TRID-1

Major Change To Current Practices | Expect Delays and Bumpy Road Starting Oct. 3

I just finished yet another closing where a national lender issued the closing documents the morning of the closing, and worse, issued a revised TIL (Truth in Lending) disclosure during the middle of the closing! Under the new TILA-RESPA Integrated Disclosure Rules (TRID) set to start on October 3, this too-common practice would have resulted in a closing delay of up to 7 days, to the dismay of everyone in the transaction.

The new TRID rules are game-changing regulations which threaten to disrupt and delay closings across the country. The new rules, already pushed back once due to industry outcry, go into effect in about 60 days on Oct. 3. I am very worried that lenders, Realtors and closing attorneys are not at all prepared for one of the most significant changes in how we do business. Experts are predicting that closings will be delayed, 60 day loan approvals will be the new normal, and new forms will bewilder buyers. “Expect a one- to two-week delay in closings,” said Ken Trepeta, director of real estate services of the government affairs branch for the National Association of Realtors, when describing the impact of TRID.

Check out my latest article: Best Practices In A New TRID World

Currently, we are finishing one of the strongest spring markets in a decade, but I’m quite concerned that come Fall, the new TRID rules will put the fall market into an ice bath. The best thing that every real estate professional can do is get educated and get prepared now for these changes. August is typically a slow month, so use it to get ready. My team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at rvetstein@vetsteinlawgroup.com for more info.

New Closing Disclosure Replacing the HUD-1 Settlement Statement: 3 Day Rule

Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. We are hearing that lenders will require that the information contained in the Closing Disclosure (all fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized as early as 20 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion and to account for delays.

What does that mean for us professionals? It means that everything will need to be pushed up and done faster than before. That goes for titles, CPL’s, broker commission statements, invoices for repairs, insurance binders, condo fees, recording fees, title insurance, everything. And it means we can all expect delays as everyone adjusts to the new timetables and rules.

Practice Pointer: Click here to get my new TRID addendum/rider. 

What Forms Will Be Signed At Closing?

Lenders will require the new Closing Disclosure (embedded below) be signed by the borrower at closing. However, although the Closing Disclosure was intended to replace the current HUD-1 Settlement Statement, the geniuses at CPFB neglected to put a signature line for the sellers on the new Closing Disclosure. I’m not making this up. And we are no longer supposed to use the “old” HUD-1 Settlement Statement. Thus, our title insurance companies are telling us that there may be three settlement statements signed at closing: a Closing Disclosure for the buyer, a Closing Disclosure for the seller, and a combined Closing Disclosure. ALTA has created a new Combined Settlement Statement which can be found here.

Bank of America was asked whether it would require the use of the ALTA model forms, and it stated in a June 9 memo that it prefers the ALTA model if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (CD), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to the bank. The bank also stated that all revisions to fees and costs will require bank approval and an amended CD. In other words, closing attorneys will not be allowed to revise fees and costs by simply supplementing the CD with a settlement statement.

60 Day Approvals/Closings The New Normal?

With any historic change to how lenders disclose fees and approve loans, there’s going to be a steep learning curve — and delays. You can count on that. Industry insiders say the days of 30 and even 45 day loan approvals may be over, at least temporarily. Sixty (60) day approvals may be the new normal, and agents should build the longer timeframe into their offers and purchase and sale agreements and educate their buyers and sellers accordingly.

Repairs and Walk-Throughs

Since lenders will require all fees and credits finalized 7-10 days prior to closing, this will significantly impact how we handle repairs and credits. Agreed upon repairs also affect how the appraisal is conducted which will further impact the timelines. Experts are suggesting that Realtors consider doing walk-throughs at least 14-21 days prior to closing instead of the typical day before or day of walkthrough, because all repair issues and credits should be set in stone at least 7-10 days prior to closing and changes in fees and credits on the day of closing will not be permitted by the lender. Some experts are even saying that agents should do two walkthroughs, one within the TRID timelines and one immediately prior to closing. Also, under TRID paid outside closing (POC) items will be discouraged by lenders.

Take-away:  Realtors should be warned that repairs contained in the purchase and sale agreement will have the potential to delay closings under the TRID rules. Ensure that any repairs are completed 14-21 days prior to closing. Better yet, don’t have the seller make repairs at all; use closing cost credits instead. 

No More Back to Back Closings?

Due to the high potential for delays caused by TRID, back-to-back or piggyback closings may be a thing of the past, at least for now. A delay with a closing obviously has a domino effect on a back to back closing. The best practice, at least for the first few months of the new TRID era, is to schedule closings at least 3 days apart. Seller/buyers will have to prepare for this reality with bridge loans, use and occupancy agreements, or temporarily staying with your nearest relatives.

1416821334979Partner with Trusted and Verified Providers

Now more than ever, Realtors are going to want to partner with lenders and closing attorneys who have been vetted and verified as fully compliant with the TRID rules, so there will be minimal disruption and delay on their transactions. Realtors and loan officers should ask their closing attorneys whether they are compliant with the ALTA (American Land Title Association) Best Practices, which is quickly becoming the standard for TRID compliance. Under the ALTA Best Practices, the attorney will have passed an intensive initial due-diligence screening, a third-party internal audit, background and credit check, extensive review of applicant’s experience, business model and policy loss history, and licensing verification. The closing attorney should also have secure document encryption capabilities and privacy/technology policies in place. My office has been vetted and verified by Stewart Title which has a comprehensive website on the TRID rules. If your buyer wants to use his personal attorney who does not specialize in real estate, explain to him or her why that is a mistake which could ultimately delay the closing. 

Bumpy Road Ahead?

In my opinion, the TRID rules are the biggest change to the industry in 20 years, and will be much more difficult to implement than the new GFE and 3 page HUD of several years ago. As discussed above, my team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at rvetstein@vetsteinlawgroup.com to schedule your complementary seminar.

More information:

Mass. Ass’n of Realtors Webinar on TRID with Ruth Dilingham, Special Counsel
National Ass’n of Realtors Webinar with Phil Schulman
Old Republic Title FAQ on TRID
CFPB Monitor TRID FAQ
CFPB Webinar Rebroadcast May 2015

CFPB Closing Disclosure by Richard Vetstein

  • http://www.ScottBrownMBA.com Scott Brown

    This all begs the question:
    Do companies that front Realtors commissions with very steep interest like eCommission Financial Services, Inc., Residential Advance, Commission Express, Real Commission, Commission Funding Solutions and others have some kickback programs to appraisers, lenders and title companies to delay closings? It seems to me like there is a lot more advertising of their services these days, and quite frankly, a lot of appraisers and lenders just messing up transactions and it really makes me wonder if I should do my Doctoral Thesis on a subject like this!

    Appraisal Management Companies are even using appraisers who do not list their name on the appraisal, go out weeks late, lose property keys, and delay appraisals. Lenders change things last minute (and have for years), require more and more documents throughout the process, and do not return calls or emails to inform people when needed. The delays are likely not just random. The reality of the situation is that there is probably a lot of fraud going on these days and this government in charge is probably on the take as well, or else totally turning a blind eye.

    There are legitimate benefits to these services when buyers can’t perform due to job losses or whatever, but by and large there are many scandalous ratsturds out there screwing over a lot of people right now. It is time to get these horrible lenders and appraisers out of the industry. I will be naming names soon if things don’t change! I can say Prime Lending, Sun West Mortgage, TransContinental Valuations, and several other companies I’ve dealt with recently need to get thoroughly examined. Class action lawsuits should be taking place soon against the lenders, appraisers and even companies like Zillow with their criminally low Zestimates making buyers back out of deals or not put in offers, like when the Zestimate value goes down $80,000 in a day because Zillow’s website monitors decide to make a change in value on a listing (happened last this year to one of my deals).

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  • http://meltzer.tel Stephen Meltzer

    Rich,

    Great summary. I don’t think you can overstate the disruption the new rules will cause.

    Steve

    • drmlwilliams

      So what people are saying is that because the paperwork cannot be provided to the buyers 3 days prior to closing, the entire process gets delayed for weeks? I smell something foul here. Based on my experience, the problem has NOTHING to do with a three day review period and everything to do with an industry that flys by the seat of their pants so much that in some cases, the buyer does not even know for sure they will close the day of the closing. Realistically, if everyone does their job and does not try to cram too many closings into an already tight timeline, everything can be completed in 2-3 weeks. Unfortunately, my experience, even today as I was waiting to close on a home that the title company just “discovered” had 7 leins THE DAY BEFORE CLOSING demonstrates that the delays are because people are not doing what they are being paid to do. In my case, we got the notice we would not be closing the day before closing! I went to the local county website and within 2 minutes was able to list the 7 leins going back to 2006 for free. Yet the title company, know nationally, blames the sellers for not telling them about the leins. The three day rule being an excuse for delayed closings for weeks is nothing more than an excuse for incompetence.

      • Samantha P

        Oh Hell yes! I am stuck right now with a delayed closing because of Wells Fargo and Weikert Relocation because of a lack of doing their jobs in a timely manner, especially over the Christmas Holiday. This will cost someone (not me, however) probably over a thousand dollars in hotels, my moving per-diem, hours of work spent not actually working at my job, rescheduling house projects, storing my stuff that is already on a truck and more. Unbelievably frustrating. Lenders should be heavily penalized if they cause this to happen.

        • Wamo

          Lenders should be contractually bound to close on time. If 30-60 days isn’t enough time to do their jobs, then THEY pay the penalties. You’d see a lot fewer delayed closings if they actually had something to lose by procrastinating.

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