Of the many, many documents signed by parties to real estate transactions today are the “good faith estimates” and a “truth in lending disclosure statement”, both of which must be provided by mortgagees. The documents are sometimes complicated, and attorneys are required to explain to their clients their import. Administrative costs and time are spent complying with current statutory scheme.
On August 1 of 2015, those documents will no longer play a part in most real estate transactions. On August 1st those two forms will be combined into a single “Loan Estimate”. The document is not really an estimate in many respects and requires that lenders be accountable for the exact charges listed and come within ten percent of many of the other charges related to most transactions. The estimate must be given within three (3) days after six items of information are collected by the creditors: the borrowers name, income, SS number, address of the property, the estimated value of the property and the loan amount.
The other major form change effective August 1 is that the HUD-1 settlement statement has been replaced by the “Closing Disclosure”. It is intended that the Closing Disclosure form will be comparable to the Loan Estimate so that borrowers can determine that the transaction is being closed in a manner contemplated by the original estimate. The Closing Disclosure will also be similar to a HUD-1 form in that it will accurately reflect the inflow and outflow of all monies to the transaction.
Newer regulations which accompany the new forms will make it important to prepare clients for closings at least a week before the anticipated closing date. This is because lenders are taking a conservative approach and not allowing last minute changes to the anticipated forms unless there is a significant “Bonafide Financial Emergency” exception which would allow parties around the three day rule. The emergency however, must be serious. It would not be considered emergency if a locked interest rate is lost for example, but rather more like a party will be bankrupt if the deal does not close. Further, the reason for the exception will have to be put in writing in ones owns words, not in a form letter. A request for the exception will have to be approved by the lender, and given the way loans are actually made and closed, the ultimate lender will not be present at all at closing so this approval will not be quick, if it comes at all.
Is it really possible to avoid last minute changes which seem to accompany every transaction?! We’ll see!