New Tila-Respa Lending Regulations
HOLD ONTO YOUR HAT!
THE IMPACT OF NEW RESPA / TILA REGULATIONS ON SELLING AND BUYING REAL ESTATE
Most people take a mortgage when buying a home. Most sellers of property sell their home to a buyer taking a mortgage. So while the topic may seem dry, it is important to understand October, 2015 changes to RESPA / TILA regulations that will impact all buyers and sellers in a Real Estate transaction involving a mortgage loan. RESPA stands for the Real Estate Settlement Procedures Act, which was “established in 1974 and requires certain disclosures to buyers (including but not limited to) estimated settlement charges” or closing costs. TILA stands for the Truth in Lending Act, “established in 1968 to protect consumers in their dealings with lenders and creditors”. I have one more acronym for you, get ready for TRID! TRID stands for TILA RESPA Integrated Disclosures effecting any mortgage loan now applied for. The changes which were to take effect in August 2015 are law, delayed initially in large part due to the massive learning curve for industry to logistically be able to comply. Ultimately, this is a very good thing for loan consumers in my opinion. In the short term, prepare!
Lenders must provide consumers (Buyers) with a new form called a “Loan Estimate” within three days of loan application and which expires in ten days. This form discloses costs related to the Loan. A consumer is considered to have made a loan application when they have provided a lender these six key pieces of key information: their name, income, social security number, the address of the property, an estimated value of the property to be purchased, and the amount of the mortgage loan that is being sought.
The lending consumer must also be provided with a Closing Disclosure (detailing final costs) no later then three business days before closing. This is a BIG change, and one that will surely be well received by anyone who has found themselves waiting to wire closing funds to a title company the day before closing, having yet to receive their final figure. While this is an excellent improvement, it is this change that concerns many in the short term. It is expected; sadly, that it may prove common for lenders to miss this deadline. Realtors are in fact advised to expect this deadline to be often missed. Closings are expected to be DELAYED in this circumstance, by no fault of seller nor buyer. I hope this proves false, while best to err on the side of caution.
Another effect of the Closing Disclosure deadline relates to timing of the buyer’s final walk through of a property, formerly conducted as typical the day of closing. Any changes to the Closing Disclosure after delivery to the consumer may trigger a new three-day waiting period to close. In working theory, properties are supposed to be EMPTY for a buyer final walk through. So if sellers need to vacate several days prior to closing in order to accommodate an advance final walk through, where exactly are they supposed to go? Many sellers need the money from the sale of their home in order to close on a new home. Having two final buyer walk though’s may become the new normal, one 7-10 days prior to closing (while seller may still be living there) and a second final walk thru when the home is vacant, hoping nothing changes in the interim. While a recommended new practice, this solution certainly isn’t bullet proof. Common wisdom anticipates that buyers may find themselves in a position accepting fault at the last final walk thru, born of necessity.
And because of the increased processing time needed for all of this, the days of a property sale closing in 30-45 days from contract (unless there is no loan i.e. is an all cash deal) are a thing of the past. A “fast” closing will now occur approximately 60 days from contract. Sellers and buyers should plan accordingly that it will take that much longer to sell or buy and close on a property.
Realtors can offer expertise to assist sellers and buyers through this new process. Since delays in closing the transaction may occur through no fault of the buyer, it will become imperative that purchase contracts reflect that the buyer is not in breach of the agreement for not closing on a certain date. Realtors can advise buyers to consider scheduling their delivery of household goods four business days after closing anticipating proactively the possibility of three day reset and/or closing delay. And of course, Realtors can counsel clients in advance to the benefits; and negatives, of the “new normal”. While setting expectations correctly; negotiating reasonable contract terms accordingly up front and utilizing contracts that include updated and protective language, your advocate local Realtor remains ever at your service!