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Recent Changes to Real Estate Closings Law Regarding Closing Disclosures (Formerly HUD-1 Statements) are Not Always Fully Understood by Lenders, Causing Unnecessary Delays in Closing.

Published On: October 26th, 2016Categories: Real Estate Law

RESPA, the Real Estate Settlement Procedures Act, was overhauled recently to enact new requirements in every real estate closing involving a mortgage. The most obvious change was from the requirement of a HUD-1 form to the requirement of a Closing Disclosure, or “CD”. It also set requirements that a preliminary CD be given to the borrower by the lender at least 7 days prior to closing. When changes are inevitably made to the preliminary CD (as mortgage/tax/water payoffs are received, mistakes corrected, etc.) the borrower must be served with a copy of the updated CD. In some cases, when certain changes are made,

Most people in the field that I know think the new CD is unnecessarily complicated compared to the original HUD form. In my experience the new CD form in practice requires many more drafts to go between buyers attorney, sellers attorney, title company and lender, each of which much approve the ultimate form.

The new legal requirements surrounding the CD have added many a headache to the standard residential closing, but the mistaken understanding of this new law by lenders sometimes adds even more problems. Some lenders insist on a new 3-day waiting period when the CD is changed in any way. Not only can this cost the buyer thousands of dollars if it the delay goes past the expiration of the mortgage “rate lock” date, but it is often unnecessary because only 3 very narrowly defined types of changes to the CD actually require a new 3-day waiting period. According to RESPA 12 CFR §1026.19(f)(2), only these three specific types of changes to the CD require a new 3-day waiting period/delay prior to closing:

  • A. The annual percentage rate disclosed under § 1026.38(o)(4) becomes inaccurate, as defined in § 1026.22
  • B. The loan product is changed, causing the information disclosed under § 1026.38(a)(5)(iii) to become inaccurate.
  • C. A prepayment penalty is added, causing the statement regarding a prepayment penalty required under § 1026.38(b) to become inaccurate.

If any other changes are made to the CD the parties must be served with the most up to date copy prior to closing, however no 3-day waiting period is required.

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