Lessons Learned From Real Estate Closings Under The New TRID Rules
Dot Your “I’s” and Cross Your “T’s” For Smooth Real Estate Closings
The U.S. Consumer Financial Protection Bureau (CFPB) rules affecting mortgages, TRID (TILA-RESPA Integrated Disclosure), became effective October 3 2015. Many contracts are now closing under the new rules. We thought it would be helpful to share our observations. While most closings continue to go smoothly, there is less flexibility to handle changes in closings with mortgages than in the past. Making sure that all parties, and especially the lenders, have their paperwork completed is critical.
Minimize the Risk of Rescheduled Closings
The rule change requiring a rescheduled closing if the lender doesn’t provide all the necessary documents three days prior to closing has caused some wrinkles and rescheduled closings. Many lenders are requiring all documents and costs to be submitted at least ten days before the closing to address this issue.
We have also seen some closings delayed due to lenders not making the deadline. This has caused concern for buyers and sellers who would like to close more quickly but are unable to because of these rules.
Real estate agents should know that Real Estate Contracts and/or Agreements of Sale are not breached if a closing is delayed because the lender does not timely provide documents through no fault of the Buyer or Seller within the three day window as required by the CFPB.
Mortgage Loans: Estimates, Shopping and Avoiding Changes at Closing
Home Mortgage Companies are required to provide a Loan Estimate which enable purchasers to shop mortgage rates. Most lenders have noticed a substantial increase in purchasers shopping for their loans.
The new rules require more transparency and detail. On these estimates, we are finding that many home buyers are still unsure of how to interpret and compare the information and, therefore, ask questions of their real estate professionals and/or attorneys.
In addition, the lender needs to provide the Loan Estimate within three business days of the application. The Estimate is a three-page document providing an in-depth breakdown of a mortgage, including the mechanics of the loan ,interest rate, annual percentage rate, monthly principal, interest payment, property tax, insurance and other escrow items as well as indicating the amount of cash needed by a purchaser to complete the transaction.
The Loan Estimate must be accurate and can’t be changed at closing because there are large fines and penalties if the costs are changed at closing. Much to the dismay of buyers and sellers, this loss of flexibility has also caused some deals to be delayed. For instance, issues come up in same day walk-throughs with financial impacts on the deal, such as meter readings or similar fee arrangements which haven’t been completed. These used to be minor issues but have become deal breakers. Buyers and sellers need to be reminded to complete any outstanding issues to avoid these situations.
A further rule indicates that after a purchaser has received a loan estimate, they have 10 days to comparison shop before making a commitment or canceling it. CFPB recommends purchasers obtain loan estimates from three or more lenders before making a final choice. It is assumed that more purchasers will take advantage of these new requirements. Up to now, purchasers have found it easier to simply locate a lender that is acceptable and proceed. We are seeing a mix of buyers who want to take advantage of comparison shopping and those who want to keep things simple, including many buyers who are pre-approved to streamline the closing process.
While some purchasers are shopping, many lenders indicate that others do not have time to shop due to the pressures of meeting commitments and closing dates. Most lenders’ prices are similar. Many buyers are comfortable working with lenders referred by their realtor. In addition, many purchasers are pre-approved by lenders. These buyers would not be affected by the loan estimate issue. Most purchasers stay with the lender who has pre-approved them. The Bureau is aware of the previous way real estate business evolved and feels as time goes on more purchasers will take advantage of the new laws. We recommend that buyers get pre-approved if possible. This will not only make purchases easier, but buyers are better informed about limits.
Overall, the new rules are causing some wrinkles but nothing too onerous. As with any legal matter, it is helpful for purchasers to have the benefit of legal advice as early in the process as possible. Legal counsel can greatly assist the purchasers in navigating the complicated process of purchase, financing and transfer of assets involved. Posternock Apell, PC is here to assist your buyers with their real estate concerns and purchases, not only traditional deals, but also cash deals, commercial deals, land use issues and complex transactions. Please call us personally and send your clients to us.
Please note that cash and commercial deals are not subject to the TRID rules, but more on that in a future newsletter. As always, please contact us with any questions you may have.