Changes to Real Estate Closings That Might Affect How YOU get Paid
By Jamey Tippens
New closing rules go into effect October 3, 2015
Beginning October 3, 2015, there will be major changes in Real Estate Closings in NC and around the nation. This part of a process started by the Consumer Financial Protection Bureau (CFPB) to make mortgages and lending more clear and simple for consumers, and to make the loan process simpler to negotiate. The new rules are called TRID (TILA-RESPA Integrated Disclosure)
This article states the basic facts about the changes to closings and how this MAY affect home inspectors and their clients. Most of the information here comes from a great presentation given by a knowledgeable real estate agent at the Triangle Chapter meeting last month. I encourage you to join your local NCLHIA chapter so you can learn from the experts.
Borrowers' privacy will be more thoroughly protected than in the past. Closing attorneys and lenders must transfer documents through an encrypted portal - this will increase the costs of closings. Buyers and sellers will have separate closings.
The closing document will no longer be called the HUD-1, but will be replaced by a "Closing Disclosure" or CD. Buyers must have the closing disclosure in hand three days prior to closing if hand delivered, and six banking days if delivered by other methods, and no changes will be allowed after that time. Banking days are Monday through Saturday. This is a change from the present condition where changes can be made up to the time of the closing. For home inspectors who will be paid at closing, this means your invoice must be at the attorney's office well in advance of the closing or you may not get paid.
The CFPB will fine attorneys $20,000 a day for violating this rule.
Due to these restraints, large banks will no longer trust anyone but themselves to handle closings - and you'll see many more closings in-house through the lenders rather than through local real estate attorneys. Some banks will still allow closing attorneys but the big national banks will not.
So my advice is get paid at the time of inspection, not at the closing. It's no longer the job of the Realtor or the paralegal at the lawyer's office to accumulate all of the invoices - it becomes incumbent on the inspector to make sure the invoice is in the proper hands.
Lenders will want all invoices within FIVE days of contract formation. This will make arranging inspections difficult, since most of us schedule two or three weeks in advance during the busy months. If you are going to be paid at closing, you should submit your invoice immediately on scheduling the inspection - even if the inspection is two weeks away. Some attorneys and Realtors may want to submit invoices on behalf of inspectors from a verified price list.
Lenders will have much more control over the real estate process than in the past - this will put extra pressure on Realtors.
Additional costs for borrowers:
The encrypted portal cost will be necessary whether or not the transaction goes to closing.
Most attorneys now wait until the last minute to acquire title insurance for a transaction. The new rules mean that title insurance must be purchased sooner and buyers will have to pay in advance, not at closing.
Due diligence fees will likely increase.
Closings will likely be slower.
On most loans, the additional costs will be out of the buyer's pocket and not payable at closing. This means that buyers will have less cash at the time of the inspection and may want to pay you at the closing.
Buyers will be so financially committed that sellers will refuse to make repairs - sellers will have the upper hand.
Buyers are making more of a gamble.
Realtors may hold off on forming the contract until after the inspection to give the buyer a chance to terminate before investing more money.
Buyers will be looking for places to cut costs.
Some Realtors will be lost and confused when the new rules come into effect, though as of August 31, more than 80% of Realtors surveyed
have had some training about the rules. If you plan to be paid at closing it may be necessary to go over the agent's head and deal directly with the attorney or lender.
For more information about the new processes, CFPB has a web page for real estate professionals.
The bottom line for inspectors is: Get Your Payment Now. Don't wait until closing.