C.A.R. Legal News - New Closing Regulations May Create Delays in Closing Your Escrows

Posted by on Tuesday, September 15th, 2015 at 11:58am

Consumer Financial Protection Bureau (CFPB) New Closing Regulations May Create Delays in Closing Your Escrows

Beginning October 3, 2015, the Good Faith Estimate (GFE), the HUD-1 and the Truth-in- Lending Act (TILA) disclosures will be replaced in most transactions by two new forms – the Loan Estimate and the Closing Disclosure.  It is widely expected that the new forms and rules may create delays in closing. In light of this possibility, we offer some general advice.

The new forms are designed to aid the consumer in comparison shopping, improve consumer understanding and prevent surprises at the closing table.

The main problem with the new forms and rules is the potential for delays in closing. Although it is not for certain, it is widely expected that there will be delays due to the rules requiring issuance of the Closing Disclosure well in advance of the actual closing. Therefore, agents should consider the following in their transactions:

  • Attorneys who work closely with NAR have recommended conservative advice, to build into your escrows an extra 15 days for closings.

  • Obviously, it may not be possible to initially contract for a longer escrow. Therefore, agents should be prepared to negotiate for an extension.

  • When a buyer has decided to move forward with a loan, the lender may ask to indicate their intent to proceed in writing. Many lenders may write their own forms for this purpose. The earlier the buyer does this the sooner the loan process is started.

  • The CFPB recommends that this be done within ten business days from provision of the Loan Estimate. The reason for the 10 day rule is that after ten days the lender can revise the Loan Estimate. This is not a new rule, but under TRID it may be more strictly adhered to.

  • When a buyer indicates their intent to proceed, the buyer may be asked to pay for various costs immediately. The buyer should be aware of and be ready for this possibility. Previously, lenders may have requested credit card information or a post-dated check to be charged or cashed later, after a required estimate was sent. Under the new rule, this is not permissible. Payment information can be obtained only after the lender provides the Loan Estimate and your clients have expressed their intent to proceed.

  • Because lenders cannot collect payment information in advance, lenders may require your clients to provide payment for an appraisal, application, or other loan processing fee immediately after or as a part of confirming the intent to proceed with the application. Lenders may require payment before beginning the appraisal, processing, verification or underwriting processes.

  • If the buyer picks up the Closing Disclosure in person (or acknowledges receipt if sent by email), the buyer may speed up the loan process by three or four days.

  • At least initially, agents should avoid scheduling simultaneous closings. The reason for this is that since the Closing Disclosure must be delivered anywhere between three and seven days prior to signing loan documents, and the figures and calculations for closing the second escrow may not be available until just before the close date, then the risk of the second escrow closing late is high. If you must schedule simultaneous closings, then at the very least, use the same escrow for both transactions, and negotiate a seller rent back in advance. 

  • Be cautious about making any last minute changes to the purchase agreement involving terms or costs. A change to the purchase involving terms or costs will require a change to the Closing Disclosure. Although most changes do not reset the waiting period, the lenders own procedures under the new rules may be cumbersome and cause delays. A new lender approval may have to be received or in a worst case scenario a appraisal review may be sought.

  • Make sure the broker box on the last page of the purchase agreement is fully complete, including both BRE #’s. This is necessary because the new rules require the brokers' names and the agents' contact information to be stated on the Closing Disclosure. If the lender doesn't possess the information, it is possible that the issuance of the Closing Disclosure could be delayed while the lender gathers it.  

  • Communications between the buyer, escrow or title company, the buyer’s agent and the lender should be kept tight. Make sure your clients have detailed information they can share with their lender about property taxes, homeowner’s association fees, condominium association fees, and the estimated cost for homeowners insurance. Although the lender likely needs to verify these costs later, accurate numbers now can prevent revised Loan Estimates later.

    If anything about the transaction changes, communicate those changes promptly to everyone involved and confirm the information has been received. The lender determines whether the change requires a revised Loan Estimate. Your best strategy is to communicate any changes to your client and to confirm that the lender has received the information as well.

  • As the listing agent, be realistic in your advice to the seller regarding the potential for closing delays.,  

  • Aside from this, brokers and agents should be familiar with the forms themselves and the loan process if only to be able to answer their clients’ general questions.

Source - C.A.R. Member Legal Services - www.car.org/legal

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