The Aftermath of the Closing Disclosure Form

Well, we are now four months into the implementation of the Closing Disclosure Form (CDF), and the closing world has not ended.  My impression is that the industry has reacted fairly well to implementing the new TRID changes.  While there have been some major bumps in the road, I believe most people in the industry have a ready understanding of what is needed to successfully (and timely) set and close a CDF transaction.

The key to successfully going from lender approval to close to the closing table is to start gathering the necessary closing cost information as early as possible.  My firm asks for this information when the file is opened, when the title is reviewed, and when we are advised by the lender that the authorization to close is immanent.  We fully understand that early in the transaction there are many costs that will not be able to be determined with any accuracy, but as we move further along with the transaction the costs should coalesce into meaningful numbers.

Some points to consider and ponder:

1. Start setting expectations early.  Review with your attorney, settlement agent, or title company what information will be needed and when.
2. Some necessary information is available very early in the transaction, but is never provided because it simply was not done in the past.  Examples:
   1. Real Estate Broker Agent and Firm licensing and contact information.  This is necessary information for the CDF and is obtainable as soon as the transaction is started.  A lot of RE Brokers are providing this information as part of their invoice when the closing is being scheduled, but this information is obtainable at any time.  In New York, the information can be obtained on the NYS Dept of State web site.
   2. Condo or Coop fees payable to the Condo or Coop Corp or their agent. Experienced attorneys obtain this information prior to contact signing so their client is aware of the these costs.  While charges relating to maintenance payments may not be determinable until the closing is set, the fees for the Condo/Coop to process the transaction are known quantities and can easily be obtained.
   3. Title charges:  My firm requires that every title report we receive contain a preliminary invoice based on the services ordered or the title provided. Generally, the title charges do not change substantially in the closing process. Sure the loan amount or purchase price could change thereby changing the premiums charged, but this rarely happens.  We understand that the real estate taxes, water charges etc that need to be paid at closing will not be determined until a date is set and a title update is run, but you can get a majority of these fees squared away well in advance.
3. Lenders are looking for the CDF information as early as possible.  The earlier you can gather the  information, the earlier you can set a closing date once the loan is cleared to close and the parties are ready.
4. Do not wait to the last minute.  Remember, the lender has to deliverer the CDF three (3) days in advance of closing.  If you do not have the CDF information, do not schedule the closing.  Once you schedule the closing, the lender will require ALL the CDF information.  If it can not be provided when scheduling the closing, chances are good that the transaction will not close as scheduled.
5. Determining adjustments between the parties, payoff amounts etc can be difficult to ascertain when scheduling a closing, but use your best efforts to determine a fairly accurate number.  Hopefully, the Seller has not waited until scheduling the closing to obtain a payoff letter (some lenders can take 5 to 7 business days to produce a payoff letter), so a fairly accurate payoff amount can be determined if a payoff statement exists.  The same is true for tax or common charge adjustments.  When scheduling the closing, the determination must be made what has been paid and when the taxes etc are next due.
6. Generally, adjustment figures and payoffs can change prior to closing and same will not require a re-disclosure.  However, adjustments that are contractually known – such as closing cost concessions, or gifts of equity, or the contract deposit – should be final and accurately reported to the lender, and a change is these types of adjustments could trigger a re-disclosure.
7. If the terms of the transaction change, such as price, contract deposit, the parties, concessions or credits, etc – let the lender know ASAP.  These changes may cause a re-disclosure before the closing can be set.  Some changes to these items may affect loan approval as well.
8. Many lenders are delivering the CDF via email (subject to Electronic Signatures In Global National Commerce ACT (ESIGN) and Uniform Electronic Transaction Act (UETA)). Make sure the buyer/borrower has signed the necessary authorizations with the lender to insure that the CDF can be delivered via email.
9. Most email deliveries of the CDF have a tracking mechanism that notifies the lender that the CDF email has been received by the buyer/borrower, and that the buyer/borrower has OPENED the email.  It is imperative that the buyer/borrower be aware that they are being sent an email and that they must open it to acknowledge receipt.
10. Disbursement of loan proceeds at closing – do not ask the closing attorney or settlement agent to cut expenses from proceeds that are not on the CDF.  They will not be allowed to do so.  They are required to advise the lender of any changes to the information on the CDF, and this will delay or possibly adjourn the closing.

Most closing attorneys/settlement agents have in their closing documentation a representation by the buyer/borrower that all information on the CDF is complete and accurate.  By following the steps outlined above, there should be no problem with making that representation and in insuring a smooth closing.

 

Closing Disclosure Form – Part 3 of 3

With the implementation date of the Closing Disclosure Form (CDF) around the corner on October 3rd, 2015, I want to finish up the analysis I started in Part 1 and 2 of this blog.  Part 1 and 2 of this blog on the CDF carried us through the notice requirements and some analysis of what goes where on the form.  This part 3 will focused on Pages 3, 4 & 5 of the form.

Page 3 – This page brings together the information from the previous page and shows the cash to close and compares same to the Loan Estimate.  The rest of the page is very similar to page 1 of the current HUD form – shows adjustments, credits, payoffs etc.  This part of the form is readily understandable by the experienced practitioner.  While lenders may have different interpretations, I am of the opinion that seller concessions would be shown on this page (in addition to gifts of equity etc).

Page 4 – additional information about the loan is provided.  This is very similar to the information currently located on page 3 of the HUD.  It address prepayment features, escrows, etc, as well detailing the adjustable rate note information such as payment adjustments and the timing of said adjustments.

Page 5 – this is a continuation of page 4 in that it further describes the information regarding the loan and contains what we would normally see on the Truth In Lending Disclosure (TIL).  It gives the borrower the APR, finance charge etc, and comes up with a new metric called “Total Interest Percentage (TIP)”.  It is the total amount of interest that is paid over the loan term as a percentage of the loan amount.  For instance, a 69% TIP indicates that the borrower will pay 69% of the loan amount in interest.  A very sobering number.  This page also gives the required disclosures regarding obtaining a copy of the appraisal and foreclosure liability etc.

Page 5 also has a new and expanded description of who the parties are that worked on the transaction.  On the current HUD 1, only the buyer, seller, lender and settlement agent are identified on page 1.  The new CDF requires the contact information, and the licensing information, of the Lender, loan officer, mortgage banker (if any), the real estate brokers and the settlement agent.  As a practice tip, I suggest that the real estate brokerage firm information and the sales person information (including their license numbers) be put in the contract of sale where the brokers are identified.  This will save you time and trouble when the lender is calling you up for the information and you have to scramble to locate it.

Last, page 5 has a confirmation of receipt to be signed by the borrower.  While the regulations do not required the CDF to be signed, all lenders that we work with are going to require the borrower to sign the CDF at closing.

Well that wraps up the CDF discussion.  I am sure it will be an interesting adjustment period for the parties to a real estate closing in figuring all this out on a practical level.  Good luck!

Closing Disclosure From Part 2 of ???

Our firm of DeCarlo & Acocella, being involved in all types of residential real estate transactions in New York City, Nassau and Suffolk Counties, have been fielding a lot of inquires regarding the Closing Disclosure From (CDF).  In part 1 of this topic, I discussed the timing and delivery of the Closing Disclosure Form (CDF). In this part, I am going to discuss what the CDF will contain.

Before I begin, lets back up a minute and review a little history and terminology regarding this topic.  After the “great mortgage melt down”, the Federal government established the Consumer Finance Protection Bureau (CFPB) which was given authority and a mandate, among other things, to examine the mortgage process.  What they found, per their 1800 plus page regulation, was that the loan forms needed to be revamped to make them more understandable by the consumer.  In doing so the CFPB came up with Truth In lending- Respa Integrated Disclosures (TRID).  The major focus is prescribing a new form to be issued at loan application know as the Loan Estimate (LE), and a new closing form known as the CDF.  The scope of this blog is limited to the CDF.

Having put some perspective on the whole topic, the question is what will the CDF contain.  While this blog is much to short to break down each page etc, I will try to provide a summary.

Basically the CDF takes the place of the TIL statement and the HUD-1 by combining them into one form.  Follow this link: http://files.consumerfinance.gov/f/201311_cfpb_kbyo_closing-disclosure.pdfIt – for an example of the CDF.  The CDF seeks to give a clearer understanding of the costs involved and the cost to close as well as identifying the parties involved in the transaction and their corresponding licensing information (lenders, real estate brokers & title companies for example).  It seeks to place all in one document the terms, closing costs of the loan an the transaction, the cash to close (all from the HUD we use now), and the overall cost of the loan over the the period of the loan (the TIL aspect) and the settlement.

Page 1 – General closing information, loan terms & payment, costs at closing including the cash required to close

Page 2 – Loan costs – A. lender orig fees, B. Services the borrower did not shop for (appraisal etc), and C. Services the borrower did shop for, all of which determine D. total loan costs.  Shopped for vs. did not shop for are important in determining if the lender exceeded tolerance allowances.  Page 2 also includes other costs like E. Transfer taxes, Recording fees, F. Pre-paids like homeowners insurance, interest and MIP, G. Escrows for taxes etc, and H. Other costs such as HOA fees, real estate brokers commissions and, most notably, OWNERS TITLE INSURANCE.  These items add up to I. Total Other Costs to give the resulting J. Total Costs.  Sounds like a lot, I know, but once you view the form it will all come together.

Just a note on owners title insurance.  We are no longer required to show the title insurance splits between the agency and the underwriter.  However, the CFPB decided that since owners title insurance is optional rather than mandatory, it should be shown in the H. Other Cost section.

And since owners title insurance is not mandatory, but lenders title insurance is, we are required to disclose the lenders title insurance cost in Loan Costs section C. Services Borrower Shopped For (if they had a choice of title company).  Interesting part of this is that the lenders title insurance cost must be shown at the rate it would cost if the borrower did not obtain owners title insurance, rather than the simultaneous rate cost that we now show on the HUD.  This allows the borrower to determine that the lender policy actually costs if they forgo the owners policy.  The way the formula works it that the two title insurance items added together will equal the total cost of the title polices as we now show them on the HUD.

Wow – that is a lot to consider, so I will pick up discussion of pages 3, 4 & 5 in my next blog.

Paul R. DeCarlo, Esq.

Closing Disclosure Form

In our representation of lenders, buyers & sellers in real estate transactions in New York (Suffolk, Nassau & New York City), we at DeCarlo & Acocella are making every effort to prepare for the implementation of the CFPB regulations requiring the use of the “Closing Disclosure Form” – known as the CDF – in the settlement of a real estate transaction in which there is a consumer mortgage.  Lenders will no longer be able to use the HUD Settlement Statement which we have all come to know and love.

There are many changes to how the closing information must be presented to the buyer and seller, but generally the CDF will contain all the information that we now disclosure to the parties at the closing.  The biggest change that will impact the closing is the requirement that the completed disclosure must be “delivered” to the parties three business days before the closing.

The most important question to answer is how is the three day notice measured.  What constitutes the delivery date?  If the CDF is provided in person, it is considered received by the consumer on the day it is provided.  The closing can occur after a three day waiting period.  The delivery date counts as one of the three days.

However, personal delivery is most cases is not very practical given the electronic age in which we live.  Most CDF deliveries will be made by mail or email.  If the CDF is mailed or emailed, “delivery” does not occur until three business days after the mailing or email.  The mailing date counts as part of the three business days.

For example, if the lender emails the the CDF on a Monday, “delivery” does not occur until Thursday, three days later.  With the “delivery” of the CDF on Thursday, the closing can then occur on the following Monday (Sunday is not a business day).  Thus it will take a minimum of SIX DAYS to close the normal real estate closing which involves a consumer mortgage.  That time frame is a HUGE change in the way real estate closings  are now scheduled and closed in the Suffolk, Nassau, and New York City counties of New York.

What if some closing costs or other CDF information changes after the CDF is delivered?  Stay tuned for my next blog.

Paul R. DeCarlo, Esq.