DC REAL ESTATE SELLERS AND TRID

The Isaacs Team Districtre.com

How TRID affects DC Home Sellers

What Is TRID?

On October. 1, 2015. TRID (TILA-RESPA Integrated Disclosure) replaced the HUD-1 Settlement and Good Faith Estimate. The change was a result of the Consumer Financial Protection Bureau’s aim to ensure the mortgage industry will not repeat behaviors that led to the Great Recession in the early 2000’s. CFPB is the new oversight agency for the industry, replacing the Department of Housing and Urban Development. The CFPB (Consumer Financial Protection Bureau) created a new real estate mortgage closing disclosure form that combines TILA and RESPA disclosures for borrowers. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act prompted a single, unified form for loan applicants; a Loan Estimate and a single form for buyers settlement document called the Closing Disclosure that satisfy TILA and RESPA requirements. CFPB changes to RESPA and the Truth in Lending Act (TILA) under the Dodd-Frank Wall Street Reform and Consumer Protection Act combines the GFE with the TIIA disclosure now called the Loan Estimate (LE) and the HUD-1 settlement statement with the final TIL, now called the Closing Disclosure (CD).
You’re selling a DC home, not applying for a mortgage loan. Why should you care? Simple answer: TRID was a game-changer and what affects buyers, affects you.

WHAT SELLERS SHOULD KNOW ABOUT TRID

Closing Date

TRID has extended the escrow period to 40-45 days minimum. We may see that cycle shorten over time, as lenders and title companies learn how to implement the changes, become more adept at processing and as software catches up with the form changes. But for now, longer escrows will be required for financed purchases. Keep this in mind while reviewing offers. Now, more than ever, cash is king. Under TRID, settlement can’t take place until the 3rd business day after final loan approval and the buyer’s acknowledgement of the CD. Last-minute changes are a thing of the past, so if buyers lag in providing lenders with documentation or information, if the lender makes an error, or if the buyer has a “changed circumstance,” settlement will be delayed. However, most settlement issues, such as adjustments to seller credits to account for repairs, that were previously addressed as late as the day of closing can continue to be handled at closing without requiring a new three-business-day review period.

How To Prepare

  • Factor these considerations into your contract and plan for delays. Vet your buyer carefully and his/her lender as well.
  • Are you still occupying your home for sale? Discuss last-minute changes with your mover when you book the service. What will they charge to store your belongings in the event of a delay? Can the moving date be easily changed? A back-up date booked in advance? Scout temporary housing and its cost.
  • Avoid high-risk closing dates and times. Your agent may advise you to set closing dates for mid-month and mid-week to avoid the busier schedules of title companies and lenders, and to provide a “cushion” if a new 3 day review period is set. Tuesdays, mid-month are ideal!
  • Contract terms for your purchase are key. If you’re purchasing a home as well as selling one, TRID will affect you in both transactions. Be sure to cover yourself in both contracts. Ask your agent how!
  • Be proactive! Provide all requested information/documentation without delay so the lender has time to process and request additional items, if needed.

Inspection Issues

Mortgage underwriters are likely to require pre-settlement repairs if the appraisal comes back with roof or other structural issues noted, including pest damage from termites or other wood-boring insects. This can lead to appraisal contingency and financing problems and settlement delays even if the seller credits the home buyer in lieu of repairs. If a contract is written ‘as is,’ whether or not the buyer has a financing contingency, repairs can become a seller issue if the buyer hasn’t the funds to complete required repairs prior to the closing date and can’t receive loan approval. If repairs are to be completed by the seller, this should be accomplished early in the escrow period, with documentation going to the lender as quickly as it is received in order to avoid loan delays. Expect home buyers to start using itemized inspection contingencies again, rather than the ‘walk-away’ contingencies that replaced them when the market turned in favor of sellers. Bidding war-inspired offers without inspection contingencies are likely to become a thing of the past with TRID due to lending issues, unless buyers are paying cash.

How To Prepare

  • More than ever before, it is important to carefully assess buyers’ financials when they are financing a purchase. Do they have the finds for any required significant repairs such as roof or structural items in addition to their downpayment and closing costs? A pre-approval won’t tell you. Require a Financial Information Statement from all buyers.
  • Credit in lieu of repair. Closing cost credits can provide buyers with the necessary funds for required repairs and eliminate the necessity for a second (or third) inspection, which can delay settlement. Keep in mind that a closing credit will effectively lower the price of your home, but you’ll pay transfer tax and capital gains on the full price. Factor this into your initial price negotiations with buyers you haven’t performed pre-listing inspections and associated repairs.
  • Be proactive! Previously, many agents didn’t recommend pre-sale inspections, but TRID has brought this practice back. Know in advance what can come back on an inspection report and make those repairs prior to listing. Any significant repairs not made in advance of a mechanical and/or structural nature should be disclosed prior to contract. Keep inspection contingency periods short. Provide all associated information/documentation quickly.

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Realtors are not CPAs or attorneys and are not permitted to give accounting, investment, tax or legal advice. Refer to a CPA, investment professional or legal professional for all related matters. Any information provided on this site pertaining to such issues is not intended as tax or legal advice and is provided solely for the purpose of illustration. Resources cited are believed to be accurate but are not guaranteed and are subject to change without notice.
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