The New TILA-RESPA Integrated Disclosure Requirements

Farewell, HUD-1, we hardly knew ye. As of October 3rd, 2015, lenders will provide two integrated forms at specified intervals surrounding the closing date to comply with the provisions of both the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act of 1974 (“RESPA”). The new forms are the result of provisions from Sections 1098 and 1100A of the Dodd-Frank Act meant to combine and simplify existing documents to make them easier for mortgagors to understand.

Family meeting real-estate agent for house investmentTILA (implemented through Regulation Z) and RESPA (implemented through Regulation X) both require specific disclosures to be made at the closing of a mortgage loan. RESPA requires that consumers receive a Good Faith Estimate (“GFE”) within three business days of applying for a mortgage loan. Within one business day before the settlement of the loan, the consumer has the right to request the Settlement Statement (HUD-1), with the document provided at closing. TILA also requires that mortgage lenders provide a disclosure of lending terms within three business days of receiving a mortgage loan application. These requirements have been fulfilled through separate disclosure forms created by two different agencies, thus leading to confusion between lenders and consumers at closing time, as the forms used inconsistent language. The HUD-1 is a settlement statement created by the Department of Housing and Urban Development to satisfy the requirements of RESPA when it was administered by that agency. The Federal Reserve Board enforced TILA.

Dodd-Frank changed these requirements by creating the Consumer Financial Protection Bureau (“CFPB”) and charging it with enforcing the provisions of both TILA and RESPA as well as creating integrated disclosures that effectuate the disclosure provisions of both laws through one set of forms, rather than two. To that end, the CFPB issued the Final Rule for the integrated disclosure requirements on November 20, 2013 and amendments to the Final Rule on February 19, 2015. This new TILA-RESPA Integrated Disclosure rule, otherwise also known as “Know Before You Owe,” created two required documents to replace the TILA and RESPA disclosures – a Loan Estimate that replaces the GFE and TILA disclosures at the time of application, and a Closing Disclosure that supplants the HUD-1 Settlement Statement.

As with the GFE and TILA disclosures, the Loan Estimate must be provided to consumers no later than three business days after they submit an application for a loan. The Loan Estimate form requires the loan amount and terms, projected payments, closing costs, the estimated cash needed to close and other considerations, such as whether the lender intends to transfer the servicing of the loan. The Closing Disclosure includes similar provisions, although it also includes details of the escrow account, a summary of the transaction and the contact information of the lender, the settlement agent, the mortgage broker, and the real estate brokers for both buyer and seller.

Possibly the biggest change for lenders and mortgage brokers is that the Closing Disclosure must be provided to the consumer at least three business days prior to the consummation of the transaction – the point where the consumer becomes contractually obligated to the creditor on the loan. This may be different than the actual closing date. This is a much more stringent requirement than the one-day prior to closing on consumer request requirement of the HUD-1, and can potentially delay closing, as last-minute changes the transaction may trigger a need for a revised Closing Disclosure with a new three-day waiting period. This can happen when there are increases in the APR, any additions of a prepayment penalty or the change of a loan product will trigger the need for a revised closing disclosure

MHagginMary Estes Haggin is a Member of McBrayer, McGinnis, Leslie & Kirkland, PLLC.  Ms. Haggin practices in virtually every aspect of real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, lease negotiation and preparation, and any and all other needs related to residential and commercial real estate matters.  She is located in the firm’s Lexington office and can be reached at  mehaggin@mmlk.com or at (859) 231-8780.

This article is intended as a summary of  federal and state law and does not constitute legal advice.

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The Truth in Lending Act and Rescission: Lessons Learned by Lenders from Jesinoski v. Countrywide

The Supreme Court just made mortgage rescission a little bit easier for borrowers and scarier for lenders in Jesinoski v. Countrywide Home Loans. Under the Truth in Lending Act, 15 U.S.C. §1601-1677 (“TILA”), mortgage lenders are required to disclose the rights of obligors and other material disclosures to borrowers. Borrowers have a right of rescission for three days from the transaction or until the disclosures are made, up to three years after the transaction. The borrower must give notice to the lender of his or her exercise of the right to rescind within those time periods.

In Jesinoski, Countrywide failed to make the necessary disFamily meeting real-estate agent for house investmentclosures to the Jesinoskis as lenders. Three years to the day after the completion of the mortgage transaction, the Jesinoskis sent written notice of their intent to rescind the mortgage to Countrywide. A year and a day later, they filed suit. The question before the Supreme Court then became whether written notice was sufficient under the Truth in Lending Act as the Third and Fourth Circuits held (and the Consumer Financial Protection Bureau agreed), or whether the borrower must also file suit, as the Eighth, Ninth and Tenth Circuits held. The Court decided that the language of the statute makes clear that written notice alone is sufficient to fulfill the terms of the statute. The Court rejected Countrywide’s argument that there was a legitimate dispute over the adequacy of the disclosures that required the borrower to file suit to settle.

This case should give all lenders pause when making disclosures – all material disclosures should be (a) as thorough as necessary under TILA, and (b) timely enough to keep the rescission window to three days. The borrower’s right to rescind will expire at the three day mark if the mortgage lender makes all necessary disclosures at the closing table, but make sure the disclosures are complete and meet all TILA requirements. Inadequate disclosure could leave the borrower up to three years to rescind the loan, a lesson lenders just learned from the Supreme Court.

For more information on mortgage rescission or the Truth in Lending Act, please consult the attorneys at McBrayer.

CRichardsonChristopher A. Richardson is an associate at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Louisville, KY office. Mr. Richardson concentrates primarily in real estate, where he is experienced in residential and commercial closing transactions, landlord/tenant relations, and mortgage lien enforcement/foreclosure. Mr. Richardson has closed innumerable secondary market and portfolio residential real estate transactions and his commercial practice ranges from short-term collateralized financing and construction lending to development revolving lines of credit. He can be reached at 502-327-5400 or crichardson@mmlk.com.

This article is intended as a summary of  federal and state law and does not constitute legal advice.