Residential real estate has changed as of this month. New contract forms exist for Maryland and the District, and new mortgage disclosure rules issued by the Consumer Financial Protection Bureau (CFPB) are now in effect.
And there is new terminology. A lender is now a creditor, and the borrower/buyer is a consumer. The initial Truth in Lending statement and Good Faith Estimate that we have used for a number of years have been replaced by the “Loan Estimate.” And the old-faithful HUD-1 (the settlement statement) has been discarded in favor of a “Closing Disclosure.”
When you buy a single-family house, your lender needs a lot of basic information before a firm loan commitment can be made. You have to provide your income, a listing of assets and your monthly expenses. Usually, you have all this information and are able to submit it to the lender.
But if you are buying a condominium unit, your lender needs a lot of additional information about the association in order to assess your financial ability to repay the mortgage loan.
Community associations obtain their income from four sources: regular assessments, special assessments, transfer fees and miscellaneous move-in/transition fees charged at closing. And under the new “Know Before You Owe” disclosure rules issued by the CFPB, your lender must provide you a written Loan Estimate within four days after you request it. More importantly, consumers must be given the Closing Disclosure (the old HUD-1) three days before closing. This means that the length of time between contract and closing — which typically has been 30 days — will now most likely stretch to 45 days.
One of the principal goals of the new CFPB rules is to encourage consumers to shop around for the best mortgage terms.
The Community Association Institute (CAI) — a national trade association representing associations, board members, individual owners and professionals who deal with association issues — “was concerned it would be inefficient and burdensome for associations to provide assessment information on the same properties to multiple lenders that consumers were exploring, and accordingly we advocated for flexibility,” said Dawn Bauman, CAI’s senior vice president for government affairs.
The CFPB accepted these concerns and will allow lenders to use a “best-information-available standard” when dealing with community associations.
What does this mean? There are a number of sources where the needed information is available, such as the multiple-listing service (MLS), the seller, the resale disclosure package and even the association’s Web site. This will enable lenders to meet the four-day requirement, and it will save associations — and their property managers — the hassle of having to meet multiple demands for information.
However, according to the CAI, the CFPB does not allow the use of the “best-information-available” standard for preparing the final Closing Disclosure. Lenders and title companies must verify all association charges and ensure that all information on the Closing Disclosure is accurate.
Property managers are usually the frontline resource for providing the necessary financial information. As such, they should make sure that the information they furnish to lenders and settlement attorneys is timely and accurate.
In the Washington area, all potential condo buyers must be provided a resale package, which contains such information as the legal documents, the budget and a statement of any capital expenditures approved by the association that are not reflected in the current operating budget. Managers must make sure that this package contains all of the information required by the CFPB and the lender.
It will take time for everyone to get used to these new procedures. Potential buyers of condos and all other property types should review the rules and make the most of the stated purpose behind the rules, namely, “Know Before You Owe.”
The CFPB has published an informative booklet called “Your Home Loan Tool Kit: A Step-by-Step Guide” available online at www.consumerfinance.gov — search “toolkit.” It even has a pencil symbol that tells you to circle, check or fill in numbers right on the computer screen.
Benny L. Kass is a Washington and Maryland lawyer. This column is not legal advice and should not be acted upon without obtaining legal counsel. For a free copy of the booklet “A Guide to Settlement on Your New Home,” send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036.