Understanding the TILA/RESPA Integrated Disclosure (TRID) Rule

The TILA/RESPA Integrated Disclosure (TRID) Rule is in effect and real estate agents across the country need to carefully navigate homebuyers through these unfamiliar waters. With a clear understanding of what to expect, it’s possible to avoid choppy sailing.

Before getting into what real estate agents need to know, it is important to understand what’s happened. The Consumer Financial Protection Bureau (CFPB) has integrated the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The new rule in effect since October 3, 2015 require lenders to 1) tell borrowers how much a loan will cost within 3 days of a mortgage application and 2) provide borrowers with more precise details about closing costs than were previously required. The goal is to make home buying a more transparent and better experience for consumers.

Strict new requirements for lenders create a higher risk of delays at closing time. But it’s not as bad as it sounds. While some last-minute changes at the settlement table will make it more difficult and in some cases impossible to close, most changes will be permitted either before closing or within 30 days of the closing. Lenders may have their own policies in place, but the CFPB requires a new Closing Disclosure and 3-day review period ONLY under these 3 scenarios.

• If a fixed interest rate goes up by 1/8 of a percent or a variable/adjustable rate goes up by 1/4 percent by the time the Closing Disclosure was issued and the closing date.
• If the borrower decides to go with a fixed rate rather than an adjustable rate.
• If the investor decides to add a prepayment penalty to the note in case the borrower pays off early.

The process starts when the borrower receives the loan estimate. The loan estimate will now detail what payments will be expected throughout the 30 or 15 year life of the mortgage. Consumers have 10 business days to get back to lenders to go forward with the loan. It is up to real estate agents to explain the process to consumers and help move things along to meet deadlines.

Lenders are also now required to spell out every penny borrowers will need to bring to the closing table rather than provide a good-faith estimate. The charges will fall into three buckets:

•  Zero Tolerance/No Variation Bucket: Includes lenders charges for origination, processing underwriting and discount points. If lender deviates from the fee by even a dollar, the borrower is entitled to a full refund.
• The 10% Bucket: These are the services borrowers can shop for such as title services, title insurance and government recording services. If the consumer uses those services recommended by the lender and the costs change by more than 10%, the consumer is entitled to a full refund.
• Variations Permitted Bucket: These are the fees the lender cannot accurately predict, such as property insurance and homeowner association fees.

What Real Estate Agents Should Expect

New Paperwork: The closing documents real estate agents were accustomed to have gone away. Familiar Good Faith Estimate and HUD-1 forms have been replaced with a Loan Estimate and Closing Disclosure.

Longer Transactions: If transactions in your jurisdiction typically take 30 days, build in another two weeks. If transactions take 45 days, figure 60 days until closing.

A Period of No Simultaneous Closings: At least in the initial months of the new rule, real estate agents should consider steering clients away from back-to-back closings because of the possibility that one ofthem could be delayed. You should also be prepared for more rent-back (Use and Occupancy) agreements than you are presently handling.

Earlier Walkthroughs: Final walkthroughs have traditionally taken place on the day of closing, but real estate agents may want to rethink this practice. A more prudent approach is to schedule the walkthrough 3 or 4 days before closing and possibly plan for a second walkthrough the day of closing.

These first few months of the new TRID rule will be tricky and real estate agents should be prepared for possible delays. But lenders have good incentive to act fast. They could face severe penalties if the Closing Disclosure is not delivered on time.

The attorneys at The Levine Law Firm are well-versed on these new federal rules should you have any questions or concerns about their impact on your business.

How to Deal With Oil Tanks When Buying a Home

When buying a home, one of the first actions after the attorney review has concluded is having an inspection done on the house. Inspection reports help a person determine the possible defects that may come along with their new purchase. In addition to having the house inspection, an inspection on the property should be done.

In New Jersey, one of the main issues that arise during the home inspection is the detection of underground oil tanks or storage tanks. The leading use for oil tanks on residential properties is heating oil. Although oil tanks are used for storage to help properly heat a home, they come with a price. Oil tanks frequently leak, and the hazardous materials contained in the tank are detrimental to our environment and our water. Not only does leakage damage the environment, the clean-up of any leak can be quite costly.

If an underground tank is discovered on a property you plan to buy, there are multiple measures you can take to prevent a future problem. The most common procedures when dealing with an oil tank are removing the tank or decommissioning it. Removal of an underground tank is simply physically taking the tank out of the ground. Decommissioning it, however, is when the tank remains in the ground but is completely cleaned out and refilled with sand or some other solid material.

Most people would believe each option prevents any future problem, but many studies show a different story. In New Jersey, it is proved many decommissioned oil tanks, although they have been cleaned, still may contain hazardous materials. These hazardous materials can still leak and contaminate our environment because the tank is still physically in the ground. The best way to deal with an oil tank problem is to completely remove the tank itself.

This solution is the only way to truly know there can be no future environmental issues because the entire problem has been removed. When buying a house, removing any underground tank is the best way to help the new owner sleep soundly at night.

How TILA-RESPA Integrated Disclosure Rule (the "Rule") Will Impact Real Estate Closings in New Jersey

Did you know significant new lending regulations are coming? Ready or not, the new TILA-RESPA Integrated Disclosure Rule (the "Rule") will become effective on August 1, 2015!  

Among other changes, the Rule will replace the Truth-in-Lending Disclosure Statement and the HUD-1 Settlement Statement with a new "Closing Disclosure." Unlike the HUD-1 Settlement Statement that has been typically prepared by attorneys representing the lender, most, if not all lenders, will require the Closing Disclosure to be prepared by the lender. 

The lender will determine what closing costs and figures must be included in the Closing Disclosure. Significantly, the Closing Disclosure must be delivered to the borrower not later than three business days prior to closing. If any closing figures change after delivery of the Closing Disclosure and prior to closing, the lender must determine whether a revised Closing Disclosure must be delivered to the borrower, thereby postponing the closing for at least three business days after such delivery.  

Clearly, the Rule was not designed with standard New Jersey practice in mind. Preparing to close a New Jersey residential real estate transaction requires receipt of closing figures from various parties (co-op/condo managing agents, purchasers' lenders, sellers' lenders, title companies, etc.).  Often, such figures are not available until the day prior to closing, and sometimes, even the day of closing.

New Jersey real estate professionals will have to find a way to comply with the Rule. Now more than ever before, it is important that purchasers and sellers of residential real estate retain qualified real estate attorneys who are familiar with the Rule and have the capacity to comply with it.  

For more information about the Rule or any other questions concerning the legal aspects of handling real estate transactions, please feel free to contact us.

Is Your Car Insurance Limiting Your Right to Sue?

Purchasing car insurance can be overwhelming if you do not know all the questions to ask. Some insurance policies could leave you without the grounds to sue if you have been injured in an automobile accident.

There are many types of coverage for different scenarios:

• Personal Injury Protection (PIP) deals with coverage of medical expenses if you are to be in an accident. 
• Bodily Injury deals with the monetary amount an individual could recover if you find yourself on the defense side of a lawsuit. 
• There’s also coverage which deals with Limitations on Lawsuits, more commonly known as the Verbal Threshold. This is the type of coverage that severely limits your ability to enter into a lawsuit for damages caused by an automobile accident. (It is important to note that no threshold allows you to sue for any type of injury.)

If you happen to have Verbal Threshold coverage and find yourself in an automobile accident, in order to sue for damages, your injuries must fall under one of the following six categories:

1. Death, your estate can sue on your behalf
2. Dismemberment, loss of a body part
3. Loss of a pregnancy 
4. Significant scarring or disfigurement 
5. Displaced fracture, which means the bone has broken completely in half
6. Permanent injury within a reasonable degree of medical probability

The best case scenario, in order to keep your right to sue, is to not choose this type of coverage. However, if you do have this type of coverage many lawyers, including the ones here at the Levine Law Firm, can help you determine if you have grounds to sue. 

Permanent injuries can come in many shapes and sizes and you may not even realize you have grounds to sue if you have been injured in an automobile accident. We can help you no matter what type of insurance coverage you have.

Sole Ownership vs. Tenancy in Common or Joint Tenants

There is more to owning a house than just being an "owner." One very important aspect of purchasing a house is how you will possess ownership, or how you will hold title to the property.

In New Jersey, there are three main ways to hold title, Sole Ownership, Tenancy in Common, or Joint Tenants with rights of survivorship.

If you are the only person intended to own the property then the correct way to take title would be through Sole Ownership, meaning you are the only one with rights to the property and you are the only one who can control it being sold.

Taking title becomes tricky when you are purchasing real estate with a spouse or another person. When you and another person hold title as Tenants in Common you both hold an equal part of the property. However, if one owner passes away their equal part of ownership can be passed to whomever he or she chooses.

Joint Tenancy with rights of survivorship is similar to Tenancy in Common, meaning you both own an equal part. However, with Joint Tenancy, if one owner passes away the rights to the property are passed to the other owner by operation of law without any other action being taken. This type of ownership is generally utilized by married couples unless they specify otherwise.

Understanding all the factors that come into play when purchasing real estate can be confusing. At the Levine Law Firm, LLC, attorneys with years of experience under their belt are available to help you through your real estate purchase and answer any questions you may have.