Professionals in the real estate industry have been anticipating the effective date of historic changes to how real estate transactions are conducted for many months. October 3, 2015 has come and gone, so applications for residential home loans going forward are now subject to the new “Know Before You Owe” rules promulgated by the Consumer Financial Protection Bureau (CFPB).
The law is more formally known as TRID, which stands for TILA RESPA Integrated Disclosure rules. It is designed to protect consumers while providing transparency from loan application to settlement in a real estate transaction.
TRID significantly changes requirements for lenders and, although it has many purported benefits to consumers, it will likely delay closings in the next several months as lenders and closing attorneys make the transition. However, there are some things you, as a Realtor, a buyer or a seller, can do to prevent—or at least minimize—delays in your closing.
1. Two new forms and the magic number “3”
The implementation of TRID requires lenders to provide two new disclosure forms to buyers, and it dictates strict timelines for them: the Loan Estimate (similar to the Good Faith Estimate) and the Closing Disclosure (CD). The Loan Estimate must be given to the consumer within 3 business days of the application. The CD replaces the current HUD-1 Settlement Statement and the Final Truth In Lending disclosure, and it must be received by the borrower 3 days prior to closing. In order for the lender – who will be responsible for providing the new CD – to meet this timeline, all documents, invoices and charges that are related to the transaction should be submitted at least 10 days prior to the settlement date.
2. Communicate Thoroughly
Communication has always been important in facilitating a smooth real estate transaction, but it will be even more important now. It is imperative to choose a lender and closing attorney quickly after going under contract to get the process started and then keep them apprised of any new information or changes.
Choose an attorney that is prepared for the new requirements, has ALTA’s Best Practices in place, and is on your lender’s list of providers. In most cases, the lender will prepare the CD (a big change from previous transactions), and the closing attorney may prepare a separate settlement statement, so you will need to provide all information to both the lender and attorney.
Homeowners’ insurance binders, title commitments, invoices, agent commission amounts, contract addendums, and underwriting documents will need to be provided to the lender as soon as possible (again, plan on having everything to the lender at least 10 days prior to closing).
3. Protecting Privacy is a Priority
Expect to communicate differently. TRID requires that lenders take measures to secure Non-Public Personal Information (NPI). This means you will receive encrypted emails from attorneys’ offices; and you may have to sign into various online secure portals for different lenders. Be prepared for this to take a little longer initially, as you will be required to set up accounts and passwords.
4. Schedule Your Walk-Throughs Early
If the contract price is renegotiated or any repairs need to be made, documentation needs to be provided to the lender 10 days prior to closing to allow the lender to deliver an accurate final CD within the required timeframe. You may need to perform two walk-throughs, one approximately two weeks prior to closing and another a day or two prior to closing.
5. Have a Plan B for Closing Day
Prepare for delayed closings. Even when you are diligent about providing everything to the lender and attorney quickly, there will be growing pains with this new law as lenders and attorneys adjust to the various new requirements.
It will be best not to schedule back-to-back closings or to hire a moving company to show up on the settlement date. The chances of the closing being delayed several days are now much higher than before.
Many in the industry expect 60 days from contract to close to become the new norm, at least temporarily. While the inevitable delays will be frustrating, keep in mind the things you can do to minimize delays and educate your buyers and sellers accordingly.
Hutchens Law Firm is prepared for the implementation of TRID and our real estate attorneys will be glad to answer any questions regarding these changes.
Published by Michelle Stinnett on October 12, 2015