Thursday, February 11, 2016
By Jed Williams
CFPB Corrects "Typo" in TRID Rule - Settlements Will Be Delayed as a Result

On Feburary 11th, the CFPB (Consumer Financial Protection Bureau) announced a correction to a portion of TRID. TRID is the mortgage industry acronym to describe the regulations that combine the Truth-in-Lending Act with the Real Estate Settlement and Procedures Act. Together, these new rules which went into effect on October 3rd, 2015 dramatically changed the disclosure process and workflow for every mortgage lender and settlement company in the country. Among the new rules was a requirement that any change to a specific set of fees and charges by the lender, settlement company, or other 3rd party in the transaction were required to be disclosed to the borrower at least 7 calendar days prior to closing. Failure to do so meant that closing would need to be postponed. In it's original 1,800 page form, the CFPB had certain 3rd party charges like the home owners insurance premium; property taxes; and HOA, condo, and coop fees were allowed a modest tolerance given the sometimes difficult nature of getting these figures well in advance of closing. Today, the CFPB announced that effective yesterday, that was no longer the case. 

In practice, what this means is that if a home buyer goes to their pre-settlement walkthrough and notices that they are not within 500ft of a fire hydrant like they told their insurance agent that they were and the premium on their insurance policy goes up by $2.50 per year as a result, the buyer's lender and settlement company will revoke the clear to close and require a re-disclosure which mandates a 7 day delay of closing. While the example above is somewhat esoteric, there are litterally hundreds of such scenarios that could possbily occur. The kicker is that the standard language in the real estate contracts used in each of Maryland, DC, and Virginia do not allow the buyer's lender to create such delays. Since each of these contracts include a "Time is of the Essence" clause, which is the legal term for saying the deadlines in the contract are material to the contract itself, the buyer is technically in default by delaying the closing. While in practice, the vast majority of sellers would be up against a wall and would likely agree to extend the contract by the requisite 7 days, some may not and the law would be well on their side if they refused. The standard default language in all 3 jurisdictions would grant the seller the authority to void the contract and go after the buyers' deposit and possbily even pursue specific performance and liquidated damages in court. 

While the CFPB's intentions of protecting the public from unscrupulous lenders is admirable, the practical outcome is far more likely to harm more buyers than it helps. Although some scenarios like that are impossible to anticipate, having a buyer's agent who is aware of the regulations and the potential repercussions that can occur as a result is the best protection you can have against the myriad of headaches this change may cause.

Jed WilliamsJed Williams
Principle Broker and founder of Hagan Realty