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Wednesday, December 23, 2015

Closing Disclosure: Three Day Waiting Period

QUESTION
We are a settlement agent and the mortgage lender we are representing is sending out an incomplete Closing Disclosure (“CD“) in order to start the “3-day process.” Is this acceptable? What are the lender’s obligations with regards to the contents of the CD?

ANSWER
No, it is not acceptable. Under the TILA-RESPA Integrated Disclosure Rule (“TRID”), a lender must provide the CD no later than three business days before consummation of the loan. The purpose of the CD is to finalize information that appears on the Loan Estimate, including the mortgage terms and the projected payment amount, as well as to summarize the closing costs incurred by the purchaser and seller (if applicable). [1026.19(f)(1)(ii)]

TRID generally requires that the CD contain the actual terms and costs of the transaction. However, when actual costs are not “reasonably available,” lenders may estimate the disclosures using the “best information” that is “reasonably available.” [Comments 1-26.19(f)(1)(i)-2.1] This requires due diligence on the part of the lender.

If a lender estimates costs based on the “best information reasonably available” and this information changes prior to consummation, the lender must provide a revised CD at or before consummation with the actual terms of the transaction. [1026.19(f)(1)(i)] However, this is not an opportunity for the lender to amend a CD when it did not use due diligence or good faith in preparing the initial CD. 

Comment 1026.19(f)(1)(i)-2.i states:

                i. Actual term unknown. An actual term is unknown if it is not reasonably available to the creditor at the time the disclosures are made. The “reasonably available” standard requires that the creditor, acting in good faith, exercise due diligence in obtaining the information. For example, the creditor must at a minimum utilize generally accepted calculation tools, but need not invest in the most sophisticated computer program to make a particular type of calculation. The creditor normally may rely on the representations of other parties in obtaining information. For example, the creditor might look to the consumer for the time of consummation, to insurance companies for the cost of insurance, to realtors for taxes and escrow fees, or to a settlement agent for homeowner's association dues or other information in connection with a real estate settlement. The following examples illustrate the reasonably available standard for purposes of § 1026.19(f)(1)(i).

A. Assume a creditor provides the disclosure under § 1026.19(f)(1)(ii)(A) for a transaction in which the title insurance company that is providing the title insurance policies is acting as the settlement agent in connection with the transaction, but the creditor does not request the actual cost of the lender's title insurance policy that the consumer is purchasing from the title insurance company and instead discloses an estimate based on information from a different transaction. The creditor has not exercised due diligence in obtaining the information about the cost of the lender's title insurance policy required under the “reasonably available” standard in connection with the estimate disclosed for the lender's title insurance policy.

As such, the statute makes clear that a lender may not send out an incomplete CD to a borrower simply to satisfy the 3-day advance notice requirement. If a lender does not exercise due diligence in preparing the CD and, as a result, the CD does not contain accurate fees or estimates of fees based on at least the “best information reasonably available,” this would be a clear violation of TRID.

Neil Garfinkel
Executive Director/Realty Compliance Group
Director/Legal & Regulatory Compliance
Lenders Compliance Group