We welcome back our blog contributor PJ Garcia of Beach Escrow this week to discuss the upcoming changes to real estate settlement statements for California consumers this week.
Did you know that the HUD-1 Settlement Statement (HUD-1) is being retired? The Legislature specifically directed the Consumer Financial Protection Bureau (CFPB) to integrate the disclosures required under the Truth in Lending (TILA) and Real Estate Settlement Procedures (RESPA) laws. The final solution by the CFPB takes effect on August 1, 2015 and applies to almost all 1-4 Family Residential transactions involving a new loan. Get familiar with the term TILA, RESPA Integrated Disclosure (TRID).
Effective for any loan originated after August 1, 2015:
The GFE and initial Truth in Lending disclosure (TIL) at application will be replaced by the Loan Estimate (LE).
- The HUD-1 and final TIL will be replaced by the Closing Disclosure (CD) which must be verified as delivered to the consumer (borrower) three days before loan documents can be signed. Seller will receive a separate Seller CD.
- The term for Buyer/Borrower is now “Consumer”. (Seller remains “Seller”)
- Tolerances have been narrowed and are now called “good faith variations”.
- CFPB fines and penalties for violations range from $5,000.00 to $1 million, per day.
- Lender is liable for variations in excess of allowable tolerances
- The escrow holder may, upon its agreement and at the request of the Lender, assist in completion and delivery of the CD.
- So far, Bank of American and Wells Fargo Bank have announced they will prepare and deliver the CD.
- MULTIPLE DATES TO WATCH: “Consumer” must receive the final CD three business days before “consummation” which is likely to be interpreted as execution of the lender’s NOTE. Lender may, if necessary, deliver to Consumer a Revised CD to reflect only specific changes such as per diem.
- Changes that exceed the narrow APR tolerances require a new CD and waiting period.
The devil is in the details! We learned in 2010 that implementation of something of this magnitude is a process. Lenders, escrow and title companies are working to get the forms ready for use and to digest the changes to be ready for the 8/1/15 implementation date.
Understanding how these new regulations will affect the timing of closings is critical. Please visit the links in this article to view the forms and other pertinent information.