The time is finally upon us as we face arguably the most fundamental change to residential real estate practices since the Real Estate Settlement Procedures Act (“RESPA”) was enacted in 1974.
A lot of good information (and a fair amount of misinformation) has been shared with and by Realtors®, title agents, lenders and lawyers. Personally, many of my colleagues and I have spent hours traveling Pennsylvania to teach what we know, as well as what we expect and what we suspect, will result from the changes imposed by the “Know Before You Owe Initiative,” more commonly known as the “Truth-in-Lending RESPA Integrated Disclosure” Rule (“TRID”). Here are some of the key takeaways that may assist you in adapting to these new changes.
The TRID Rules become effective for transactions in which the loan application was taken on or after October 3, 2015. Finalizing the terms of an agreement of sale is irrelevant to the implementation date; it is the loan application that is the key. Are there instances in which you might want your buyer to apply for a loan before the terms of an agreement are finalized?
The Closing Disclosure Form (“CD”) will replace the HUD-1 Settlement Sheet for all affected transactions. Consumers (formerly known as ‘buyers’) are required to receive the CD three business days before the scheduled consummation (a.k.a. ‘settlement’ or ‘closing’). For purposes of providing the CD, a business day is any day except Sundays and federal holidays.
It will be critical for Realtors® to get all fees, costs, expenses, credits, etc., to lenders at least 10 to 14 days before your scheduled consummation. If the lenders do not have all of the information the lenders need, the CD will not be finalized, the consumers will not get the CD, and transactions will not close, settle OR consummate. Have you talked with the lenders and settlement agents to you know to develop an efficient way of conveying this information?
Professional license numbers must be provided to the lender before the lender will finalize the CD. This includes both the buyer’s and the seller’s real estate brokerage license numbers, the real estate agent’s license numbers and settlement providers’ license numbers. PAR has facilitated this process by adding lines to the PAR Agreement of Sale for the brokerage and agent license numbers.
CDs will be bifurcated. This means there will be a CD for the buyer that has only the buyer’s financial information; and there will be a CD for the seller that has only the seller’s financial information. Listing agents and brokers – you will NOT get a copy of the buyer’s CD. Selling agents and brokers – you will NOT get a copy of the seller’s CD.
Lenders are preparing the CDs, and lenders are responsible for providing CDs to their buyers. For a number of reasons, lenders are considering the CD to be one of the loan documents. Because the CD is considered to be a loan document, only the buyers will be provided with copies of the CD. In other words, buyers’ agents will not get the CD before closing; buyers’ attorneys will not get the CD before closing; sellers and sellers’ agents will not get the CD until closing. There is a solution available to settlement providers; the American Land Title Association (“ALTA”) has developed the ALTA Settlement Statement that settlement provides will be permitted to share with Realtors® once the CD is finalized and sent to consumers by lenders. Check with the settlement companies with which you work to determine which companies will use the ALTA SS.
There are very, very few circumstances that will require a second three-day disclosure period resulting from changes to the CD after it was initially finalized by the lender and sent to the buyer. Importantly, the changes under TRID that trigger the three-day redisclosure are the same changes that exist today requiring lenders to reissue a GFE. How many transactions have been delayed because the lender has had to reissue the GFE and give the buyer the mandatory 10 days to review the new GFE? However, because lenders are assuming responsibility for preparing the CD, Realtors® should strive to minimize the changes buyers request to the CD. PAR has modified the Agreement of Sale to allow for two pre-settlement walk-throughs to help with this process.
Accept that the changes wrought by the TRID Rules will – not might – affect how long it takes a transaction to get from negotiating the Agreement of Sale to consummation. The CFPB has published a lot of information to help both industry members and the public understand the Rule and its impact. The CFPB published a timeline for a mock transaction in which the loan application is taken by the lender on Monday, Oct. 5, 2015. The timeline presumes some events occur that are not normally encountered, while other events might be more typical. The closing date is Dec. 30, 2015. Importantly, even though the lender in this transaction sends the CD via overnight mail on Dec. 23, the closing date is seven days later. This mock transaction would take just under 90 days.
There will be delays in transaction, just as there are today. However, with the lenders assuming the responsibility for preparing the CD, we will experience new delays in different aspects of the transaction. Have you worked with your settlement providers and lenders to put systems in place to respond to these delays?