QUESTION
On a
purchase money transaction, the lender issued a Closing Disclosure which set
forth a 30- year term, as opposed to the 15 year term the borrower wanted. The
error was discovered while the borrower was at the closing table. The lender
issued a corrected CD reflecting an APR increase of more than 0.125%, thus
triggering a new three day waiting period. The lender did not give the settlement
agent a “clear to close”. However, for whatever reason, the settlement agent
thought he had funding authorization and proceeded to consummate the
transaction, including the disbursement of funds to the seller. It appears that
the settlement agent closed on the initial CD, as that is the CD, signed by the
borrower, that he returned to the lender. The following day the lender learned
that the transaction closed and now seeks to “cure” the regulatory violation
through the issuance to the borrower of a corrected CD within 30 days of
consummation in accordance with 12 C.F.R § 1026.19(f)(2)(iii). Does doing so,
in fact, cure the situation?
ANSWER
You are correct, that under the
TILA-RESPA Integrated Disclosure Rule (“TRID”), the lender must issue a revised
Closing Disclosure if any of the fees reflected therein become inaccurate at or
before consummation and, if such revisions result in an increase in the APR of
more than 0.125%, consummation must not take place sooner than three business
days following the issuance of the corrected CD. [12 CFR § 1026.19(f)(2)]
As to the regulatory violation described
in your question, there is no “cure” for failing to comply with the three day
waiting period rule. Regardless of what actions the lender takes now, the
lender can still be cited for this violation.
As to the 30-day post consummation
cure period, under the regulation, a revised CD must be issued within thirty days
of consummation if two criteria are met.
- “An event in connection with the settlement of the transaction occurs that causes the disclosures . . . to become inaccurate”, and
- “Such inaccuracy results in a change to an amount actually paid by the consumer from that amount disclosed under paragraph (f)(1)(i) of this section . . . “ [12 CFR 1026.19(f)(2)(iii)]
In the Section by Section analysis (78
FR 79878), the Bureau sets forth its position that post-consummation
redisclosures should only be made if a subsequent event results in a change to a
charge paid by the consumer.
“The
final rule requires redisclosure only for post-consummation events that change
an amount actually paid by the consumer. The Bureau does not believe
consumers would benefit from revisions to the Closing Disclosure due to
post-consummation events that do not affect charges imposed on them . . . Thus,
the Bureau believes a redisclosure to the consumer after consummation should be
required only if a subsequent event changes a charge actually paid by the
consumer and not for any change to the transaction”.
So the question is, what is the post-closing
event that caused the disclosure to become inaccurate?
The lender learning that the settlement
agent consummated the transaction using the incorrect CD? That does not
appear to qualify as a post-consummation event, as the event was the
consummation of the transaction, not the lender learning of the error.
The second question is, what charges did
the consumer actually pay? Those charges disclosed on the incorrect CD or
those disclosed on the corrected CD? If the former (assuming they are
less), I would suggest the creditor simply eat the difference in fees. If
the latter, consider looking to the cure provisions under 15 USC § 1640(b);
notify the consumer of the error and refund the lesser of the charge actually
disclosed or the dollar equivalent of the APR disclosed on the incorrect CD.
Additionally, if on a good faith
analysis, the charges disclosed on the corrected CD exceeded the amounts set
forth on the Loan Estimate beyond permissible tolerances, the corrected CD must
be issued together with a refund for excess to the borrower within 60 days of
consummation. [12 C.F.R. §
1026.19(f)(2)(v)]
Joyce Wilkins Pollison
Director/Legal & Regulatory
Compliance
Lenders
Compliance Group
