Real Estate closing documents are changing…
The HUD-1 Settlement Statement has been part of the real estate transaction landscape for many years. That will change on October 3, 2015 when new disclosure forms will be required of lenders providing residential loan products. The Dodd Frank Act gave to the Consumer Financial Protection Bureau (the “CFPB”) the responsibility for disclosures to consumers under TILA and RESPA. In other words, one agency is now responsible for governance of consumer disclosures. As a result, new disclosure forms have been drafted, but remain under discussion on the eve of implementation.
To be clear, there remain transactions that do not come under the new disclosure requirements, including cash transactions; commercial loans; home equity loans; and reverse mortgages.
The new forms are the Loan Estimate (the “LE” that was formerly the GFE and initial Truth in Lending or “TILA”) and the Closing Disclosure (the “CD” that was formerly the final TILA and HUD-1). At closing, sellers will get their separate Seller Disclosures without the borrower’s loan information.
The new disclosure rules apply on October 3, so if an application is completed before that date, the old rules apply. If the loan application is completed after that date, then the new rules apply.
Completion of the application is specifically defined. The application is deemed complete when the borrower provides the following six items to the lender: 1) name; 2) monthly income; 3) social security number; 4) property address; 5) estimated value of the property; and 6) loan amount sought.
Once all of this information is provided to the lender, the lender is required to deliver the LE within three business days and the LE is binding on the lender for ten days. During this ten day period, the borrower will be able to compare Loan Estimates from multiple lenders. Once the borrower decides on a lender, the borrower must tell the lender that the borrower intends to proceed with the loan. It is at this point that the lender can collect verification documentation.
Once the loan is approved, the loan can proceed to closing, which has its own set of deadlines for disclosures. The Closing Disclosure must be delivered to the borrower at least three business days prior to the closing or the loan cannot close on the anticipated date. Delivery involves proof of receipt. In order to meet the new deadlines, the lender will need all information needed to complete the Closing Disclosure seven to fourteen days ahead of the date the CD is going to be sent.
It is imperative that real estate agents, closing agents, and borrowers understand the new requirements and deadlines that require lender compliance. The Florida Realtors and Florida Bar Contract are under revision to reflect the additional time that will be needed when consumer loans are involved in a real estate transaction. It is a time of change in the industry that necessitates everyone’s attention in order to best serve our clients.