In response to the financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 to curb perceived consumer abuses by the financial industry. The result was a new set of forms, collectively called the TILA/RESPA Integrate Disclosure, which will be required for the majority of real estate transactions after August 1, 2015 involving consumer loans (i.e. mortgages).
In the past, transactions, involving a lender, required that the lender provide a loan disclosure to the consumer (“Truth in Lending Disclosure”) and a Good Faith Estimate of the expenses the buyer was expected to incur as part of the transaction. At closing, the closing agent prepared the Housing and Urban Development Form 1 (“HUD-1”) which reconciled the actual closing costs with the GFE while also providing a summary of the whole transaction.
The new rules provide that a statement called a Loan Estimate be given to the buyer no later than three days after receipt of a loan application from the consumer and no less than 7 days before closing. This statement is required to detail all expected closing costs.
Then, at least three days before closing, the lender must provide a Closing Disclosure to the Consumer which details the actual closing costs. If there are differences in the amounts shown on the Loan Estimate and Closing Disclosure, the lender may be required to provide a credit at closing to make up for the difference.
Consumers and Real Estate Professionals should be aware that implementation of the new system may complicate and possibly delay some closings and thus should work with their Title Agents to coordinate these new requirements.
Disclaimer: This article is for general information only and is not intended as legal advice.