Real Estate Transaction Closing Rules and Forms Change on August 1, 2015
On August 1, 2015 the HUD1 and the Good Faith Estimate will no longer be used. There will be NO more HUD1 or Good Faith Estimate.
This is important for real estate agents to understand and be able to also schedule closings taking the new changes into account.
Don't get embarrassed by asking your buyer to get a Good Faith Estimate after August 2015:).
The documents that will be replacing them are:
1. New Loan Estimate
2. New Closing Disclosure
The reason for these new documents is because of the Dodd Frank Reform Act that was passed on July 21, 2010. They phase in all the new laws.
The reason for the government to implement these 2 new documents they say is to: “improve the settlement process for consumers”.
After we read the laws regarding these forms we see how it could really become an issue rather than an improvement.
We'll come back to that after we explain what the new forms entail:
The most important changes are that IF anything changes at all it will require the lender's approval and a 3 day waiting period for the buyer.
If the interest rate changes this automatically triggers a 3 day waiting period. This means that even if the buyer has to close or wants to close, the law will NOT allow him or her to close. Of course, the regulators “know” more than the consumers do about what is good for them.
If the loan product changes in any way this automatically triggers a 3 day waiting period. The means that even if the contract states that the closing will happen at said time and place, the government rules trump your contract. ( Now that is for another discussion.)
Talk about having to lock in your loans! ( Is that still allowed?)
If the seller removes something from the property and thereby this triggers an addendum to the contract… oh no…. that triggers not only a 3 day waiting period but also an approval from the buyer's lender who is most likely not going to be at the closing table.
Make sure you schedule your closings with these built in waiting times. NAR legal counsel advises to set your closing up for 7 days in advance of the day you want to close.
Work very hard to not have any last minute changes, especially at the closing table. Explain to your sellers and buyers the reason why, that the closing WILL be delayed.
Make sure your sellers stick to their agreements in the purchase and sales agreement.
Make sure that you stay in close contact with the buyer, the seller, the agents involved and the lenders. I know that is easier said than done. However, this is paramount to being able to close on the agreed upon date.
Make sure everyone is on the same page!
Imagine the scenario- each time one of these 3 day triggers happens you have to get all parties to sign extensions and addendums.
Imagine the buyers at the closing table with their belongings in a U-haul truck and suddenly something changes on their closing disclosure!
Imagine the sellers at the closing table all packed up and ready to maybe close on their next home and need the funds from this closing to pay for their next closing, but this closing is delayed because the interest rate changes and so now they have to wait another 3 days. You can see the chain reaction. The ripple effect.
We like to call this, the law of unintended consequences of passing laws without fully understanding all the consequences.
For now, Cash is still King and that is why sellers would rather have ALL CASH offers!
Here is a video of the NAR Legal Counsel explaining these changes: