Starting October 3, 2015, the TILA-RESPA Integrated Disclosure rule (“TRID”), a new set of rules promulgated by the Consumer Financial Protection Bureau (“CFPB”), will go into effect. TRID will drastically change the way that most residential real estate transactions are handled by lenders and closing agents throughout the United States. Perhaps most notably, the HUD-1 Settlement Statement that many homebuyers, sellers, and realtors have become familiar with will be phased out in favor of a new, more encompassing “Closing Disclosure” form. The new rules will apply to any residential real estate transaction in which a borrower applies for a mortgage loan on or after October 3, 2015.
The New Forms
First, rather than receiving a Good Faith Estimate (“GFE”) from their lender after applying for a loan, borrowers applying for mortgage loans will now receive a Loan Estimate form. The Loan Estimate will look very similar to the Closing Disclosure to be received later in the transaction.
The Closing Disclosure, which will replace the HUD-1, will include all of the information currently found on an HUD-1, but will also include several more pages of financial disclosures currently found on other documents such as the Truth-in-Lending Act Statement. The information, however, will not follow the same format or exact grouping categories as the HUD-1 currently does.
Because of the sensitivity of some of the financial disclosures found therein, the Closing Disclosure will be considered a private document and will typically not be shared with the realtor or other parties to the transaction directly by the lender or closing agent. Borrowers may, however, share the Closing Disclosure with other parties on their own accord once it has been received by them. A separate Closing Disclosure will be prepared for the sellers in each transaction, which will only include figures and information relating to the seller’s portion of the transaction. A third, combined closing statement may be used to accurately disclose the terms of the transaction to other parties.
Generally, lenders will prepare the Closing Disclosure for the borrower, and the closing agent will be tasked with preparing the Closing Disclosure for the seller. However, the closing agent will still be responsible for gathering all of the information to be included in both Closing Disclosures and must deliver it to the lender with enough time to prepare the Closing Disclosure and meet the notice requirements further discussed below. Therefore, it is recommended that the buyer and seller, the realtors, and other parties disclose any figures or invoices to be paid out of the closing proceeds to the closing agent no later than two weeks prior to the scheduled closing date, in order to avoid any delays. In most circumstances, the lender will require the closing agent to relay this information at least ten days in advance.
New Notice Rules
The Closing Disclosure must be actually received by the borrowers at least three business days prior to closing. Logistically, it would be difficult for lenders to determine if a borrower actually received the Closing Disclosure. For this reason, most lenders will rely on a rule that allows a presumption of delivery of the Closing Disclosure if sent via regular mail, but the rule requires an additional three business days. The result is that at least six business days must elapse from the time the Closing Disclosure is sent to the borrower and closing. More than often, the Closing Disclosure will be sent to the borrowers ten days in advance of closing.
Should any of the figures or information included in the Closing Disclosure change between the time of delivery to the borrowers and closing, a Revised Closing Disclosure will have to be prepared. However, only in three very specific circumstances will the notice period reset: (1) a change in the APR of the loan; (2) the addition of a pre-payment penalty; or (3) a change in the loan product. However, borrowers and other parties are asked not to rely on the ability to make last-minute changes to the Closing Disclosure because any such changes would have to be approved by the lender first, who must then update the Closing Disclosure and re-send it to the buyer prior to closing, making last-minute changes to the Closing Disclosure at the closing table impractical.
The new CFPB rules do not apply to cash, commercial, reverse mortgage, and home equity line of credit transactions.
Consumers should expect the CFPB changes to affect the timing of real estate closings in the foreseeable future, as lenders, real estate agents, and title companies and other closing agents adjusts to the new forms, ways of communicating, and additional notice requirements. It is expected that most real estate transactions will need 45 to 60 days from the parties entering into a purchase and sale contract to close, as opposed to the current expectation of 30 days.
If you have additional questions about how TRID will affect your real estate transaction, consult with a real estate attorney.