Real Estate Law Blog

The New TILA-RESPA Integrated Disclosure Requirements

Farewell, HUD-1, we hardly knew ye. As of October 3rd, 2015, lenders will provide two integrated forms at specified intervals surrounding the closing date to comply with the provisions of both the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act of 1974 (“RESPA”). The new forms are the result of provisions from Sections 1098 and 1100A of the Dodd-Frank Act meant to combine and simplify existing documents to make them easier for mortgagors to understand. More >

Seller Financing After Dodd-Frank

The provisions of Dodd-Frank have been in place just under a year and a half, having come into effect on January 10, 2014, and the provisions of the law that concern seller financing of real estate made significant changes as to how investors use seller financing in these transactions. Now that the rules have been in place for a while and the dust has settled, basic rules concerning private loans from sellers warrant a brief review. At the outset, it is worth noting that these regulations apply to sales only to owner occupants, not sales of commercial or investment properties. The new regulations treat anyone who performs the activities related to the origination of a residential mortgage loan as a “mortgage originator” by default. What this means is that sellers who finance their real estate transactions must be a licensed mortgage originator or include a licensed mortgage originator in the transaction. Financing sellers can be exempt from these rules, however, if certain criteria are met. First, the seller must provide financing for the sale of three or fewer properties in a 12-month period, and the property must have been owned by the seller and used as security for the loan. Second, the seller must not have constructed the residence or acted as a contractor in the construction as part of the ordinary course of their business. Finally, the loan must be fully paid off after a set duration (no balloon payments) and have a fixed interest rate or an adjustable rate that remains fixed for at least five years, and the seller must determine in good faith that the borrower will be able to pay the loan. If the rate does adjust, it must be tied to a widely-available index such as LIBOR or U.S. Treasury securities. Under these rules, a person, trust or business entity can act as a financing seller. If the seller only finances one property in a year and is a natural person, an estate or a trust, the seller does not have to determine and document the borrower’s ability to pay, although the loan requirements remain the same. If the seller finances more than three properties, the mortgage originator provisions apply, as well as the specific limitations on the loan. Another important distinction to note is that, while the ability-to-pay provisions of Regulation Z[1] apply only to “creditors” as defined by that regulation – those who finance more than five “transactions secured by a dwelling”[2] in a year, Dodd-Frank applies the same provisions to those who finance three or more transactions to owner-occupants in a year. In other words, financing sellers who conduct only four transactions a year are exempt from the ability-to-pay portions of Regulation Z, but not from Dodd-Frank. Negotiating any seller-financing deal is tricky, but the provisions of Dodd-Frank add a new layer of complexity to the process. Let the attorneys of McBrayer PLLC make the process less difficult by providing guidance and assistance in the transaction.

Services may be performed by others.

This article does not constitute legal advice.

[1] 12 C.F.R. § 1026.43 [2] 12 C.F.R. § 1026.2 (a)(17)(v)

A New Beginning for Closings

Currently, under federal law, within three business days after receiving an application, mortgage lenders must deliver two different disclosures to the applicants: an early Truth in Lending Statement and a Good Faith Estimate. At closing, two more disclosures are required: a final Truth in Lending Statement and a HUD-1 settlement statement. Starting Aug. 1, 2015, that long-established process will change. The forms will be reduced to two and simplified so that consumers will be able to mortgage shop more easily and understand their mortgage terms and costs more thoroughly. More >