New Law Has Real Estate Industry Panicking

TILA-RESPA-Integrated-Disclosure-IRD-Rule-Know_Before-You-OweNew law scheduled to take effect August 1, 2015 has the real estate industry panicking. TILA-RESPA Integrated Disclosure (TRID) “Know Before You Owe” law was designed to give borrowers a better understanding of what they were getting themselves into prior to signing mortgage loan documents at closing. The first half of TRID involved combining the Truth-in-Lending (TIL) with the Good Faith Estimate (GFE) into one integrated statement that borrowers could review within 3 days of applying for a loan. That segment of the law was of little concern to any real estate professionals except perhaps the lenders who would have to change their software from generating TILs and GFEs to now creating this new TILA RESPA Integrated Disclosure. However, the second half of TRID is a different story and has been the cause of much concern in the real estate industry. TRID will require lenders to provide this Closing Disclosure to borrowers 3 days prior to closing. As you can see, it’s basically a longer version of a standard HUD1 Settlement Statement. But the key distinction is that the lender will have to issue this document. Which means that the title company and the lender will have to coordinate far in advance of the closing in order to make this happen. And THAT is what has the real estate industry panicking so much so that they were able to push back the implementation date to October 3, 2015. Here’s how this new legislation will affect real estate investors:

 

 

TILA-RESPA Integrated Disclosure Rule (TRID) Summary for Investors

 

  • Only applicable on closings that involve an institutional lender issuing a mortgage loan.
  • NOT applicable to all cash, hard money, owner financing, subject to or other such investor style closings.
  • Lender required to issue a Closing Disclosure 3 days prior to closing (or what they are calling “consummation”).
  • In order for the lender to issue a Closing Disclosure, they will need a final HUD from the closing company well in advance of the closing date.
  • Closing companies must now get used to preparing HUDs much further in advance of the closing.
  • Lenders already take their sweet time issuing the Clear to Close and drawing Docs, so this new requirement will add a few more business days for most loans to close.
  • If there are no last minute changes to the HUD (which always happens), the closing will take place 3 days after the Closing Disclosure is delivered to the borrower.
  • However, if there are any significant changes to the HUD after the Closing Disclosure is delivered, a new one may be required restarting the 3 day clock.
  • In other words, EXPECT DELAYS when selling a property to a retail buyer who is getting a mortgage to purchase your property

 

TRID Integrated Disclosure Rule

 

“The Know Before You Owe Rule”

We’re going to go over legislation of this ruleĀ for the United States. It’s when there is an institutional lender lending money on the transaction.

 

Who This Does Not Effect

 

  • If you’re outside the United States this doesn’t effect you.
  • if you’re buying a property all cash
  • if you’re buying a property with a local hard money lender
  • if you’re flipping a property in the new buyers paying all cash
  • if you doing a subject two creative closing where you’re taking over someone’s loan subject too
  • if you’re doing a creative owner financing

 

Who This Applies To:

 

This is just when we have an institutional lender involved. You have typically that happening when you are reselling a property you have fixed up that is a retail buyer. That’s what I call them. Somebody is going to buy the home to move in and live there. That’s what happened on this particular closing here.

 

TRID

 

The first thing I want to point out about this TRID. T- R-I-D, that’s the acronym that the people inside the industry mostly closely nations are calling it. The know before you owe is the street name for it.

  • This is the standard settlement statement, HUD statement this has been around for many, many, many years.
  • In fact it is issued by the HUD which is Housing and Urban Development Organization with the government.
  • What the thirty thousand foot view level of this legislation going to do is supposedly provide more disclosure for buyers. There’s know before you own.In addition to HUD, what’s also going to happen is that a lender is going to have to issue their version of a HUD.
  • It’s going to be six pages long but very different from that and it is going to have all these disclosures so that before someone buys the property they supposedly know what they’re getting themselves into. That’s the vision.

 

Important Point

 

It means lenders are going to have to get into the HUD creation business if you will. They’re going to have to start creating these disclosure closing statements which by the way this is a funny little tit bit. They’re using the phrase not closing but consummation. Not kidding.

 

A closing is now a consummation based on this legislation.

 

It means that now when there’s going to be a closing, that lender … We already know if you’ve been in the business before how difficult it can be for that lender to get the final cleared to close, to get the court docs out, to get everything ready for the actual closing. They now have an entirely new set of responsibilities and involves putting together this disclosure. This is this TRID if you will. That is going to make closings delay at the very least.

 

This is a Big Change

 

  • if you have any changes that may have to occur, that then has to be changed at the lender level, lender then has to send out potentially a new disclosure and then that puts another three day minimum sometimes more depending on how those closures been the delivered.
  • Delay for at least three more days. You can see that the main thing to take away from this, what are the gates? You have so many resources on this you can read about.
  • I’m giving you the thirty thousand foot view as a real estate investor. You need to know that come October when there is a closing that involves an institutional lender, you’re going to have delays and if you want to change the documents, such as the closing statements or maybe there’s an extra lien pops up at the end.
  • That’s going to delay you. Just be prepared for that. That is critically important.

 

More Delays

 

Outside of that legislation that we’ve talked about as far as delaying things because now the lender is getting involved in this world of closing statements, you also have some other things going on in the background. There’s a couple of different software companies that are jockeying for position to be involved in this and some of these larger title company who have had software systems in place such as First American or Republic, they now either have to update their existing software or somehow integrate with other ones. Some are going to be stuck in the old way of doing things and so that’s going to make things difficult as well because they’re going to want to integrate. When I say they, I mean these closing companies.

 

Real Estate Agents:

 

As a real estate agent, if you’re representing new buyers that are buying properties and they’re going to institutional loan, you’ve got a big responsibility now because you’ve got to be able to clarify for them what some of these different things are and make sure that everything gets done early so there aren’t delays, because this happens.

Real estate gets delayed in the closing and if it gets delayed too much sometimes people lose their loan lock, sometimes they can’t even get a loan anymore because some other billed popped up. It means that if you are going to be selling to retail buyers and you’re an investor, number one be patient. Things could change and the closing could get delayed.

Number two if you’re representing buyers in the in the space of retail buyers you better know your stuff about this. Normally this business of real estate with the changes that are occurring with this legislation.

 

Study Up!

 

I’m trying to give you just an overall view, but go read up on this, go read up on TRID, go read up on Know Before You Owe and specifically the CFPB. I think it’s Consumer Finance Protection Bureau board, something like that. That is the actual part of the government that is issuing this. You can look up on their website and learn everything you need to know about it. You can talk to your law state professionals in your area whether title companies, real estate agents.

I’m just telling you get ready for delays and that is very, very important in this business. To be patient when there are delays and better yet learn this business so well that you can head things off before they become delays so you can always nip every little detail in the bud.

What if you get to a day before closing it up you forgot to do the pest inspection? Well, you better just pay that out of your pocket before you have to stick it on the hood. See what I’m saying? They’ll delay you three days.

 

  • Make sure you put things in order and be organized part of these closings especially when you’ve got a retail buyer involved.
  • I’m as an investor loving selling to retail buyers because I make more money.
  • If I flip to another investor that works very well when you have a house that needs a ton of work, but if a house just needs some cosmetic work as you seen from other videos, I like to sell to retail buyers.
  • That’s why I’m making twenty four thousand four hundred fifty one dollars and thirty seven cents. That’s how it’s done.
  • You don’t make that kind of money when you typically to flip to other investors because they take the lion’s share of profit.
  • If you’re going to be in the business be prepared for delays and then also learn what’s going on here.
  • I talked to your title company, get a feel for what their role is going to be, how easy they’re going to be able to integrate with their software to really get this thing moving.
  • There’s going to be changes too. After all that as well expect there to be more delays, more changes in actually rolling this thing out. It already has been delayed once.

Comments

  1. Roger Jones says

    What has happened to the banking lobby. They’re letting the liberals steal more money from consumers in the end. Another half-assed FIX from the Obama bandits who don’t have a clue. Next thing you know the EPA will get into the mortgage business. ha ha

    • That’s not funny. It’s not funny because it’s true. Already the Army Corps of Engineers has a say. HUD, Federal Reserve, already have a say. It’s easy to see EPA getting involved. There’s always a “protection” pretext.

  2. Chris Islas says

    Phil,
    Thank you for the outline you have listed…sure does make things a lot easier and allows me to focus more on your subject matter. Also that you keep us (me) posted about the new changes that will be in effect in order to be prepared and to be ready for it.

    Thanks again and keep sending those videos because they are indeed helpful to any greenhorn or seasoned investor.

    Regards,

    Chris Islas

  3. Thanks Phil for the very pertinent information, Clearly explained, and good tips for researching further. There’s a reason your #1 on YouTube. I appreciate the time you give to educate and inform those of us on this REI journey!

  4. Great info always following you Phil

  5. Thank you for the heads up.

  6. When do we have to get houses smog certified ?

    • Phil Pustejovsky says

      I’ve never heard of such a thing? How does a house create smog? Or is the concept to prevent smog from leaking in the house through poor construction of the home?

  7. Hey good looking out phil, it seems epa protects environment over people, thus creating a whirlwind of problem for the ones doing the right thing in life. Its really not the complex. We use real bankers and not algorythems to determine credit worthiness. They make a decision based on gut instinct it seems. Therin lies the root of the evil. We must not try to calculate probable outcomes it sounds funny saying this yet if we replaced derivatives with actual love perhaps we would all have more utility and happiness. Seems odd to attack a problem like this yet I assure you it works. You see Phil if you remove the machine your left with actual people who live and breath… in connecting with others all the way back to the trading floor this problem seems easily solved. They must shake hands in reality not just press an enter button.

    • Phil Pustejovsky says

      Great point. Computers can’t make decision like humans nor can they create commitments the way human to human interaction can. I appreciate the words of wisdom you shared.

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