By: Lance T. Denha, Esq.
Realtors, Lenders and Title Companies have heard the rumblings for quite some time now. However, the day has finally arrived where changes to residential closings take effect. Effective August 1, 2015, the days of filling out a HUD 1 Settlement form and a Good Faith Estimate prior to closing on a residence, will be replaced with two new forms titled; Closing Disclosure Form and the Loan Estimate Form.
With the Consumer Financial Protection Bureau (CFPB) taking over administration duties of the Real Estate Settlement Procedures Act (RESPA), from HUD, and implementing its Truth In Lending Act (“TILA”)-RESPA rules, these rules apply to most transaction. The few exceptions to this rule involve closing for Home Equity Lines of Credit, Reverse Mortgages, loans secured by a Mobile home or by a dwelling that is not attached to property (i.e. land). Construction Loans and loans secured by vacant land or 25 or more acres of land are now subject to this rule when previously they were not under the guise TILA.
The TILA-RESPA rule includes some new restrictions on certain activity prior to a consumer’s receipt of the Loan Estimate. These restrictions include:
- Imposing fees on a consumer before the consumer has received the Loan Estimate and indicated an intent to proceed with the transaction;
- Provide written statement of terms or costs specific to consumers before they receive the Loan Estimate without a written statement informing the consumer that the terms and cost may change, and;
- Requiring the submission of documents verifying information related to the consumers applications.
There are also new rules that take effect regarding the closing procedure. One vital and important rule requires the Loan Estimate to be completed and remitted three days prior to any Closing. Previously the HUD-1 Settlement Statement can be presented to the buyer one the day of closing and any changes to the statement can take place during the loan closing.
This essentially eradicates the days of all parties involved with a Closing, scrambling around to change terms on the forms, modify calculations and sign off at the Closing table. If any party does make these types of changes to the forms on the day of the closing then a penalty could be imposed by requiring the parties to wait an additional three days beyond the date of closing. Obviously, it is recommended that all parties have everything prepared and ready seven days prior to the anticipated Closing date.
These new rules are intended to streamline the loan application process and make it easier for consumers to understand by clearly spelling out the most relevant detail all on one single page- the interest rate of the mortgage loan, the amount of the monthly payments and a listing of all the closing costs.