I have a file that is new construction and the city has
changed the numerical part of the address since initial disclosures were
sent. Would this be a valid change of circumstances requiring a revised
Loan Estimate?
ANSWER
This question really has two parts, one that is express, the
other implied: (1) Does a change in the
address of the real property security for a mortgage loan require a revised
Loan Estimate; and (2) if so, does this qualify as a “valid changed
circumstance” under 12 CFR §1026.19(e)(3)(iv) authorizing revisions to the
disclosures of settlement charges in the original Loan Estimate?
The answer to the first part is “yes,” even though the
physical location of the property has not changed. Under 12 CFR §1026.17(e) of Regulation Z, the implementing
regulation for the Truth in Lending Act (TILA), “[i]f a disclosure becomes
inaccurate because of an event that occurs after the creditor delivers the
required disclosures, the inaccuracy is not a violation of this part, although new
disclosures may be required under paragraph (f) of this section, §1026.19,
§1026.20, or §1026.48(c)(4).
Paragraph
(f) provides:
“Except for private education loan
disclosures made in compliance with §1026.47, if disclosures required by this
subpart are given before the date of consummation of a transaction and a
subsequent event makes them inaccurate, the creditor shall disclose before
consummation (subject to the provisions of §1026.19(a)(2), (e), and (f))…(1) Any
changed term unless the term was based on an estimate in accordance with
§1026.17(c)(2) and was labeled an estimate…” (Emphases added.)
Here,
the address of the property securing the loan is a basic “term” of the
loan. [See e.g., the Official Mortgage Loan Transaction Loan Estimate Model
Form (Appendix H24A to 12 CFR 1026)] It has changed. Therefore, under §1026.17(e) and
(f)) a revised Loan Estimate is required to disclose the changed address.
The answer to the second part of the question is a little
more complicated. Under the RESPA-TILA Integrated Disclosure Rule (TRID),
mortgage lenders are held to a “good faith” standard in disclosing fees and
charges on the Loan Estimate. [12 CFR 1026.19(e)(1)] The general rule is that
“good faith” is measured by comparing what is disclosed in the original Loan
Estimate with what the consumer actually pays at consummation. [12 CFR
1026.19(e)(3)(i)]
There are certain exceptions to this general rule, however.
Section 1026.19(e)(3)(iv) of Regulation Z specifies six (6) circumstances under
which a Revised Loan Estimate can be issued, the first of which (and that which
is relevant here) is a “changed circumstance affecting settlement charges.”[1] In that
regard, 1026.19(e)(3)(iv)(A) provides:
(A) Changed circumstance affecting settlement charges.
Changed circumstances cause the estimated charges to increase or, in the
case of estimated charges identified in paragraph (e)(3)(ii) of this section,
cause the aggregate amount of such charges to increase by more than 10 percent.
For purposes of this paragraph, “changed circumstance” means:
(1) An extraordinary event beyond the control
of any interested party or other unexpected event specific to the consumer
or transaction;
(2) Information specific to the consumer or transaction
that the creditor relied upon when providing the disclosures required under
paragraph (e)(1)(i) of this section and that was inaccurate or changed after
the disclosures were provided; or
(3) New information specific to the consumer or
transaction that the creditor did not rely on when providing the original
disclosures required under paragraph (e)(1)(i) of this section. (Emphases
added.)
Here, since the city’s change to the numerical part of the
project address is specific to the transaction and was apparently unexpected
and/or beyond the control of any interested party, the address change may
qualify as a “valid changed circumstance” authorizing changes to settlement
charges in the original Loan Estimate under 12 CFR §1026.19(e)(3)(iv)(A). However,
only those settlement charges that the address change “caused” to be increased may
be reflected in the revised Loan Estimate.
In that regard, the Official Commentary for § 1026.19(e)(3)(iv) indicates
that you can revise the original Loan Estimate disclosure “only to the extent
that the reason for the revision…increased the particular charge.” Thus:
“2. Actual increase. A
creditor may determine good faith under § 1026.19(e)(3)(i) and (ii) based
on the increased charges reflected on revised disclosures only to the extent
that the reason for revision, as identified in § 1026.19(e)(3)(iv)(A)
through (F), actually increased the particular charge. For example, if a
consumer requests a rate lock extension, then the revised disclosures on which
a creditor relies for purposes of determining good faith under
§ 1026.19(e)(3)(i) may reflect a new rate lock extension fee, but the fee
may be no more than the rate lock extension fee charged by the creditor in its
usual course of business, and the creditor may not rely on changes to other
charges unrelated to the rate lock extension for purposes of determining good
faith under § 1026.19(e)(3)(i) and (ii).” (Emphases added.)
The address change you have described would not permit a
revised Loan Estimate across a whole spectrum of settlement charges, but only
as to those changed settlement charges “caused” by the numerical address
change. Your question does not indicate what, if any, specific settlement
charges have changed due to this address change. And the only one that comes to
mind immediately might be the appraisal charges under 12 CFR
1026.37(f)(2) if, for example, the appraisal needs to be revised because of the
address change and the appraiser wants an increased fee to prepare that
revision.
Michael R. Pfeifer
Director / Legal & Regulatory Compliance
Lenders Compliance Group
[1]
The other five are as follows: (1) “Changed circumstances” that affect the
consumer’s eligibility for the loan or affect the value of the property
securing the loan; (2) Consumer-requested changes; (3) Interest rate dependent
charges; (4) Expiration of the original Loan Estimate; and (5) Construction
loan settlement delays.
