The New Closing Disclosure Form
(Part 3 of 5)
(Jeff Sorg, OnlineEd) – The Closing Disclosure integrates and replaces the final Truth-in-Lending disclosures and the RESPA HUD-1. In general, the Closing Disclosure sets forth the actual terms and costs of the transaction. The Closing Disclosure must be in writing and contain all of the information required. In many ways, the new Closing Disclosure presents most of the same information as existing disclosures, but in a brand new format.
A creditor is responsible for ensuring that the consumer receives the Closing Disclosure no later than three business days before consummation.
If delivery of the Closing Disclosure is by mail, the “mailbox rule” will apply. This rule means you have to add three days to account for mail delivery time to the three days required prior to consummation. The Closing Disclosure would need to be placed in the mail six business days prior to consummation. For purposes of counting days, Saturday is counted as a business day under the mailbox rule.
Remember, consummation is not the same thing as closing or settlement. Consummation occurs when the consumer becomes contractually obligated to the creditor. The exact time when consummation occurs is based upon state law. Consummation generally occurs when the borrower signs the promissory note, the security instrument, such as a mortgage or trust deed, and any other legal documents required by the creditor. Consummation is NOT when the final steps in the settlement or closing process occur, such as recording and disbursement of funds.
In most cases, the settlement agent, on behalf of the creditor, provides the borrower with the Closing Disclosure. In transactions involving a seller, the settlement agent will also provide the seller with a Closing Disclosure.
Another issue is how revisions and corrections to the Closing Disclosure should to be dealt with. The general rule is that creditors must redisclose terms or costs on the Closing Disclosure if certain changes occur to the transaction that causes disclosure inaccuracies. There are three categories of changes that require a corrected Closing Disclosure containing all changed terms.
There are specific changes that can occur before consummation that require a new three-day waiting period. In this case, consummation may need to be postponed to comply with the three-day rule to. Changes that require a new three-day waiting period are usually triggered by the following:
- The disclosed APR becomes inaccurate. However, there is a 10% tolerance allowed before a new waiting period is required.
- The loan product changes.
- A prepayment penalty is added.
Any changes not triggered by one of the three specified events do not require a new three-business day waiting period, but do require a revised Closing Disclosure be provided the consumer no later than consummation.
Sometimes, an event will occur after settlement that causes the Closing Disclosure to become inaccurate, resulting in a change to the amount the borrower or seller paid that is different from what was disclosed. An example would be a when the actual recording fee differs from the estimated amount.
Another event that triggers a revised Closing Disclosure relates to documenting refunds for tolerance violations. In other words, the amount charged exceeded the legal tolerance limits. A revised Closing Disclosure is also to be used to correct non-numerical clerical errors. An error is considered clerical if it does not affect a numerical disclosure and does not affect timing or delivery requirements.
In these instances, a revised Closing Disclosure must be delivered or placed in the mail to the consumer no later than 30 days after receiving sufficient information to determine that changes to the Closing Disclosure is required.
In all cases, the consumer has the right to inspect a revised Closing Disclosure during the business day before consummation.
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This article was published on July 17, 2015. All information contained in this posting is deemed correct and current as of this date, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.