United States: Consumer Finance Update: Summary Of The CFPB's Fourth Webinar On The TILA-RESPA Integrated Disclosures - The Closing Disclosure

On November 18, 2014, the US Consumer Financial Protection Bureau ("CFPB") conducted the fourth in a series of webinars on the TILA-RESPA Integrated Disclosure Final Rule ("Rule"), providing guidance on some of the common questions that have been raised about the Closing Disclosure since the Rule was issued in November 2013. The Rule will become effective on August 1, 2015.

In this public online event, staff from the CFPB's Office of Regulations presented an overview of the Closing Disclosure and prepared questions and answers regarding the Rule. The Closing Disclosure is the disclosure that will replace the HUD-1 Settlement Statement and the final Truth in Lending Statement. Below we have summarized the questions and answers addressed on this webinar.

Richard Horn led the creation of the Rule during his tenure as Senior Counsel and Special Advisor at the CFPB.

The CFPB staff stated that they plan to finalize their October proposal to make certain technical and one substantive amendment to the Rule (see a link to our update on the proposal here) as quickly as they can. They stated that they do not believe this final rule will affect the ability of industry to implement the Rule by the August 1, 2015 effective. Significantly, they also stated that they do not anticipate on proposing additional changes to the Rule before the effective date.

Header Information (1026.38(a))

The CFPB staff noted that the Date Issued (1026.38(a)(3)(i)) that is required to be disclosed in the header of Page 1 of the Closing Disclosure is the date the disclosure is delivered to consumer, which is not necessarily the date that the disclosure is printed.

Other Costs (1026.38(g))

Q: How does the disclosure of recording fees differ between the Loan Estimate and Closing Disclosure? (1026.37(g)(1)(i) and 1026.38(g)(1)(i))

The CFPB staff stated that the Loan Estimate rule requires the sum of all recording fees to be disclosed as one lump sum line item. The Closing Disclosure rule requires the recording fees to be disclosed as a lump sum but, in addition, requires the breakout of the amounts paid to record the deed and the mortgage outside the column. Recording fees associated with any other document are not separately itemized and only included in the total. See 1026.37(g)(1)(i). The total recording fees are allocated between consumer, seller, and others in their applicable column pursuant to any agreement between the parties..

[Note: The CFPB staff did note on the webinar that transfer taxes are itemized on the Closing Disclosure, unlike the recording fees.]

Q: How should creditors disclose the name of the government entity to whom a transfer tax fund is distributed? (1026.38(g)(1)(ii))

Creditors should disclose the name of the entity assessing the transfer tax. Even if different than the payee on the check cut by the settlement agent. The governing authority assessing the transfer tax must be disclosed, and the disclosure must be all of the amount paid by the consumer (borrower), seller and others.

Summaries of Transactions (1026.38(j) and (k))

The CFPB staff stated that the "Summaries of Transactions" is similar to the HUD-1, page 1, but noted some differences during the webinar. The staff noted that section 1026.38(t)(5) allows the borrower's table to be deleted from the seller's form, and the seller's table to be deleted from the borrower's form. If this is done, the settlement agent would have to provide a copy of the seller's form to the creditor pursuant to 1026.19(f)(4)(iv).

[Note: the Rule allows this because of public comments and feedback raising privacy concerns and certain state laws that require the separation of this information.]

Also, the CFPB staff noted that lender's credits do not show up itemized in the Borrower's Transaction table, but rather in the Closing Cost Details on page 2 of the Closing Disclosure as either a general lender credit under Total Closing Costs or a specific credit in the "Paid by Others" column.

The CFPB staff also noted that the rules regarding the calculation of the Excess Deposit is different from the HUD-1. Only amounts disbursed to the seller prior to consummation are disclosed as excess deposits. Any deposits held by the real estate brokerage are not included Excess Deposits at all. If the real estate agent is holding money in excess of their commission, then the settlement agent and the brokerage will need to work together to ensure the seller receives the total amount due to the seller.

[Note: The disclosure of the real estate commissions under 1026.38(g)(4) will be different than the HUD-1 as well, when a portion of a deposit held by a real estate brokerage is applied to a commission. The Closing Disclosure will always show the total real estate commissions paid in the transaction under 1026.38(g)(4). Please let us know if you would like further information about this difference between the Closing Disclosure and the HUD-1.]

Partial Payments (1026.38(l)(5)

Q: How a lender applies a partial payment may vary depending on the circumstances. Is a lender required to choose only one option for the Partial Payments disclosure required by § 1026.38(l)(5), or is it possible to check multiple boxes?

The lender may check multiple boxes in some circumstances. If a lender accepts partial payments and applies them in some circumstances, and in other circumstances holds them in a suspense account, the lender should check the first box (indicating that partial payments are accepted and applied), and also check the second box (indicating that the partial payments may be held in a separate account until the rest of the payment is received, and then the full payment applied to the loan). The third box (indicating that the lender does not accept partial payments) should not be checked if the lender accepts partial payments in any circumstances that may be applicable to the consumer's loan. Accordingly, if the lender checks the third box - indicating that it does not accept partial payments in any circumstances - the lender should not check the first or second boxes.

Liability after Foreclosure (1026.38(p)(3))

The CFPB staff noted that the liability depends on State law and not federal law. The CFPB stated that the preamble to the Rule provides guidance, and also acknowledges that variations in State laws exist. The preamble describes these as "generalized," and "high level" disclosures, and that the CFPB does not believe such high level disclosure constitutes the practice of law. The preamble makes clear that the Rule does not require lenders to provide legal advice, but to alert consumers that a state law protection may apply to protect the consumer. It does not require a lender to state affirmatively that a state law does in fact protect the consumer, and if so, to explain how.

Q: What constitutes an anti-deficiency law for purposes of this disclosure?

For purposes of this disclosure, an anti-deficiency law is a state law that protects the consumer against liability for the unpaid balance of the loan after a foreclosure. This includes state laws that forbid lenders from seeking deficiency judgments, that may limit the amount lenders may collect, limit the availability of deficiency judgments to certain circumstances, or other state law protections available to consumers for liability of the unpaid balance.

Q: Do statutes of limitations on obtaining or collecting a deficiency judgment count as anti-deficiency protections for purposes of this disclosure?

No. Comment 38(p)(3)-1 makes clear that a statute of limitations that only limits the timeframe in which a creditor may seek redress is not an anti-deficiency protection for the purposes of this disclosure. Therefore, state laws that allow for anti-deficiency judgments but require creditors to file a motion or otherwise seek a deficiency judgment within a prescribed time would not be considered an anti-deficiency protection for this disclosure solely because of this time limitation.

Q: Are state laws that limit how much a creditor may collect in an anti-deficiency judgment considered anti-deficiency protections for purposes of this disclosure?

Generally, yes, state laws that limit the amount of the deficiency that a creditor can collect are considered an anti-deficiency protection under this disclosure. These state laws may limit the amount of the deficiency that a creditor can collect based on factors such as the outstanding debt and the fair market value of the property at the time of foreclosure.

Q: How should a creditor make this disclosure if a state anti-deficiency law could apply to the loan, but whether it ultimately would apply depends on facts and circumstances at the time of foreclosure?

Generally, if a state anti-deficiency law could apply at the time of a foreclosure, but whether or not it will apply is unknown, the creditor should disclosure that an anti-deficiency protection may apply. A creditor is not required to predict future facts and circumstances that will exist at the time of the foreclosure. Whether such protection in fact applies often does depend on facts and circumstances that exist at the time of foreclosure. Whether such anti-deficiency protection applies may depend on factors such as the fair market value of property or appraised value at the time of foreclosure or whether property is owner-occupied at time of foreclosure. Section 1026.38(p)(3) requires a disclosure that an anti-deficiency law may apply, that is, whether it could apply at some future date. If it could, then the first box should be checked.

Q: What should creditors do if the information required to be disclosed does not fit in the space allotted on the form?

In several places, the information may not fit on the Closing Disclosure form. When this occurs, additional information may be permitted to be disclosed on a separate page if permitted under § 1026.38. This is not a general rule, therefore, and must be considered for each section in 1026.38 to see whether it may be provided in an additional page. Additionally, there is a provision for customary recitals used locally in settlements. See § 1026.38(t)(5)(ix). The commentary to this provision lists several examples of this information, such as breakdown of loan payoff amount into components of principal, interest, and other fees. See comment 38(t)(5)(ix)-1 for more examples.

Q: Is there a model or sample of an addendum?

No, there are no required forms for an addendum. There is no sample or model provided in the rule or other documents.

Q: Is there anything creditors are required to include on the addendum? (1026.17(a)(1))

What information is included on the addendum will depend on what the requirements are for the original disclosure of the information. If using an additional page for several other sellers that cannot fit on Page 1 of the Closing Disclosure, for example, then the names and addresses of the Sellers that could not fit would be included on the addendum with the label "Sellers". See Comment 38(a)(4)-1. The creditor may want to include information or statements to indicate that the additional pages relate to the disclosure so that they are clear and conspicuous as is required by the Rule.

Q: What are the formatting requirements for the addendum? (Comment 38(t)(5)-5)

Generally information that is required or permitted to be disclosed on a separate page with the Closing Disclosure should be formatted similarly to the Closing Disclosure itself. The additional information should be consolidated in as few pages as is necessary so as to minimize the number of additional pages the consumer receive. The additional pages should not affect the substance, clarity, or meaningful sequence of the Closing Disclosure. See comment 38(t)(5)-5.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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