Buyers in the market to purchase a home in the near future should know that the traditional real estate closing process has recently been revolutionized by the Consumer Financial Protection Bureau ("CFPB"). While these changes may not be apparent to first-time homebuyers, individuals who have purchased homes in the past should not expect to have similar experiences in the future. There is a myriad of new rules and regulations that will affect buyers, sellers, closing attorneys, agents, and lenders going forward, and the Flint, Connolly & Walker, LLP team thought it prudent to inform prospective buyers on what to expect as the closing day approaches.
Any residential loan applied for and originated on or after October 3, 2015 is subject to the new rules and forms set forth by the CFPB. These rules replace the Good Faith Estimate ("GFE") and early Truth-In-Lending Act ("TILA") Disclosure with the new Loan Estimate form.
The familiar HUD-1 Settlement Statement and final TILA form will also be replaced by the new Closing Disclosure form. By consolidating these various forms into just two instruments, the CFPB's alleged goal is to ensure that borrowers who are purchasing homes truly understand the financing involved with purchasing a home. While the CFPB claims that these documents shall simplify and consolidate the required loan disclosures, the contents therein for your mortgage may still seem overwhelming. Do not hesitate to contact your lender or the closing attorney if you need clarification on what the various figures represent.
Additionally, the new rules implement strict timing requirements with regard to these forms. These changes are the most likely to directly affect buyers and sellers. The CFPB determined that borrowers would be better served by having time to review the new Closing Disclosure prior to signing their loan documents.
As a result, these rules require that borrowers have three business days after receipt of the Closing Disclosure to review the form and its contents prior to signing loan documents at the closing table. However, this three-day review period only starts upon "confirmed receipt" by the borrowers. In theory, long gone will be the days where you anxiously wait in a closing attorney's lobby without loan approval, wondering if the transaction will be approved by the bank and if the closing will proceed.
With these new rules, you will know at least three days ahead of time whether or not the closing will occur on the date stipulated on the Purchase and Sale Agreement. Do note that varying lenders will have different requirements as to who produces and delivers the CDF (some require the closing attorney to do so, while others will generate the same themselves) and what form of "confirmed receipt" is acceptable. Be sure to exercise care and inquire with your lender as to what to expect and from whom.
So what should you, the buyer, expect leading up to closing day? Be sure you are afforded ample time in the Purchase and Sale Agreement to close the purchase of the home you are buying. Real estate professionals seem to agree that approximately 45 days from execution of the Purchase and Sale Agreement to the date of closing may be best.
Keep in mind however, that the time frame appropriate for one closing may vary with another. Additionally, it would seem advisable to not schedule back-to-back closings if you are both selling your existing home and purchasing a new home. Your lender may assist in contemplating the time necessary for everything to be prepared appropriately. Also, do not forget that you must confirm receipt of the Closing Disclosure form at least three days prior to the closing date. Failing to do so will delay your closing.
Finally, make sure that your agent and closing attorney are conversant with these rules and adequately equipped to guide you through these ever-changing times. As with any new federal government program, you should certainly anticipate an adjustment process where administrative errors and other issues may need to be addressed. These rules are new to everyone – attorneys, agents, and banks alike – so careful planning is key! Having your own understanding of these rules and what to expect will only aid you in getting across the "closing line" to your new home.
Andrew T. Smith is an associate attorney at Flint, Connolly & Walker, LLP, where he assists clients with transactional issues with regard to commercial/residential real estate and business law. Andrew is a graduate of Mercer University School of Law and has spoken on various topics regarding real estate law at continuing education seminars sponsored by the Georgia Board of Realtors.