In the flurry to sign a purchase contract, obtain a loan, and pack your worldly goods into boxes, worrying about recent changes to federal lending disclosure rules may be far from your thoughts. Amy Zabetakis cuts through the fog surrounding the upcoming regulation changes and provides you with just enough information to move forward confidently.
New regulations for home loans change the applicable timelines and are likely to change the timeframe in which a new home purchaser will be able to close on a loan. The new regulations require lenders to deliver to the borrower a Loan Estimate form within three business days after receipt of the borrowers loan application and a Closing Disclosure form not less than three days prior to the closing. In order to prepare these forms, banks are requiring that all costs be transmitted by the borrower’s attorney to the bank not less than ten days prior to closing.
Currently Required: New Regulations Require:
Good Faith Estimate: Loan Estimate
Truth in Lending: Closing Disclosure
What Impact Will This Have on Real Estate Transactions?
While there is no question that these changes will have a large impact on the work that the buyer’s attorney does to get the file ready to close, it is unclear the degree to which the changes will impact the transaction. In order to continue to close loans, buyer’s attorneys will need to use new software and will be subject to additional oversight and review by lenders. It is possible that lenders will begin to limit the attorneys authorized to close loans, which will have an impact on buyer’s ability to choose a single attorney to handle the purchase transaction and the loan closing.
However, the big concern is that these changes will impact timing. As an industry, we are anticipating that the changes will impact our ability to actually close transactions on the closing date listed in the contract. For example, while it may still be theoretically possible to close a purchase and a sale for the same client in one day, chances are high that a delay will occur along the way to prevent both closings from occurring in the same day.
As Realtors, lenders and attorneys adjust to this new system there are likely to be hiccups and delays. If you are a seller, have a contingency plan in place if the sale does not go through on the closing date in the contract. If you are a buyer, make sure your rate lock extends beyond the closing date to allow for unexpected delays.
Make sure the buyer’s attorney is aware of all transaction costs. Second, be sure to transmit your invoice to the attorneys as early in the process as possible. Buyer’s attorneys must submit all transaction costs to the lender no less than ten days prior to closing and this includes any repair credits, closing adjustments and Realtor commissions.
Finally, try to minimize closing day surprises. For example, if a walk through can be done in advance, take the opportunity. Listing brokers should consider visiting their client’s home a week or so before closing to make sure everything is in working order. It remains to be seen exactly how walk through credits and adjustments will be addressed, but the way the regulations are currently written, any credit for a walk through issue – even one covered by the listing or selling broker could require a new Closing Disclosure.
A Note on Timing
There will not be a sudden change over to the new forms. The rule change is based on the timing of the filing of the loan application. The new rules must be applied and the new forms used for all loans where the loan application was filed on or after October 1, 2015. Therefore, for many months we will still be using the old forms for closings but we are likely to begin seeing the new forms in use prior to the end of the year.
Amy Zabetakis is one of three founding members of Rucci Law Group. LLC. She practices primarily in the areas of real estate, zoning and land use litigation. Amy can be reached at 203-202-9686 or at firstname.lastname@example.org.