TILA-RESPA Integrated Disclosure Rule

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29th Jul 2015

Puzzle

As all real estate professionals know by now, the long awaited implementation of the TILA-RESPA Integrated Disclosure Rule (“TRID Rule”) has been put off until October 1, 2015. Fortunately, this means you have more time to prepare, study, and understand how this rule is going to impact you as an agent or broker.

First, it’s important to understand why the rule was implemented. The goal of the TRID Rule is to ensure that all facts material to a real estate transaction are known by a consumer prior to closing. The principal behind this goal is that a free market operates more efficiently when the parties to a transaction know all of the facts that may impact their willingness to enter into the transaction or the price they are willing to pay to go through with the transaction. Unfortunately, over the years the rules that impact real estate deals have evolved in such a way as to cause many of these material facts to be presented to consumers in a confusing manner. As a result, many consumers did not understand what they were getting into. That is, they entered into transactions they may not have otherwise entered into or paid a price they may not otherwise have paid because they misunderstood a fact material to the transaction. When this happened, it was a textbook market failure. The TRID Rule is an effort to present material facts in such a manner that these market failures occur less frequently. If successful, this rule will be good for consumers, i.e. buyers, and by extension good for sellers, lenders, and title companies because it will be more difficult for a buyer to claim that he or she was unfairly surprised, misled, or that there wasn’t a meeting of the minds on the contract between the lender and buyer.

Next, it’s important to understand how the TRID Rule will impact the way you handle transactions. As an agent/broker you need to pay particular attention to the timing of events. Generally speaking information needs to be provided to lenders as soon as possible, with no delay, so that they can comply with the disclosure requirements and waiting periods. For example, lenders are required to produce a closing disclosure. The production of this closing disclosure triggers a 3-day review period during which the contract between the consumer and lender cannot be consummated – consummation occurs when the consumer becomes contractually obligated to the lender. It is important for agents and brokers to know that this review period may in fact be as long as 6 days depending on how the closing disclosure was delivered to the consumer (e.g., delivery by mail adds 3 days.) Because closing typically cannot occur before consummation of the consumer/lender contract, any material change of circumstance that is not timely conveyed to the lender may lead to the reissuance of another closing disclosure and, therefore, a missed closing date. It’s easy to imagine a scenario in which this missed closing causes serious consequences: for example, a closing on another property is missed due to a lack of funds, a customer’s possessions that have already been packed into moving trucks must now be stored, a buyer and/or seller must find temporary housing, etc. For this reason, many lenders will be looking to produce the loan estimate 7 to 14 days prior to closing, and agents, in order to protect their clients from scenarios like the above, will need make sure their clients are giving the lenders the information they need in a timely manner. A good way to do this is for the agent to be more communicative with the client regarding the importance of getting documents to lenders and how failure to do so may result in a delay in closing because of the requirements of the TRID Rule. It is also important that the agent create an expectation in the customer that the transaction may take a bit longer to close. Many lenders are communicating that they would prefer 45 days to make sure they can meet all of the requirements to close.

So, finally, even though the TRID Rule is targeted toward lenders and title companies, an agent’s fiduciary duty to his/her client should compel the agent to educate him/herself regarding the details of the rule. The best way to do this is by studying the rule itself and the various guides provided by the Consumer Financial Protection Bureau at http://www.consumerfinance.gov/regulatory-implementation/tila-respa/ If you have any questions about the TRID Rule you can email the Consumer Financial Protection Bureau at CFPB_RegInquiries@cfpb.gov, or call them at 202-435-7700, or contact your real estate attorney.

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