Timely closings will require advance planning under new compliance rules.
Starting August 1st, 2015, any real estate transaction involving a mortgage will use new disclosure forms and new regulatory timelines created by the Consumer Financial Protection Bureau (“CFPB”). These changes are part of a vast overhaul of the closing and settlement process designed to ensure consumers are fully informed of costs, fees and payments associated with their mortgage.
Buyers will see two new closing forms – a Loan Estimate and a Closing Disclosure – which will replace the three forms used prior to the August 1, 2015 changeover: the HUD-1 Settlement Statement, the Good Faith Estimate, and the Truth-in-Lending disclosure.
Most notably, the TRID (TILA [Truth-in-Lending]; RESPA [Real Estate Settlement Procurement Act] Integrated Disclosures) will change the timing for transactions involving a mortgage nationwide. The Berkshire County Board of REALTORS is working with area lenders and attorneys to educate Realtors, streamline the process, update the Berkshire Purchase and Sale agreement and prepare materials to help buyers and sellers understand the new process. While individual loan types vary, these changes are expected to add at least 15 days to the traditional closing process. In Berkshire County, a closing that used to take between 30-45 days for completion after a Purchase and Sale agreement is executed will soon take between 45-60 days without issues. If last minute issues arise that require re-notice, those time frames would extend beyond that.
In the new process, the Loan Estimate is the first step in applying for a loan. According to the intricate new rules, a lender cannot charge a fee for the credit report until after a buyer has received a Loan Estimate from a lender and has decided to proceed with the transaction. The lender must send the Loan Estimate within three business days after receiving application from a buyer and a final Loan Estimate must be issued at least 7 business days prior to the closing. The cost estimates used by the lender in calculating the Loan Estimate must be made in “good faith”, meaning that the numbers will be presumed to be based on the best information available. Lenders may have to refund to the buyer some money if the amounts vary between the Loan Estimate and the Closing Disclosure and may be subject to penalties. A buyer has 10 business days after they are deemed to have received the Loan Estimate to decide whether to proceed with the transaction.
The consumer must receive a Closing Disclosure within three business days of closing. The Closing Disclosure captures all of the costs paid by the consumer. Thus, any alterations must be reflected in an amended Closing Disclosure requiring re-notice to the buyer. Three changes will require a new Closing Disclosure and will require a new three-day waiting period: APR changes by more than 1/8%; loan product changes; or if a pre-payment penalty is added.
If there are any changes to the loan product or the interest rate after the Closing Disclosure has been given to the buyer, that could trigger a new three-day waiting period. Other changes requiring lender approval could add even more time to the waiting period. The additional holding period can be waived in certain emergencies, such as an impending bankruptcy.
These critical timing requirements make it important for all parties in a real estate transaction to work together to ensure paperwork is delivered in a timely manner, minimal changes are made once the paperwork is delivered, and the process timelines meet the new regulations. This must be a collaborative effort between the consumers, the seller’s REALTOR, the buyer’s REALTOR, the Mortgage Lender and the Closing Attorneys in order to avoid unnecessary delays.
Sellers should endeavor to do nothing to the property at the last minute that could derail a transaction. All items identified in the Purchase and Sale agreement must be honored at closing or there can be delays, so a small act of removing a light fixture that the buyer and seller agreed in the sales contract to leave in the house could prompt a delay.
Instead of the day before closing, the buyer’s walk-through should now be scheduled well before the closing date so if anything is amiss, issues can be worked out well before the closing. Buyers need to understand that attempts at last minute negotiations could derail the closing process as well, so the parties should try to have all issues resolved well in advance of closing.
While these new timetables applied, lenders and REALTORS are cautioning seller and buyer clients of the potential risks of scheduling back-to-back closings, as one of the transactions may be delayed, affecting the other.
More information can be found on www.AtHomeInTheBerkshires.com as well as a copy of the Consumer Finance Shopping for a Home Loan booklet for consumers. All buyers and sellers are encouraged to speak to area lenders and REALTORS for details.
The Berkshire County Board of Realtors® serves real estate professionals in the region. Only those who pledge themselves to a higher level of ethical business practice can elect to join the Board and can use the term REALTOR®. Currently there are over 500 REALTORS in Berkshire County, and over 1 million nationwide.