New RESPA Rules 2010: Disclosure of Settlement Services, Closing Attorneys’ Fees, And Title Insurance

In this post, I’ll discuss a very important issue to lenders, closing attorneys and borrowers alike: how the new RESPA rules handle the disclosure of closing attorney fees/costs and title insurance.

The new RESPA rules significantly change the way lenders must disclose settlement services, in particular closing attorneys’ fees, and title insurance. Generally, under the new rules, closing costs are divided into one of three “buckets”:

(1) those that cannot change from initial Good Faith Estimate (GFE) disclosure

(2) those subject to a 10% tolerance–that is, those which cannot increase by more than 10% from the GFE to the closing, and

(3) those that can change, i.e., increase without limitation.

Here is how the GFE (page 3) shows the 3 buckets:

For closing attorney fees (which HUD now calls “title services”) and title insurance, bucket #1 does not apply, and whether the cost belongs in bucket #2 or #3 will depend on whether the lender recommended the service provider on a written list of preferred providers. If the borrower selects a provider from the list, such as a closing attorney, their charges cannot increase by more than 10% from the GFE to the closing.

Thus, lenders have an incentive to recommend trusted providers whose charges are standard and predictable. If the borrower wants a particular attorney or title insurance provider not on the preferred list, he/she is free to select one, but their charges are not subject to the 10% tolerance and can go up (or down) by any amount.

Also remember that lender’s title insurance is universally required by every public mortgage lender, and in Massachusetts the borrower pays that premium at closing (except for no closing cost loans). A lender’s title insurance policy, however, does not protect the homeowner. As HUD and I always advise, borrowers should always get their own owner’s title insurance policy. (See HUD’s Shopping For Your Home Loan Booklet and my post, Title Insurance Demystified for some horror stories about what happens when you don’t purchase an owner’s title insurance policy).

Here is how the new GFE (page 2) discloses closing attorney fees/title services and title insurance:

Note that lines 3 and 4 represent a huge change from prior practice for closing attorneys. Now closing attorney fees must be disclosed as a single, lump sum charge, plus the cost of the required lender’s title insurance policy. The old GFE itemized such closing costs as courier fees, discharge tracking fees, and the like, but the new GFE is intended to simplify the disclosure of attorney closing costs in favor of one standard charge that consumers can compare across the board.

From the GFE, these fees and costs are ultimately carried over on the new HUD-1 Settlement Statement, with reference to the new GFE lines:

At the closing, the borrower can now simply compare the GFE with the new HUD to ensure that the quoted charges have carried over to the closing table. Remember though that selected costs from a “preferred provider” may deviate up to 10% under the tolerance rules. Also, for the first time the new HUD mandates disclosure of the closing attorney’s share, or split, of the title insurance premium.

This is my second post in a series on the new Real Estate Settlement Practices Act (RESPA) rules which went into effect on January 1. My first post was Are You Ready For Some RESPA Reform? An Overview Of The New Regulations. Click here for a listing of the entire RESPA series.

As always, please contact Attorney Richard Vetstein with any questions.

  • Tracy Curtis

    Question: If Owners Title is optional, does it have to be shown on the GFE? If yes, does the additional amount for the Owners Title have to be verified in borrower’s bank account, even though they may opt not to go with Owners Title??

  • http://aol.com Mark Green

    I was told that a title company may pay a loan officer or anyone else who seeks to make money from the title policy, making several assumptions. They are;
    1.) A seperate company, call it the ABC processing Co. must be set up legally to perform non licenced funtions of title.
    2.)This ABC processing Co. must be paid the same amount of money per file from the title Co.
    In this manner, can anyone be paid from the proceeds of the title policy?

  • http://aol.com Mark Green

    Please send to the correct email address grgreenb653@aol.com based on my title question. Also, if this is legal please let me know if there is anything in writing?
    Thanks
    Mark Green

  • Phil

    to answer you question, A title company can NEVER pay a loan officer or anyone else in the industry for the referral of Title Insurance, It is a violation of RESPA

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  • http://www.bankonblv.com Nicole Ramirez

    are you required to list owner’s title insurance on GFE for all types of residential loan or just purchase of residence? thank you

    • http://www.vetsteinlawgroup.com Richard D. Vetstein, Esq.

      Owner’s title policy comes into play only during a purchase, not a re-fi. If a purchase, it must be disclosed on GFE, Sec. B.

      Richard D. Vetstein

  • A R

    I was told that my attorney was charging 900 for legal fees in addition to other title search fees. when I asked him for the break down he wouldnt provide it (because he didnt do anything). What can I do?

  • Ellen C

    If you fail to disclose Title Policy on GFE for a purchase, then to cure it we would have to pay the buyer within 30 days the overage tolerance amount. Which makes no sense, because the Buyer wasn’t even paying for the Title Policy to begin with-that doesn’t make any sense. Please advise.

    • http://www.vetsteinlawgroup.com Richard D. Vetstein, Esq.

      Ellen, here in Mass., the buyer pays for title insurance, so it’s a RESPA issue if it’s not disclosed on the GFE. It may be different in other states.

  • Ellen C

    Here in NM the Buyer does not pay for the Title Insurance for a Purchase. So it seems very backwards we would have to pay the Buyer fro something they ever paid for in the first place. Please advise.

    • http://www.vetsteinlawgroup.com Richard D. Vetstein, Esq.

      Ellen, ethically I cannot opine on NM law. I would ask your lender or your attorney.

  • DMS

    If a corporate seller is paying for closing cost and has a greed to do so prior to any contract negotiations are the closing cost required to be listed on the seller’s side or the buyer’s side for disclosure? There are many feel since the fees werre not part of the disclosures from the bank and should not affect the buyer’s GFE, these fees should stay on the seller’s side and should not show as a credit on the front page for the buyer.

  • DMS

    If a corporate seller is paying for closing cost and has a greed to do so prior to any contract negotiations are the closing cost required to be listed on the seller’s side or the buyer’s side for disclosure? There are many feel since the fees werre not part of the disclosures from the bank and should not affect the buyer’s GFE, these fees should stay on the seller’s side and should not show as a credit on the front page for the buyer.

    • Spencerfamilyof6

      MLS
      When doing a purchase rep. the buyer why would the lender be responsible to disclose the owners title policy when the owner is poaying for the owners title policy

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