The sky is falling! To hear lenders and closing attorneys tell
it, the world as we know it comes to an end on October 3rd. That’s the day new regulations come into
effect that govern the mortgage lending and closing process. Whether or not there’s mass bedlam, there are
certainly changes that buyers and sellers of property should be aware of and
prepared for, so this article will summarize them.
To understand how things are changing, it is important to know how
the world works now. Today, sometimes
the loan and closing statement will change the day of closing or even while
parties are sitting at the closing table.
Starting in October, that cannot and will not be possible anymore, at
least as to every mortgage application received October 3, 2015 or later. The new rules require that a new document, the
Loan Estimate, must be provided to the borrower within three days after loan
application, and another new document, the Closing Disclosure, must be provided
to the borrower at least three business days prior to closing. These apply to any mortgage loans with no
exceptions. If there are changes to the
deal, a new disclosure must be provided and the three-day waiting period starts
all over. While previously the settlement
statement was provided by the closing attorney and often at the last minute,
with the new regulations the lenders themselves will likely be providing the
statement directly to the borrower and they must confirm and document receipt
by the consumer.
You can see how this can potentially cause big problems. “Stacked closings” are common now, in which
the seller of one property uses those proceeds to purchase a new property in
the next hour from a seller who may the following hour be buying a new property
of their own. These back-to-back
closings dependent upon one another for consummation are already tenuous at
times. Imagine what the new three-day
waiting requirement may do! So in
practical effect and application, we Realtors must advise our clients of the
following:
- Delays are much more likely, particularly in the early days of implementation of the new regulations.
- A seller will want to negotiate possession some number of days AFTER closing. While this has always been the case for a seller still living in the property they are selling, now it becomes even more crucial.
- A buyer will want to commit to a lender as soon as possible in order to attempt to limit any delays. A buyer will want to be sure they choose a lender fully conversant with the new regulations and a lender who has a system in place to comply.
- While some lenders can get a loan through underwriting and closed quickly, every loan is going to take longer with these new requirements, particularly at first. A cushion of 45 days between contract and close is advisable.
- From a Realtor’s standpoint, any and all provisions of the contract should be tied up as early as possible. In particular, if there are monetary concessions during the due diligence period, those should be provided to the lender as soon and as early as possible. Even changes in the Realtor’s commission are part of the disclosure process and should be wrapped up as early in the process as possible.
- While lenders are the primary front line, closing attorneys must also be in line with the new regulations. It is advisable to look for a closing attorney who does residential real estate closings regularly, has systems in place, and preferably is ALTA (American Land Title Association) best practices certified.
The new disclosures are designed to help consumers better understand
the terms and costs of their mortgage loan; however, in one aspect the new
disclosures are more confusing. The new
rule prohibits lenders from disclosing a reduction that is commonly offered by
the title insurance companies when a lender’s title policy and the borrower’s
title policy are issued at the same time.
Instead, there’s one lump sum disclosed; at closing the cost will
actually be *less*. While that might
result in a pleasant surprise for some at closing, those borrowers who are
watching closely will likely be more confused about what, exactly, the title
insurance is actually going to cost them at closing.
The home sale and purchase process can be confusing enough. If you are planning to make a move this year,
be sure you plan for these new regulations and have trusted advisors guiding
you through the process.
Mary Anne Walser is a licensed attorney and full-time REALTOR,
serving buyers and sellers in all areas of Metro Atlanta. Her knowledge of residential
real estate and her legal expertise allow her to offer great value to her
clients. Mary Anne serves on the Committee that drafts and reviews the
contracts utilized by all REALTORS in the State of Georgia. In addition, she is
a member of the Atlanta Board of Realtors, the Georgia Association of Realtors,
the State Bar of Georgia and the Georgia Association of Women Lawyers. Contact Mary Anne at 404-277-3527, or via
email: maryannesellshomes@gmail.com.
