TILA-RESPA and real estate closings in NYC
Beginning October 3, 2015, the real estate closing process in New York City will get way, way bumpier, at least for a while. New rules implemented by the Feds have mandated that banks change the way they deliver documents and fees to borrowers who are purchasing homes across the United States. For most states, this is not an issue, since the closing process is simple and straightforward. In New York, however, the closing process is akin to running a marathon while drunk with a sprained ankle.
Here’s what you need to know.
- Banks are replacing a document called the Good Faith Estimate with a Loan Estimate. This seems minor, but the change is a huge benefit to consumers. The new document is easily readable and significantly less confusing as the Good Faith Estimate was. It tells you how much you’re going to pay each month, whether taxes are included, whether the bank will service your loan, your actual loan terms, and the costs at closing. It has to be delivered to you within three days of your application, so the turnaround time is great. The GFE was a mess for many reasons. Tons of meaningless numbers flying around. This document will tell you what is coming out of your pocket as of the date of closing.
- The Closing Document replaces the HUD. Don’t even get me started with the HUD. The HUD was as simple to explain as Latin to a 3rd grader. Most of the time people just shrugged when it was provided. The Closing Document, on the other hand, essentially sets out many of the same things that the Loan Estimate does. The biggest difference is in the timing. Once you as a borrower receive the closing document, you have three days to review before a Closing can even happen. That means you have 72 hours to look at the document and ask your mortgage broker/loan officer any questions you may have. Prior to October 3rd, you’d be lucky to see a HUD prior to closing. Also, and this is important, the fees can’t change without approval. No one can write anything in and surprise the borrower. Again, the lesson to take from this is that you’ll have a way, way better idea of what’s coming out of your pocket and who it’s going to. All good things.
Now, the bad. Co-Ops have absolutely no idea what this rule is and frankly don’t care. The new rules essentially mandate that a closing date be set way in advance of when it’s set now (Think planning ahead 2 weeks versus planning ahead 24 hours.) The new rules also require all fees (including the co-op fees) to be distributed to the lender way in advance of the closing. Co-Ops don’t like that because it means doing actual work. This is bad news for borrowers. You can expect at least 6 months of rough times before this process will be smoothed over. As a borrower, or a potential purchaser, you really need to be in constant communication with all sides to make the process as seamless as possible. Personally, we love these changes because it’s going to make the process of buying an apartment in New York much smoother overall. It will just take some time.