Last Update: 02/10/16
On August 1, 2015, closings will be different here because of changes in federal law and replacement of HUD-1 Form
As part of any closing on residential real estate (homes, condos, townhouses, vacation property, etc.) federal law requires that buyers and sellers receive as part of their Closing Documents a “HUD-1 Settlement Statement” known by most as the “HUD-1” form.
However, things have changed. The Department of Housing and Urban Development (”HUD”) is no longer responsible for overseeing residential mortgage industry in the United States now; pursuant to the Dodd-Frank Act, HUD has turned over the reins for federal oversight of national mortgage banking to the Consumer Financial Protection Bureau.
CFPB Changes Closing Requirements For Consumer Protection
The CFPB has a mission to protect American consumers from wrongdoing, and that mission may be different from HUD’s mission, which protects the housing industry overall. Accordingly, it’s not a real surprise to anyone involved in the real estate industry that consumer protection laws will require a review and an update of closing requirements in residential mortgages that add more protections for consumers.
So, effective August 1, 2015, the HUD-1 Form will not be the only document used in Florida residential real estate closings. With this change in oversight from HUD to CFPB comes new requirements for residential mortgages and a new form developed by the CFPB called the “TRID forms,” short for the TILA-RESPA Integrated Disclosure forms.
What has happened, legally, is this: regulation of mortgage lenders in the United States is stricter now because of the mortgage fraud scandals of the past few years. The Consumer Financial Protection Bureau has been given the marching orders to be the federal watchdog over these new home loan requirements instead of HUD. Specifically, CFPB is responsible for implementing changes in the following two federal laws that apply here:
- the Truth In Lending Act (TILA) (protecting consumers by requiring bank tell potential borrowers specific things about credit terms) and
- the Real Estate Settlement Procedures Act (RESPA) (protecting borrowers by making lenders given full info on potential home loans to help consumers make their mortgage decisions).
Closings Will Be Different With TRID Forms
There are going to be several distinct differences in closing requirements after August 1, 2015, here in Florida. These include:
1. Some current forms used in residential closings here in Florida will not be used any longer; these are (1) the good faith estimate; and (2) the TIL or truth-in-lending document.
2. New closing documents required by federal law will be (1) a loan estimate and (2) disclosures. The loan estimate replaces the old good faith estimate and the TIL. The disclosures will be used instead of the HUD-1 and will have some of the same information as the current TIL.
3. Mortgage lenders will have to give their prospective home loan borrower a mortgage loan estimate within 3 days (not 72 hours but full days) of the date of their mortgage loan application.
4. Mortgage lenders will have to provide their home loan closing documents within 3 days (not 72 hours) of the closing date, not the current 24 hour time frame.
5. Title insurance for the new owner is shown as “optional” in the new forms and the current suggestion that the seller pay for the buyer’s title insurance policy (not the lender’s policy) has been omitted.
Will It Be Harder to Close on a Home Purchase After August 1, 2015?
There are some critics of the changes that have been implemented in the residential closing process by the CFPB. They argue that these changes are going to hurt both buyers and sellers by making it harder to close on a home purchase here in Florida and elsewhere.
Why? For one thing, under the new TRID forms, there is a 3-Day Waiting Period when any changes are made to a TRID form. The process will be, according to CFPB procedure, to provide 15 additional days to close the deal – which means that a buyer that signs a contract to buy a home in 30 days may require 45 days to close.
- Buyers that need to move into the new home by a specific date may be faced with a real dilemma here if closing is delayed: what do they do with the moving van and all its contents?
- Sellers may face burdens here, too, if they have deadlines (like the purchase of a new home – they may need the sale proceeds of the current transaction to close on their new home) that must be met by a certain date and the closing is delayed.
Florida Real Estate Lawyers Can Help
For both buyers and sellers, the next few months are going to be stressful as this change is implemented. Closings in the next 60 days will be particularly intense as many may see it as an advantage to get their closing done before August 1, 2015, when the new laws and legal requirements take effect.
Remember: real estate agents and brokers are in a business where they must always be closing deals in order to make a living. That business interest is understandable, we all have bills to pay, but it may not coincide with giving you, the buyer or the seller, the best guidance in this situation.
A good piece of advice if you have a question about a real estate closing is to at least speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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