Effective October 1, 2015, federal financial regulatory bodies put in place significant changes in mortgage and real estate closing documentation associated with home sales. The TILA-RESPA Integrated Disclosure Rule, sometimes called TRID (also known as “Know What You Owe”), is geared at making mortgage loan transactions not only more transparent, but easier for consumers to understand.
Old Forms Out, New Ones In
TRID jettisons four old forms and supplants them with two primary documents, wherein the purpose is to allow borrowers to compare costs and other differences in lending offers. The first form, a Loan Estimate, must be given or mailed to the consumer no more than three business days after receipt of the loan application. The second, a Closing Disclosure, must be provided to the consumer at least three business days prior to the consummation of the loan.
The Loan Estimate form combines the “old” Good Faith Estimate and the Truth in Lending Disclosure into a shorter form that should be easier to understand. The new Closing Disclosure combines the “old” final Truth-In-Lending statement and the HUD-1 settlement statement into a consolidated form that provides a detailed account of the entire real estate transaction, including terms of the loan, fees, and closing costs.
As with almost any government program created to protect, TRID’s new requirements have produced some unintended consequences. Here are some of them:
• Sure, TRID’s use of two forms, instead of four, is overall an improvement. But some borrowers are saying that the rules actually cost them money, inasmuch as lenders feel that they must now lock in an interest rate for a longer period of time. A 60-day lock is usually more expensive than a 30-day lock. For some loans, the difference can be more than $1,000.
• Closing documents may be clear, but if some types of changes are required, the changes can result in postponing the closing for three additional days while the borrower ponders over why things are taking so long. True, minor changes don’t trigger a new three-day period, but lenders and services may be reluctant to take the risk that an entirely new three-day disclosure period isn’t called for, so buyers and sellers should beware.
• Violations of TRID are costly. According to some reports, the Consumer Financial Protection Bureau can impose penalties that range from $5,000 to $1 million per day, depending upon the violation.
• In some situations, where two closings are tied together (a buyer must sell his or her property before being able to close on the new purchase), the new TRID rules can produce a domino effect, where one party thought that his or her closing was progressing well, only to discover that something in the “other” closing now causes delay in the related transaction.
TRID Rules Can be a Legal Maze
In spite of the fact that more than six months have passed since the new forms and closing procedures became effective, many realtors, lenders, and others are still trying to work out the kinks. TRID rules are quite complex, and the penalties for violating them are severe. Most lenders, servicers, and real estate firms have retained strong, experienced legal counsel to assist in this transitional phase. For years now, CKB VENNA LLP has represented lenders, mortgage servicing firms, borrowers, and others in all phases of real estate transactions. Our team of attorneys understands the complexity of the new TRID rules and stands ready to represent you intelligently and aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909-980-1040, or complete our online form.