Many real estate professionals know that buyers are supposed to get the HUD-1 Settlement Statement a few (three?) days before settlement, but that rarely happens. Whether the title company is waiting for the lender to provide its fees, the real estate licensees are waiting for confirmation of homeowners’ association dues, or last-minute seller credits need to be accounted, something always seems to delay the buyer reviewing the settlement sheet.
On October 3, 2015, this will change.
There are four major disclosure statements that are currently part of residential real estate transactions: the preliminary Truth-in-Lending (TIL) disclosure, the Good Faith Estimate, the final TIL disclosure, and the HUD-1 Settlement Statement. These four forms are being replaced with a two-part Integrated Mortgage Disclosure Form. Part A of the form is the Loan Estimate, and Part B is the Closing Disclosure. The Closing Disclosure must be delivered to the buyer three business days before closing. Before you scoff at this, understand that the Consumer Financial Protection Bureau (CFPB) has taken great pains to emphasize to lenders that it will aggressively prosecute those who deviate from this standard. Review some of the CFPB prosecutions and you will quickly understand why lenders will comply. This is serious stuff, and we will all need to adjust our practices to adapt to this change.
What is a business day? Beginning October 3, 2015*, a “Business Day” will be any day except Sunday and any of the 10 federal holidays. When does the countdown of the three-business day disclosure period begin? It depends!
- If the Closing Disclosure Statement is hand-delivered, the countdown begins immediately. Hand the buyers the Closing Disclosure on Monday, and you can close on Thursday.
- If the Closing Disclosure Statement is delivered by overnight delivery, the countdown begins with the day on which the buyer confirms receipt. If the buyer does not sign for the Closing Disclosure, count the days as if the Closing Disclosure had been mailed.
- If the Closing Disclosure Statement is mailed to the buyer, the countdown begins three business days after it is placed in the mail. In other words, if you mail the Closing Disclosure on Monday, Real Estate Settlement Procedures Act (RESPA) presumes the buyer receives it Wednesday. After the three-day disclosure period ends, settlement can occur on Monday. However, if one of the days is a federal holiday, then settlement will happen on Tuesday.
- Counting days is slightly more complicated if you use email (and who doesn’t?). If you have written authorization from the buyer to communicate electronically, and if you have written conformation that the buyer received the emailed Closing Disclosure (read receipt), the three-day disclosure day begins that day. However, if you do not have both written authorization and proof that the actual buyer received the email, then RESPA presumes the buyer waits three days to open email and the countdown is exactly as if the Closing Disclosure Statement was mailed.
The disclosure period is one of the most dramatic changes to federal RESPA. Moreover, it can only be waived if the buyer has a bona fide personal financial emergency. The CFPB has indicated that the only financial emergency that will support a waiver is if the buyer’s home is in imminent danger of being sold through foreclosure. Do you think any buyer will get a mortgage if they are currently in foreclosure? Importantly, the sellers never have a basis for waiving the disclosure period.
The implications of this three-day disclosure period will require all of us to change our business practices. How many of you have contacted a title company and asked that settlement be advanced two, three or four days? Do you think that will still happen?
Editor’s note: This is the second of a three-part series on RESPA changes. Read the first article in the series: “Just what is the CFPB?” Visit PARJustListed.com next week to learn more about the changes and real estate business.
*The Consumer Financial Protection Bureau (CFPB) has delayed the rule’s effective date to Oct. 3, 2015.