They announced today that the full implementation of TRID (TILA-RESPA Integrated Disclosure) will be October 3, 2015. This has been moved back from August 1, 2015. This gives us a little more time to prepare for the implementation and to ponder the effects it may have on the closing process.
As everyone is aware, the TRID is a new disclosure form that will be required for any 1-4 family, residential real estate closing where a federally-related mortgage is being used to finance the purchase price. The new form combines and replaces the Good Faith Estimate, Truth-in-Lending, and HUD-1 settlement statement forms. It looks nothing like any of the currently existing forms, and — in many cases — does not reflect what is actually happening in the transaction as far as funds disbursements or pricing are concerned.
It is important to remember that the form is a disclosure form. It is not intended to be a disbursement disclosure as the HUD-1 has been used for several decades. It is also important to know that the form is required to be delivered to the borrower at least seven days prior to closing. When you add three days for mailing, that means that it must be sent out 10 days prior to closing.
The disclosed numbers have to be accurate — at least much more accurate than the typical HUD-1, TIL, or GFE that was sent to the borrowers prior to closing in the past. To get that level of accuracy, closing agents are going to have to obtain HOA estoppels, title searches, municipal lien searches, and other closing information much earlier in the process than they have in the past so that they can provide accurate information to the borrower’s lender for disclosure on the TRID.
Most lenders have made it clear that — since they are liable for the timing and contents of the disclosure — they will be the ones to send the TRID to the borrower; not the closing agent. Many lenders have also been informing the closing and title industry as to which electronic platforms they will be using to share closing information from and to the closing agent. Gone are the days of e-mails and faxes between loan processors and closing agents. Now, much like the Equator system that has been used by many lenders to track foreclosures and short sale workouts, the lenders will use similar systems to communicate closing information.
The penalties for failing to timely and accurately disclose information are pretty hefty, so lenders will likely err on the side of caution if a change in the numbers occurs such that the TRID disclosure must be changed. If the TRID changes, it must be re-delivered to the borrower which starts the 10-day countdown again…even if that countdown takes us past the Closing Date.
So, how does this affect the closing process? First, we would be surprised if any mortgage closing will be able to be completed within 30 days of the contract’s Effective Date. Many REALTORs we’ve spoken with are already bracing for 45 to 60-day closing dates. Secondly, back-to-back closings will be a thing of the past. No longer will we be closing the sale of the seller’s house in the morning, and their purchase of the new home in the afternoon, while moving trucks sit in the driveways waiting to be unloaded. With the timing requirements of the TRID disclosure, no one we have spoken with knows how such closigs could take place in light of the 10-day disclosure requirements. This also means that post-closing occupancy agreements could become the norm. These agreements will allow the seller to remain in the home for a few days after closing until they can finalize their financing to purchase their new home. Also, if the closing date is to become a moving target, based on TRID disclosures, it would be better for everyone to plan for the seller to remain in the home after closing anyway in many cases.
We’re advising buyers to do a walk-through of the property at least 12 days prior to closing to see if there are any property changes that could affect the purchase price. If so, this would also affect the TRID. Might as well discover and deal with it before that final TRID goes out 10 days prior to closing. It’s still advisable to do one more walk-through the day before or the day of closing just to make sure everything is still OK with the property, but the current FAR/Bar contract doesn’t address an additional walk-through so far ahead of the closing date, so REALTORs should be aware of it, and suggest that the parties add it to the contract as an additional provision just in case.
We believe that there will be more need for attorneys to be involved in representing the buyer and seller in the closing process since contractual terms related to the closing date and arguments over the financing contingency will be more commonplace. We also are concerned that, eventually, the regulations will make it so difficult for an independent title agency or closing attorney to handle the closing, that the banks will be handed the reigns over the closing process. It only makes sense that this could eventually occur, because the banks are on the hook for most problems with the mortgage disclosure and financing. As such, it would make sense to eventually change the rules to state that — when a federally insured mortgage is being used in the purchase — the bank will choose the escrow and title agent for the closing. When that occurs, the buyer, seller, and REALTOR lose the choice and control of that part of the process, and they will need attorneys on their side to make sure contractual terms are clear and followed in the interests of the parties.
Finally, one last effect of TRID is that the 2010 HUD-1 settlement statement will die. While it will still be required for reverse mortgages, it will no longer be required in one-to-four family residential closings where a federally related mortgage is involved. From discussions with other closing agents, we have heard that many will adopt a very simple income and disbursement sheet for the buyers and sellers to sign at closing to agree to the disbursement of funds. The American Land Title Association (ALTA) is developing a new standard form that can be used to replace the old HUD-1. Until that is done and adopted, don’t be surprised to see a wide array of various types of disbursement forms at closings.
We are confident that more changes will come to light as we delve into the world of TRID. We welcome you to share with us any insights or concerns that you have as we close in on the implementation deadline.