Alston & Bird Consumer Finance Blog

Archives for July 14, 2019

Appraisal Reform Act of 2019 Would Impact TRID

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A&B Abstract: 

If enacted, the recently introduced Appraisal Reform Act of 2019 would amend RESPA to require the disclosure of the appraisal management fee separate from the appraisal fee on the loan estimate (LE) and closing disclosure (CD).  This could impose an additional burden on lenders and appraisal management companies (AMCs).

 Background

 The LE provides disclosures intended to be helpful to consumers in understanding the mortgage loan transaction.  By contrast, the CD must provide the actual costs of the transaction.  As amended by the Dodd Frank Act, Section 4(c) of RESPA permits the optional disclosure of the appraisal management fee separate from the appraisal fee.  However, it does not require separate itemization on the LE and CD.  HR 3619, the Appraisal Reform Act of 2019, would make such disclosure mandatory.  The measure, which Rep. William Lacy Clay (MO) is sponsoring, was introduced in the House on July 5, 2019 and referred to the House Financial Services Committee on the same date.

Impact on Current Law

AMCs facilitate more than two-thirds of all appraisals, according to estimates.  For closed-end forward mortgage transactions, TRID  requires a creditor to provide the consumer with a good faith estimate of the credit costs and transaction terms no later than the third business day after receiving the application.  For certain unaffiliated charges for which the consumer is not allowed to shop (such as appraisal fees), the creditor must not charge the consumer more than the amount disclosed on the LE unless there is a valid changed circumstance. These are “zero tolerance” fees, meaning that the creditor must reimburse the consumer for the amount by which the actual charge exceeds the amount disclosed on the LE.

For purposes of providing a revised estimate and resetting the tolerance, a “changed circumstance” is:

  • an extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;
  • information specific to the consumer or transaction that the creditor relied upon when providing the disclosure and that was inaccurate or changed after the disclosures were provided; or
  • new information specific to the consumer or transaction that the creditor did not rely when providing the disclosure.

Absent a valid changed circumstance, a creditor cannot adjust the amount of the appraisal management fee three days after the application is provided even if it determines that additional work is required.

Takeaway

HR 3919 is worth watching as it would in effect lock in the appraisal management fee at time of application.

Connecticut Officially Becomes an Attorney Closing State

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A&B Abstract:

Effective October 1, 2019 only Connecticut licensed attorneys can conduct real estate closings in the state for certain mortgage loan transactions.

Real Estate Closings

The process of closing a loan generally involves four core functions:

  • transferring title to the buyer;
  • transmitting payment to the seller (usually through an escrow agent);
  • discharging any outstanding liens on the property; and
  • creating a lien on the property in favor of the buyer’s lender.

In a mortgage transaction, the “closing agent” is the person responsible for coordinating the activities of various parties involved in the transaction.  Several states – whether by case law or bar opinion – hold that it is the unauthorized practice of law for someone other than a duly licensed attorney in the relevant jurisdiction to conduct real estate closings.

Impact of New Connecticut Law

Historically, no explicit authority has held that only an attorney may act as a closing agent in Connecticut.  However, as a general matter, almost all loans in Connecticut are closed by an attorney.  Connecticut Senate Bill 320 (Public Act No. 19-88) has codified that long-standing practice.  As a result, as of October 1, 2019, only a duly licensed Connecticut attorney in good standing may conduct real estate closings.

The measure defines “real estate closing” as a closing for:

  • a mortgage loan transaction, other than a home equity line of credit transaction or any other loan transaction that does not involve the issuance of a lender’s or mortgagee’s policy of title insurance in connection with such transaction, to be secured by real property in Connecticut, or
  • any transaction wherein consideration is paid by a party to such transaction to effectuate a change in the ownership of real property in Connecticut.

A violation of the new requirement constitutes a Class D felony, punishable by a $5,000 penalty or five years in jail.

Takeaway

Lenders should ensure that only a Connecticut licensed attorney conducts the closing on any first- or second lien mortgage loan, other than a home equity line of credit, that require the issuance of title insurance.