumer submits its loan application.   Second, the Closing Disclosure (CD) incorporates the former HUD-1 and the final Truth-In-Lending disclosure.  Importantly, the CD must be received by the consumer at least three business days before the closing of the loan.  Both the LE and CD will be required on most traditional consumer mortgages that Colorado REALTORS® deal with on every transaction.

Among the most significant practical implications of the new mortgage disclosure requirements is the three day rule for Closing Disclosures.   Again, the CFPB’s three business day “waiting period” man-dates that a mortgage loan may not be closed less than three business days AFTER the CD has been received by the buyer.   A CD that is mailed or emailed to a Buyer is not considered “received” until three business days AFTER it has been mailed or emailed.  Therefore, in order to ensure timely delivery and receipt, a CD will need to be mailed or emailed by the lender six business days prior to the intended loan closing date.

Another important consideration for Colorado REALTORS® and their clients is that even slight changes to a CD may invoke a new three day waiting period.  If there is any change (up or down) to a buyer’s loan APR, any changes to the buy-er’s loan product, or the addition of any pre-payment penalty after a Closing Disclosure has been generated, a new CD will be required and a new three day waiting period will commence prior to the closing of the loan.   This new three day waiting period is mandatory and may not be waived by buyers absent extraordinary circumstances.

As Colorado REALTORS® know, the days immediately preceding a real estate closing can be stressful for REALTORS®, buyers, sellers, lenders and title companies.  Even the most well prepared and organized professionals are susceptible to last minute “fire drills” as all parties manage their walk-throughs, moving, loan funding, settlement statements, and satisfaction of any outstanding inspection, appraisal or title requirements.  Closing a real estate transaction seems to be an eternal treadmill of “one last things.”

To combine all of the “one last things” related to closing with very strict and inflexible time requirements on the delivery and receipt of Closing Disclosures is sure to cause additional delays and stress during the last few days of many transactions.  Further, most transactions are part of a “chain of closings” wherein one closing is dependent on another closing and so on… Sometimes four or more transactions are unknowingly “linked” together in a “chain” that requires an earlier transaction to take place before the next transaction can take place.  If one closing in the “chain” is delayed by a late Closing Disclosure (or by the requirement of a new Closing Disclosure), all of the other transactions run the risk of last minute extensions to accommodate the former transaction(s).As the best in the business, Colorado REALTORS® can do a few things to help their clients avoid last minute curveballs related to Closing Disclosure requirements.

Educate – Have a discussion very early in the process with your buyers and sellers.  Make sure that your buyers are aware of the new lender disclosure obligations and time frames.  Most importantly, make sure your buyer’s lender is working with those time frames in mind.  If you are working with a seller, make sure they understand the new requirements and the potential need for some flexibility at Closing.  Educate your clients early in the process.

Communicate – Make sure that the parties to the transaction are communicating throughout.  This may seem obvious and, as REALTORS®, that is what you should be doing on every deal.  In the case of transaction “chains,” however, parties to one transaction need to be aware of Closing Disclosure delays that may be developing on other contingent transactions.  Make sure that everyone’s expectations are properly set for the days immediately prior to Closing for all deals in a “chain.”

Plan – If possible, try to be prepared or closing 5-7 days prior to the contract’s actual closing date. This would include completing inspection resolution items, walk-throughs and other remaining due diligence items early.  While this may sound unrealistic in certain cases, if you plan for an early closing, it will make any twists that come up in front of the actual closing date more manageable.   Alternatively, you could consider adding 5-7 days to your traditional closing time frame as part of your original offer.

Author: 

Scott Peterson 

General Counsel | Colorado Association of REALTORS®