Changes to Truth in Lending Act disclosure requirements
Changes to the Truth in Lending Act (“TILA”), effective as of July 30, 2009, will change how prospective buyers interact with their lenders. These changes may also affect certain aspects of your real estate practice. Some of the most relevant changes are described briefly below:
• TILA requirements now cover all borrowers applying for loans in transactions covered by RESPA where the loan would be secured by any dwelling. This includes second homes (it previously applied only to primary dwellings) as well as refinance loans subject to RESPA.
• Lenders are prohibited from imposing any fee (except for a credit report fee) on any consumer until after the initial TILA disclosures have been received by the consumer.
• An initial TILA disclosure must be provided to a consumer within three days of the receipt of a loan application, and at least seven days prior to consummation of the transaction. This means that no loan can close less than seven days after delivery of the TILA disclosure. This time limitation is not likely to affect many transactions, since most loan applications are made far earlier than 7-10 days before closing. Consumers looking to refinance will have a longer waiting period, however.
• If the annual percentage rate (APR) listed in the TILA disclosure changes more that 1/8 of a point (.125%), a new TILA disclosure with the changed terms must be provided no later than three days before consummation of the loan. A loan cannot close for at least three days after a new disclosure is given. (NOTE: A business day for this purpose is defined as Monday – Saturday, except for federal holidays.)
This last change is the one most likely to have a direct effect on a transaction. An APR can change for many reasons, including changes to the loan amount and fees/costs associated with a mortgage loan. If something changes in a transaction, and that change moves the APR beyond the permitted tolerances, a lender is not permitted to close on the loan for at least three days after delivery of the new TILA disclosure. If a transaction is less than three days from the closing date when a new TILA disclosure is delivered, the parties cannot have closing on the stated date. This may put the buyer in technical breach of the Agreement of Sale, although it is hoped that most buyers and sellers would agree to extend the settlement date to accommodate the changed circumstances.
For a more in-depth review of these changes, read a detailed summary on MorgageDaily.com.
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About Hank: Hank Lerner, Esq. is the Director of Member & Legal Services at the Pennsylvania Association of REALTORS®. |
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