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CFPB “Know Before You Owe” Rules

By Andrew T. Smith

By now, most professionals in the real estate industry know that the Consumer Financial Protection Bureau ("CFPB") has implemented sweeping changes to the real estate industry. But for many realtors the question still remains, "How will it impact me?" With these changes upon us, the Flint, Connolly & Walker, LLP team wants to work with you to make sure everyone is aware of the changes.

Any residential loan 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.

Additionally, the new rules implement strict timing requirements with regard to these forms. 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 and your clients anxiously wait in a closing attorney's lobby without HUD-1 approval, wondering if the transaction will be approved by the bank and the closing will proceed. With these new rules, you should 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.

So what do you need to do? First and foremost, 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. Secondly, remember that these rules are new to everyone – including lenders! Buyers should be provided ample time in the contract to close the purchase of the home they are buying and/or selling. Real estate professionals seem to agree that an additional 14 days from previous time frames to close upon execution of the Purchase and Sale Agreement may be best. Thirdly, borrowers must confirm receipt of the Closing Disclosure form. Without that confirmation, closings will only continue to be delayed. Lastly, and most importantly, make sure you are well versed to explain these new changes to your clients to ensure their lender is acting in accordance therewith.

If you have any questions, thoughts, or concerns, please call us at 770-720-4411. Our team is here to help you and your clients through successful and worry-free closings.

Andrew T. Smith is an associate attorney in the law firm of Flint, Connolly & Walker, LLP where he conducts commercial and residential real estate closings.

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