RESPA TILA Changes Take Shape

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As outlined at our Industry Luncheon today, there are changes happening to the real estate closing process on August 1, 2015.  We were fortunate to have our Board Legal Counsel, Michael Shepard, arrange to have CATIC Title Attorney Anthony Lombardi on hand to discuss the changes and the impact on real estate transactions.  [meeting powerpoint].  The new rules combines the Good Faith Estimate with the Truth in Lending (TIL) disclosure now called the “loan estimate” and the HUD-1 settlement statement with the final TIL, now called the “closing disclosure.”  It also makes numerous changes to the settlement process.  Perhaps the greatest change is that the closing disclosure must be in the hands of the consumer three days before closing.

The biggest change that will impact REALTORS is that the time frame for closing will most likely be extended due to these disclosure periods. The Purchase and Sale agreement, as well as the process will change as well. All REALTORS should know that there cannot be changes to the closing disclosure without having to go through the 3-day waiting period again.

Changes that have typically occurred at the closing table will be challenging. Once the Closing Disclosure is delivered, it cannot be amended, and only minimal / non substantial changes made at the closing table. Due to the extent of the fines and guidelines, items discovered at walk through will have to go back through underwriting for consideration. If the item is deemed major, new disclosures will have to be created, a new 3 day window must be given and the closing postponed.

Any change for items that would affect the safety, sanitation, structural soundness or marketability of property would require re-disclosure and extension of the closing date. For example, credits for repair items would typically not be deemed acceptable but would have to be repaired prior to settlement.

Anthony also clarified after the meeting: Cash borrowers may or may not be subject to the regulations. If the party handling the settlement chooses to use the new Closing Disclosure, they have to follow all rules and disclosure obligations. If they chose instead to use another form, such as the old HUD-1, then there are not the disclosure obligations. Based on questions at the meeting, he will look into the issue of private financing (owner financing and/or builder developer financing).

What does this mean for you? 

Ultimately that the closing process is expected to take longer after August 1st, 2015.  There will be much more involvement and orchestration by the lender for the entire closing process (they are on the hook to comply with all mandates).  There will also be changes made to our Purchase and Sale Agreement to accommodate the new time frames and requirements.  We have a Task Force working on this issue now, and will report back at a membership meeting in the late spring / summer with more concrete information.  We will also be working closing with all of our Berkshire lenders to develop industry best practices for closing real estate transactions in this new environment and getting that information to you, with plenty of Q&A time.

Information featured at the Industry Luncheon on April 2, 2015