Important New Federal Rules Are Coming
Changes Affect Residential Real Estate Buyers, Sellers and REALTORS®
New federal rules are going to affect almost all residential real estate transactions where the buyer is obtaining a mortgage. The new rules take effect on August 1, 2015.
The new rules are important for buyers and sellers (and their REALTORS®) because they will likely delay the "closing" of the sale if there are last minute changes in the transaction. Two kinds of changes are especially important in this regard:
- Changes to the Buyer's loan (for example, changes in the lender, the interest rate, loan term, type of loan, etc.)
- Changes in the Seller's obligations (for example, changes to the list of items in the home that are included in the sale, required repairs or modifications to the property, etc.)
Some changes may require a new 3-day waiting period before the sale can be closed.
And, each time there is such a change the clock may have to "start all over again" on the 3-day waiting period.
Many, if not all, of the changes could also require the approval of the lender. That's important because obtaining the lender's approval could delay the closing of the transaction even further if the lender is not at the closing table with the Buyer and Seller (most lenders are not present, and many lenders are out-of-state, even when there is a local mortgage broker assisting with the Buyer's loan). It is also possible that different lenders may establish different requirements in order to ensure their business practices are sufficient to comply with federal law.
So the following strategies may be well-advised if you are Selling or Buying a home:
- Make sure the Buyers and Sellers are telling their respective REALTORS® everything, and doing so immediately whenever something is changing
- Make sure the REALTORS® for the Buyer and Seller, and the escrow company, are in constant contact regarding anything that might need to be changed, or that could delay the transaction
- Make sure the escrow company that is handling the closing gets all documents to the Buyer and Seller for review at least 7 days in advance of the closing date, and
- Add an additional 15 days to the closing date when the purchase and sale agreement is initially signed. (So, if these kinds of transactions have historically closed in 30 days, plan on 45 days instead. Or, if it has been 45 days previously, plan on 60 days, and write that into the purchase and sale agreement from the "get-go.")
In addition to the changes in the "process" and "time-requirements" for closing a residential real estate transaction, the new rules also require a brand new "Loan Estimate" form, and a new "Closing Disclosure" form to be part of the transaction. Those two new forms will replace the following forms which will no longer be required: HUD-I, Good Faith Estimate and the Truth in Lending Disclosure.
The federal Consumer Financial Protection Board (CFPB) is requiring the changes to real estate transactions in an attempt to increase transparency for consumers. The CFPB's authority for requiring the changes is part of the Dodd-Frank Reform Act, which was enacted by Congress on July 21, 2010, in response to the financial crisis that precipitated "The "Great Recession."