TILA-RESPA: Discussing the Closing Disclosure Form
The new Closing Disclosure form, the TILA-RESPA, is a worksheet far more complicated than the HUD-1 and it has provoked many to ask questions. The Closing Disclosure form doesn’t merely incorporate information from the Good Faith Estimate, the Truth in Lending Statement and the settlement costs, it’s changed the method by which settlements occur. Consequently, this has generated countless unanswered questions, which require answers. The form became effective on all loans originated on or after August 1, 2015.
The new form is one that was created by the Consumer Financial Protection Bureau (CFPB), and it’s the functional equivalent of combining the Truth in Lending Disclosure form and the HUD-Settlement form, which also doubles as a comparison to the Good Faith Estimate. This shows loan details in addition to settlement costs. The TILA-RESPA replaced the longstanding HUD-1 Settlement form, and those involved in any aspect of the residential real estate were impacted in some way or another.
The TILA-RESPA furthered the “Know Before You Owe” campaign, which was designated to stamp out any unforeseen issues that might occur during closing. This is done by requiring that the Closing Disclosure form is made available to all borrowers three days prior to closing. The three-day rule offers consumers time to review final loan terms and costs in an environment free of pressure. It’s a commendable change of practice, altering the process whereby lender figures arrive at the desk of settlement agents on the same day of closing.
In accordance with the three-day rule, borrowers must receive the Closing Disclosure form three days prior to the closing date. The lender must do a number of things to ensure that the Closing Disclosure form arrives on time. They must provide the form to the borrower in person, by mailing it, or other methods of delivery, including electronic delivery methods.
If provided in person, the Closing Disclosure form is considered to be received that day. However, if it’s delivered electronically or mailed, then borrowers are considered to have received the form three days following placement in mail or delivery. For the purposes of compliance, the lender must have the Closing Disclosure form ready six days prior to closing. If the lender is unable to meet the decided deadline, closing must be postponed because there is no stipulation in place allowing borrowers to waive the three-day rule.
The CFPB has not dictated any particular practices or procedures to ensure compliance with the three business day rule, nor has it offered an explanation for what evidence lenders will provide to prove that the borrower received the Closing Disclosure form. This prompts the question, ‘Will the lender prepare the Closing Disclosure form, or will the settlement agent, or the combination of the two?’
In short, yes. Yes, the lender, in some circumstances, will prepare the entire Closing Disclosure form. In other instances, the settlement agent will gather lender’s information and prepare it. Also, in other cases, the lender and the settlement agent will prepare a portion while the other prepares their own section.
Lenders quickly adjusted to the new closing process. For instance, Wells Fargo quickly announced it would prepare and deliver the Closing Disclosure form to the borrower. Wells Fargo did this to take control of the delivery process, so they could obtain and secure evidence of receipt of the Closing Disclosure three days ahead of closing. With that said, other lenders may allow the settlement agent to take care of the delivery of the Closure Disclosure form to the borrower, requiring numerous methods of proof of receipt. Lenders, real estate brokers, and other real estate professionals are working together for the sake of maintaining a seamless real estate conveyance system.
Visit the Consumer Financial Protection Bureau’s website to learn more about The Closing Disclosure form.
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