real estate

Another Lender Communication to Settlement Agents…

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… And a denial from the CFPB.

newsBank of America answered several frequently asked questions from settlement agents by memo dated June 9.

Significantly, BofA indicated that agents will not be allowed to accept its title or closing orders if they are not registered with Closing Insight™. Because BofA and several other lenders will require Closing Insight™,  South Carolina closing attorneys who have not yet registered should follow this link to do so.

Asked whether BofA will require the use of ALTA model settlement statements, the bank responded that it prefers the ALTA model form if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (“CD”), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to BofA. The memo also stated that all revised fees and costs will require both bank approval and an amended CD. In other words, fees and costs cannot be revised by simply supplementing the CD with a settlement statement.

ALTA’s settlement statements are available for review and use at this link.

The memo confirmed our thinking that separate CDs will be provided to the buyer and the seller. BofA added that the buyer and seller will not sign the same form nor see the contents of the other party’s CD. Further, BofA will instruct the closing attorney to prepare and deliver the seller’s CD and to provide copies of CDs to the real estate agents.

Finally, the bank clarified its process for making post-disbursement fee modifications. If the closing attorney identifies the need for a change in the numbers reflected on the CD, the attorney must request that the “collaboration session” be reopened in Closing Insight™, and the bank will review the update made by the attorney to determine whether a revised CD is necessary. The party in possession of any excess funds will be responsible for sending the funds to the buyer/borrower, while BofA will prepare and send the revised CD to the buyer/borrower. The closing attorney will be responsible for revising and delivering the seller’s revised CD, if necessary.

cfpb-logoIn related news, on June 3, the CFPB released a fact sheet in response to “much information and mistaken commentary” surrounding perceived closing delays that will be caused by the implementation of the new rules. The CFPB denied that the new CDs will delay closings “for just about everybody.” In response to the belief that any change in the CD will cause a new 3-day review period, the CFPB clearly stated that only the following matters will trigger an additional 3- day wait:

  1. The new APR (annual percentage rate) increases by more than 1/8 of a percent for fixed-rate loans or ¼ of a percent for adjustable loans. A decrease in the APR will not require a new 3-day review if it is based on changes to interest rate or other fees.
  2. A prepayment penalty is added, making it expensive to refinance or sell.
  3. The basic loan product changes, such as a switch from fixed rate to adjustable interest rate or to a loan with interest-only payments.

The following circumstances will not require a new 3-day review, according to the fact sheet:

  1. Unexpected discoveries on a walk-through such as a broken refrigerator or a missing stove, even if they require seller credits to the buyer.
  2. Most changes to payments made at closing, including the amount of the real estate commission, taxes and utilities proration, and the amount paid into escrow.
  3. Typos found at the closing table.

The CFBP’s denial notwithstanding, we are all naturally concerned about other matters that will cause delays during the transition period, particularly the steep learning curve that must be overcome by everyone involved in closings. But we will all work hard to get through the transition period together! We’re predicting that closings will be much smoother by the beginning of 2016.

CFPB proposes TRID delay until Oct. 3

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stay tuned

Quick note to get this information out quickly: Today the Consumer Finance Protection Bureau announced that it will be issuing a proposed amendment to delay the effective date of the new mortgage disclosure rule from August 1 to October 3.

More to follow!

Accountants Develop ALTA Best Practices Guidelines

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Dirt lawyers: Your CPA should be able to assist!

accountant guyThe American Land Title Association announced on April 28 that the American Institute of Certified Public Accountants (AICPA) has issued guidelines for CPAs to verify whether closing attorneys comply with ALTA’s Best Practices.

The guidelines provide a uniform framework to ensure CPAs will perform ALTA Best Practices compliance testing and reporting in the same manner and in accordance with AICPA standards. By engaging a CPA who will use the new guidelines, closing attorneys should be confident about the quality of the assessment process.

We are not aware of any lenders doing business in South Carolina who have indicated at this point that they will require third party certifications. However, Mississippi based regional BancorpSouth announced in early March that its approved closing agents must comply with Best Practices through a certification from an independent third party vendor acceptable to the bank. The deadline for obtaining the certification was stated to be July 31.

Wells Fargo announced it supports ALTA’s Best Practices as sound business practices that should already be in place. Wells stated in a memorandum to its closing agents that completing a certification by August 1 will not be a requirement, but the bank hopes closing agents will, at minimum, have already completed a self-assessment and addressed any identified gaps by that date.

SunTrust Mortgage announced that it will require closing agents to complete an ALTA Self-Assessment no later than July 1, 2015.

Lenders will likely refine their requirements as we get deeper into implementation. It would not be surprising to hear that any lender who does business in South Carolina will require third party certifications, particularly since CPAs are now “in the loop” and able to make assessments.

The bottom line at this point is that all residential closing attorneys who plan to remain in the business should become Best Practices compliant as soon as possible so they will be able to meet any requirements along these lines that their lenders may impose.

If you need help with Best Practices compliance, call your title insurance company! They are able, willing and ready to assist!

Five Things Dirt Lawyers Need to Know Before August 1

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Prepare now for a smooth transition to the new CFPB regulations and forms

Our company has put together some general information about the CFPB regulations that become effective on August 1. I’m sharing a few tips with the letstalkdirtsc.com audience in an effort to assist with a smooth transition.

1 HandWhat transaction types are affected and exempt? The new rules and forms apply to most closed-end consumer credit transactions secured by real property. The following types of loans are affected:

  • Purchase money mortgages;
  • Refinances;
  • Mortgages on 25 acres or less;
  • Mortgages on vacant land;
  • Mortgages for construction purposes only; and
  • Mortgages on timeshares.

Consumer loans exempted from the new rules and forms are:

  • Reverse mortgages;
  • Home equity lines of credit (HELOCs);
  • Loans on chattel-dwelling/mobile homes only; and
  • Loans by creditors who originate less than five loans in a calendar year.

Creditors will be required to use a TILA disclosure and Good Faith Estimate (GFE), and closing attorneys will be required to use a 2010 HUD-1 Settlement Statement on the exempt loans.

Loans in progress (applications submitted prior to August 1, 2015) are not subject to the new rules or the new forms.

2 HandWhat are the new rules and forms? On November 20, 2013, the CFPB announced the completion of the new integrated mortgage disclosure forms along with their regulations (RESPA Regulation X and TILA Regulation Z) for the proper completion and timely delivery to the consumer.

The Loan Estimate – Currently, borrowers receive two forms from their lender at the beginning of the transaction: the GFE and initial TILA disclosure. For loan applications taken on or after August 1, the creditor will instead use a combined Loan Estimate form.

The Closing Disclosure – The HUD-1 Settlement Statement and the final TILA disclosure form have been combined into a single Closing Disclosure form. This new five-page form contains many loan terms and provisions in addition to the closing figures. Several earlier letstalkdirtsc.com blogs discussed which lenders that have announced they will prepare and deliver the Closing Disclosure. It appears that in all cases, closing attorneys will prepare the seller’s Closing Disclosure and a separate closing or disbursement statement to facilitate disbursement.

forms in out

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How will the timing of a closing be impacted by Closing Disclosure delivery? The new rule requires borrowers to have three business days after receipt of the Closing Disclosure for review. The three-day review starts on the receipt of the form by the borrower. Absent some positive confirmation of receipt such as hand delivery, the form is “deemed received” three days after the delivery process is started (i.e., mailing). As a result, the combination of the delivery time period and the review time period results in six business days from mailing to closing.

After delivery of the initial Closing Disclosure, the following changes would require a re-disclosure and a new waiting period:

  • Increase of the APR by more than 1/8%;
  • Change in the loan program, for example, fixed rate to ARM; and
  • Addition of a pre-payment penalty.

Closing Disclosure Delivery Timeline Chart4 Hand

 

How will the communication of title and closing figures be handled? Lenders will continue to need accurate estimates of title and closing figures. Preparation of the Closing Disclosure will require a collaborative effort between lenders, closing attorneys and other vendors and may require fees to be submitted as early as two weeks prior to closing. Several lenders have announced that they will use electronic portals to send and receive information, eliminating the use of mail, e-mail and faxes between lenders and closing attorneys.

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How are title charges reflected on the new forms? The list of charges involving title insurance and closing activities must be grouped together and preceded by the word “Title”.

The CFPB requires that the full premium, not the discounted simultaneous issue premium, must be disclosed for the loan policy. The owner’s policy premium will be shown as “optional” and will be the total cost of the owner’s policy discounted by the cost of the loan policy and adding the simultaneous issue premium. Confusing?  Yes!

The line numbers have been removed from the HUD-1 form, and there are now seven fee areas:

  • Origination charges;
  • Services borrower did not shop for;
  • Services borrower did shop for;
  • Taxes and other government fees;
  • Pre-paids;
  • Initial escrow payment at closing; and
  • Other

Charges within each of these major groupings are listed alphabetically. Columns are provided to separate charges of the buyer, the seller, and others, as well as columns for payments both before and at closing.

Software and title insurance companies are doing extensive training in the form of seminars, webinars and written communications. If you intend to be a residential dirt lawyer after August 1, get yourself and your staff trained!

SunTrust Requires ALTA Best Practices Compliance by July 1

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… AND indicates it will produce and deliver Closing Disclosures.

suntan lotionMaking a significant announcement with a tight deadline, SunTrust Mortgage revealed in an April 22 letter to its settlement service providers (closing attorneys in South Carolina) that it will require them to comply with ALTA’s Best Practices and to complete an ALTA Self-Assessment no later than July 1, 2015.*

The letter also announced that SunTrust, following the lead of Well Fargo, Bank of America, CitiBank and Chase, will produce and deliver Closing Disclosures to borrowers and will require closing attorneys to provide complete and accurate title and settlement charges up to two weeks prior to scheduled closing dates.

SunTrust also plans to handle Closing Disclosure revisions and expects closing attorneys to provide timely notice of any changes in the closing numbers, including changes that occur after closing.

Closing attorneys will be responsible for preparing and delivering the seller’s Closing Disclosure on purchase transactions. A signed copy of the seller’s Closing Disclosure will be required by SunTrust as a condition of funding approval.

SunTrust will require an attestation form from closing attorneys for each closing, confirming the ability to comply with the new rules and expectations.

* The letter directed closing attorneys to www.alta.org/bestpractices/index.cfm for more information on ALTA’s Best Practices and offered assistance from SunTrust via e-mail at TitleSettlementMgmt@SunTrust.com and mail at Title/Settlement Management, SunTrust Mortgage, Inc., Mail Code: VA-INSB-7882, 5600 Cox Road, Glen Allen, VA 23060.

Five Things Real Estate Agents Need To Know Before August

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 Dirt lawyers: Educate your real estate agents!

Our company has developed resources to equip dirt lawyers to educate real estate agents about how the CFPB will impact them beginning August 1.  I’m sharing a few tips with the letstalkdirtsc.com audience because everyone will benefit if real estate agents are prepared.

This is a primer, a very basic beginning point. The CFPB will not significantly impact the day-to-day processing of sales, but buyers and sellers will look to real estate agents for general information about the new rules and forms, as well as the impact on the loan process and the closing. As the software companies complete their updates, everyone involved will be trained on the details of the Loan Estimates and Closing Disclosures.  For now, let’s give real estate agents the following information.

1They should be able to explain the Loan Estimate and Closing Disclosure before August 1. The Good Faith Estimate (GFE), a form required by the Real Estate Settlement Procedures Act (RESPA), and the initial Truth-in-Lending disclosure (TIL), a form required by the Truth-in-Lending Act (TILA) have been combined into a new form, the Loan Estimate. For loan applications taken on or after August 1, the three-page Loan Estimate will replace the GFE and the TIL and must be delivered within three business days of the application. The new five-page Closing Disclosure will replace the HUD-1 Settlement Statement and the final TILA form.

2The timing of a closing will be impacted by Closing Disclosure delivery.  The CFPB has determined that borrowers will be better served by having three days after receipt to review the Closing Disclosure prior to the closing. Absent a positive confirmation of receipt of the form (i.e., hand delivery), the form is “deemed received” three days after the delivery process is started (i.e., mailing). Several lenders have already announced that they will deliver the forms six days prior to closing.

Closing Disclosure Delivery Timeline Chart

3Title fees may need to be adjusted at closing and explained. The full premium for the lender’s title policy must be reflected on the Loan Estimate and the Closing Disclosure despite the fact that we have a “simultaneous issue” discount in our filed rates in South Carolina. The discount that title insurance companies in South Carolina offer lenders must be deducted from the charge for the owner’s policy. Also, the owner’s policy will be shown as “optional” on both documents. Closing attorneys may look to real estate agents to assist them in explaining the value of owner’s title insurance.

4Line numbers have been removed and there are now seven fee areas on the Closing Disclosure. The familiar line numbering on the HUD-1 will disappear. Instead, the fees and charges are placed on the Closing Disclosure in one of seven areas:

  1. Origination charges;
  2. Services borrower did not shop for;
  3. Services borrower did shop for;
  4. Taxes and other government fees;
  5. Pre-paids;
  6. Initial escrow payment at closing; and
  7. Other.

Individual charges within each of these major groupings are listed alphabetically. Columns are provided to separate charges owed by the buyer, seller and others, as well as columns for payments before and at closing.

5Clients will likely receive more than one Closing Disclosure. Since the buyer will receive the Closing Disclosure several days before the closing (and likely before the walk-through), the buyer will likely receive a new, adjusted Closing Disclosure at the closing. The CFPB has also mandated that changes in the financial numbers in any amount, must be re-disclosed, even post-closing.

Good luck educating your referral sources!

Lenders’ Closing Plans Solidify As August 1 Approaches

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news news newsCitibank recently notified settlement agents (closing attorneys in South Carolina) that they will be requested to register with the FPSDirect Vendor Website at the time they agree to handle a Citibank closing. This website was created to provide the bank’s settlement agents with an easy and efficient method of loan document delivery, closing date confirmation and funding approval, among other matters. The memo stated the bank’s goal is to save the time of faxing and the insecurity of email.

Wells Fargo issued a Settlement Agent Communication on March 16 indicating that, like Bank of America, it plans to integrate with Closing Insight™ with a goal of improving the way instructions, fees and other information is shared. The memo stated: “Unlike today where we typically use email to pass these important details back and forth, Closing Insight™ will support an interactive, online collaboration that includes a full view of information from both parties, and provides an audit trail and quality checks to reduce errors.”

We have learned and the Wells Fargo communication states that many closing attorneys will be able to access Closing Insight™ through connections with their existing software packages. Wells’ communication also states that attorneys without closing software packages will not be left out because a secure web portal will be available. Wells reiterated its goal of continuing to do business with local service providers, but emphasized that it expects closing attorneys to be ready, willing and able to comply with requirements and closing instructions.

Wells Fargo also answered four recent FAQs:

“If co-borrowers plan to sign the loan documents on different dates, which date applies for compliance with the three business day receipt requirement of the CD? The borrower’s CD must have been received not less than three business days before the earliest signing date. This question highlights the importance of communicating specifics about signing plans to your Wells Fargo closing contact, including cases when a mobile signing agent or mail away signing is being requested.

Will Wells Fargo be providing loan closing documents to the settlement agent at the same time the borrower’s CD is delivered? Our goal is to provide the closing documents to the settlement agent shortly after the borrower’s CD has been finalized and provided to the borrower. In most cases, you should receive the closing documents earlier than in the past.

Will Wells Fargo permit any other party to deliver the borrower’s CD to meet the three business day closing requirement for a rush closing situation? No. We have determined that we must be responsible for delivering the borrower’s CD to meet and track the three business day receipt requirement for all transactions We will continue to encourage all parties involved to stay in close communication and work together proactively to minimize the need for expedited CD delivery.

Is my company required to be ALTA Best Practices Certified by August 1 to continue to close Wells Fargo loans?  No. Completing your certification by August 1 will not be a Wells Fargo requirement. However, we hope that if your company is not yet certified you will – at minimum – have already completed a self-assessment and addressed any identified gaps. As communicated in our March 6, 2014, newsletter, Wells Fargo supports the ALTA Best Practices as sound business practices that should ideally already be in place for businesses providing title and closing services to our customers.”

Wells Fargo also stated that it has entered into a business arrangement with ClosingCorp, a leading provider of fee management solutions, to obtain actual fee information from selected settlement agents who closing a high number of Wells Fargo loans.

Lenders Announce They Will Control More of the Residential Closing Process

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Regional bank will require third-party BP certifications on a short time frame!

work in progressLet’s take the big bank first. Bank of America recently shared more details about changes in its closing processes after August 1, 2015.  In addition to delivering Closing Disclosures, BofA will take the responsibility for complying with the three-business day waiting period. It will not require closing attorneys to monitor the timing of the delivery of the initial CD or any required re-disclosures.

BofA stated that close collaboration will be needed with closing attorneys for requests of information and notices of all loan and fee changes through its selected platform, RealEC® Technologies Closing Insight™. Closing attorneys will be notified of re-disclosure requirements and new closing dates through Closing Insight™.

BofA said it expects to engage closing attorneys to begin fee collaboration a minimum of ten calendar days prior to closing, and it intends to generate and send the CD six business days prior to closing.*

Now let’s look at an interesting announcement from a small bank, and please pay attention to the short time frame.

Mississippi based regional BancorpSouth announced in early March that its approved closing must comply with ALTA’s Best Practices through a certification from an independent third party vendor acceptable to the bank. Self-certifications will not be accepted.certified - blue (small)

The announcement stated that Memphis Consumer Credit Association and many of the large accounting firms have agreed to provide the certification. The bank asked closing attorneys to advise by March 23 whether they intend to obtain the certification. And the deadline for obtaining the certification was stated to be July 31.

*In almost all South Carolina transactions, we expect the “consummation date” to be the same as the closing date and the same as the date BofA refers to in this memorandum as the signing date.

Three Lenders Make CFPB Announcements

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Two additional lenders will deliver the borrower’s Closing Disclosure

extra extra kid- citi chaseCiti and Chase have joined Well Fargo and Bank of America by announcing that they will deliver borrowers’ Closing Disclosures after the CFPB rules take effect on August 1, 2015.

Citi’s announcement was made on January 28, 2015, followed by Chase’s announcement on February 26. Both lenders stated that closing attorneys will continue to be responsible for sellers’ Closing Disclosures in purchase transactions. Closing attorneys will be required to deliver copies of sellers’ Closing Disclosures to the respective lender.

Citi’s announcement shared some information with its settlement agents that has previously been made clear by the rule itself. That is, there will be several weeks or months after August 1 when the old forms will be used because it is the application date as of August 1 that triggers the use of the new forms, and early use of the Closing Disclosure is not allowed. Citi also pointed out that the new rules do not apply to home equity loans.

Closing attorneys should note that their software systems will have to accommodate old and new versions of the forms because of the transition and because all loans will not be subject to the new rules.bandwagon - one way (smaller)

Union Bank announced on February 26 that it will use the web-based tool Closing Insight™ to simplify the multi-party closing process and support efforts to ensure regulatory compliance. The announcement stated that no other means of communication or document delivery will be accepted.

We will continue to read and keep you informed!

Closing Attorneys and Paralegals: Want to toss and turn at night?

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Read about this costly law firm mistake.

(This case makes my stomach hurt because a developer client of mine once declared bankruptcy. Everything I had done for that client for the prior three years was scrutinized, and I spent some sleepless nights!)

On January 21, 2015, the Second Circuit Court of Appeals Pepto in Manhattan decided a direct appeal from a U.S. Bankruptcy Court involving a mistaken UCC-3 termination statement.* This case involves the General Motors bankruptcy.

The facts concern a 2008 payoff by GM to JP Morgan Chase of a $300 million synthetic lease. GM contacted its outside counsel to prepare the necessary documents. A partner assigned the work to an associate and instructed him to prepare a closing checklist and drafts of the necessary documents. The associate asked a paralegal who was unfamiliar with the transaction to perform a UCC search that search identified three UCC-1s. Two of the UCC-1s related to the subject loan. The third, however, was related to a term loan between the same parties. The law firm prepared UCC-3 terminations for all three financing statements.

No one at GM, its law firm, JP Morgan or its law firm noticed the error. When the loan was paid, all three
UCC-3s were filed.

The mistake was not noticed until GM filed bankruptcy in 2009.

In litigation with the unsecured creditors, JP Morgan argued that the third UCC-3 was unauthorized and ineffective because it intended to terminate only the liens that related to the synthetic lease. The Bankruptcy Court agreed on the grounds that no one at JP Morgan or its law firm intended to terminate the third UCC-1.

The Second Circuit certified a question to the Delawarecourt money 4 Supreme Court, asking, basically, whether a termination is effective when a lender reviews and knowingly approves a termination statement for filing or whether the lender must intend to terminate the particular security interest. The Delaware Court replied that intent is not necessary, stating, “If parties could be relieved from the legal consequences of their mistaken filings, they would have little incentive to ensure the accuracy of the information contained in their UCC filings.”

The Second Circuit agreed, indicating JP Morgan authorized the termination even though it never intended to.

Lawyers and paralegals: be careful, be careful, be careful! And now try to get a good night’s sleep!

* Official Committee of Unsecured Creditors of Motors Liquidation Company v. JP Morgan Chase Bank, N.A.,U.S. Court of Appeals for the Second Circuit,  Docket No. 13-2187, January 21, 2015.