In response to the nation’s financial crisis of 2008, congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (“The Act”) of 2010. The massive bill establishes an independent consumer bureau within the Federal Reserve to protect borrowers against what it perceived to be abuses in mortgage, credit card and some other types of lending. The Act created the Consumer Financial Protection Bureau (“CFPB”), which is an independent agency charged with consolidating the regulation of consumer financial laws that were previously regulated across seven agencies. The CFPB’s task was to implement a new rule integrating the Truth in Lending Act (“TILA”), which was regulated by the Board of Governors of the Federal Reserve, and the Real Estate Settlement Procedures Act of 1974 (“RESPA”), which was regulated by the Department of Housing and Urban Development. This new rule called the TILA-RESPA Integrated Disclosure rule (“TRID”) became effective on October 3, 2015. Prior to October 3, and for the last 30 years, settlement agents to real estate closing transactions, were required to prepare and provide consumers with the HUD-1 Settlement Statement. The lenders were required to provide the TILA to consumers. The new TRID rule includes a Closing Disclosure (“CD”) form that replaces the HUD-1 Settlement Statement in consumer mortgage transactions. The TRID changes how mortgage real estate transactions occur nationwide. Some portions of the rule may conflict with State legislations. In particular, the rule required disclosure of the Loan policy that conflicted with Florida law.
To comply with the TRID rule, the Florida Bar Realtor/Attorney Joint Committee has revised the Florida Realtors/Florida Bar (FAR/BAR) Residential Contract for Sale And Purchase, its AS IS companion, Comprehensive Riders C, F and H to the FAR/BAR contract, the Florida Realtors (FAR) contract which is promulgated separately from the FAR/BAR, and one of its addenda. These new forms should be used for any real estate mortgage transaction where the lender receives a completed loan application from the consumer on or after October 3, 2015.
What is considered a complete loan application?
The lender must provide the consumer with a Loan Estimate (“LE”) 3 days after receipt of the loan application. A loan application is deemed complete and received by a lender or mortgage broker when it contains six items. These six item are the consumer’s 1) name, 2) monthly income, 3) social security, 4) property address, 5) sales price, and 6) the loan amount the consumer seeks. The LE replaces the Good Faith Estimate. The LE is binding for 10 days and the Lender is not allowed to collect any verification documents until they have delivered the LE to the consumer. Therefore, the loan approval process may take longer.
What are the new contract changes?
The new contract makes several edits to provisions for extending the closing date, financing, closing costs for title insurance and surveying deadlines, inspection periods, and the Force Majeure standards for performance. Furthermore, edits are made to the accompanying Seller Financing Rider (C), the Appraisal Contingency Rider (F), and the Homeowner’s/Flood Insurance Rider (H). The contract changes discussed below are made to both the FAR/BAR Residential Contract for Sale And Purchase, its AS IS companion, unless otherwise noted.
Paragraph 5(a), Extension of Closing Date:
The new contract extends the closing date if the contract is contingent upon the buyer obtaining financing, and closing funds are not available on the closing date due the lender not meeting the CD delivery requirements. Therefore, in the event that the CD delivery time is not met, the closing date will be extended in order to meet the delivery date. The extension period is changed from 7 days to up to 10 days. Where previously this paragraph allowed up to 7 days to deliver the Tila and Respa notices, these notices have been integrated into the CD so it is no longer necessary to reference them. Instead, there is reference to the CD in this paragraph.
Paragraph 8, Financing:
This paragraph applies only to cash transactions. The financing provision to paragraph 8(a) no longer states that the Buyer may obtain a loan. The provision now clarifies that cash buyers who finance a transaction will not get an extension to close if the CD delivery requirements are not met. Cash transactions will not be affected or delayed by CFPB if the buyer pursues a loan for part or all of the transaction.
Paragraph 8(b) applies to transactions contingent on the buyer obtaining financing. It changes the default time for the Buyer to obtain a loan commitment from 30 days to 45 days after the effective date of the contract. This is due to a lengthier financing process as a result of the TRID rule. This paragraph establishes that if either party wishes to cancel the transaction because the buyer did not get a loan commitment within the period prescribed by the contract, there are two options. Either party must cancel by the earlier date of: 1) delivery of written notice to the seller that Buyer has either received the loan commitment or elected to waive the financing contingency, or 2) 7 days prior to the closing date in paragraph 4.
Paragraph 9, Closing Costs; Title Insurance, Survey, etc.:
9(c) governs the delivery of title evidence. Title Evidence Deadline is the term used for delivery of the title commitment. If paragraph 8(a) is checked, referring to cash transactions, the default time period for delivery of the title commitment remains 5 days prior to Closing. For mortgage and all other transactions, the default time period for delivery of the title commitment has been changed from 5 days to 15 days. If the seller has an owner’s title insurance policy covering the real property, the seller shall provide a copy to the Buyer and Closing Agent within 5 days after the effective date.
Due to the TRID rule’s required disclosure of the title insurance premiums, new language has been added to paragraph 9(c) explaining that the premium charges for the Owner’s and Lender’s title insurance policies may be reported differently on the closing documents.
Paragraph 9(d) changes the time period to have the property surveyed. The Buyer previously had to obtain a survey 5 days prior to Closing. The default date is now 15 days prior to Closing, for transactions including a mortgage or anything other than cash. For cash transactions, the default date remains 5 days prior to Closing.
Paragraph 12. Property Inspection and Repair:
This paragraph does not apply to the “As Is” Residential Contract for Sale and Purchase. The modifications to paragraph 12 of the FAR/BAR contract changes the default period for the Buyer to conduct inspections on the property to 15 days, instead of “[b]y the earlier of 15 days or 5 days prior to Closing Date”.
Paragraph 18. Standards:
Paragraph 18(G) defines Force Majeure and specifies certain ways in which a Buyer or Seller may extend or avoid obligation under the Contract. The phrase “…and any other cause not reasonably within control of Buyer or Seller,” was removed from this paragraph as the language was broad, and to avoid lenders from using this provision to extend the closing date.
Changes to Contract Riders
Rider C, Seller Financing, was changed to include an interest only loan option that complies with Dodd-Frank. There is a blank to insert the term of the interest and if left blank, the default is 60 months. The Rider was also modified to remove the requirement that the balloon mortgage be due at least 5 years from closing. If the blank is not filled in, the default period is 60 months.
Rider F, Appraisal Contingency, now has a 10 day default period prior to Closing so that the appraisal will be completed prior to the preparation of the Closing Disclosure.
Rider H, Homeowner’s/Flood Insurance, has been modified to provide that the contingency for the Buyer to obtain homeowner’s and flood insurance must be met “the earlier of 30 days after Effective Date or 10 days prior to Closing Date. The latter default period was changed from 5 days to 10 days to facilitate the lender with timely preparation of the Closing Disclosure.
written by Cherri-Ann Giannell, Esq.
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