Monday, October 5, 2015

The New RESPA Rules on Mortgage Lending

THE DAY THE CLOSINGS STOOD STILL
 
As of October 3, 2015 the federal government enacted new RESPA rules on all mortgage lending which will have a dramatic impact on closings, the affect of which will not be felt for approximately two months or when these transactions are scheduled to close. The TILA-RESPA Integrated Disclosures (TRID) system, overseen by the Consumer Financial Protection Bureau (CFPB), was implemented this past Saturday.
Starting now, lenders will use two new forms to explain the details of mortgages, a loan estimate which must be given to a borrower no later than the third business day after the borrower applies and a final closing disclosure which borrowers must receive three business days prior to closing. The HUD-1 Settlement Statement which has been the traditional document issued by settlement agents at closings throughout the country is now a thing of the past.
Replacing the final truth-in-lending statement and the HUD-1 Settlement Statement will be the Closing Disclosure Form, which provides a detailed account of the entire real estate transaction, including loan terms, fees and closing costs. The new document combines the truth-in-lending statement and the HUD-1 Settlement into a form that is shorter and supposedly more user-friendly. Lenders must also give borrowers a disclosure, which details the final loan terms and summarizes the transaction three business days prior to closing. Borrowers can compare the disclosure with their initial loan estimate to see if any changes were incorporated into the loan from the date of the initial application.
If the main terms of the loan have been changed without the prior consent of the borrower, the settlement agent (or bank attorney) will have no choice but to adjourn the closing in order to reset the clock on a three business day right of review. One can imagine the issues that will be raised as a result of an adjourned closing. Sellers, who are using the proceeds of the sale to purchase replacement property, may be placed in the unfortunate position of defaulting on their purchase contract as a result of the adjournment. This will necessitate a change in contract terms when negotiating the contract of sale. Seller's attorneys will want to add penalty provisions to anticipate an adjournment by the settlement agent or bank attorney and the buyer's attorney will more than likely reject this request claiming that an adjournment of this nature is caused through no fault of the buyer. This is certainly new territory that will have to find some common ground. It is universally agreed that the new rules will add time to the already long process between contract and closing.
It is imperative that both parties to a real estate transaction be made aware of the new laws and the possible impact it will have on the transaction. 

As a side note, banks and lenders are worried about the fines that will be assessed for violation of the new rules, from $5,000 for unintentional mistakes to up to $1 million for flagrant, willful violations. If you have not already familiarized yourself with the new rules, it is time you did so. As always, we make ourselves available to answer any of your questions on this topic.
Alfred M. Fazio, Esq.
Capuder Fazio Giacoia LLP 
90 Broad Street 
New York, N.Y.  10004-2627  

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