Q: I have been informed that the HUD-1 Settlement Statement is being replaced by a new disclosure form. Is this true and, if so, when will the replacement occur? How will this change affect closings and what new procedures should I expect?
A: You are correct. The HUD-1 Settlement Statement (the “HUD-1”), which is the standard form used nationally to itemize closing costs and fees charged to borrowers by lenders in connection with the purchase or refinance of residential real estate, will be replaced on August 1, 2015.
The replacement of the HUD-1 is part of a new Federal Law, the TILA-RESPA Integrated Disclosure Rule (the “Rule”). The Rule consolidates certain existing residential mortgage disclosures in an effort to make it easier for borrowers to understand important information regarding their loan. The Rule requires lenders originating residential mortgage loans (excluding lines of credit and reverse mortgages) to provide 2 new disclosure forms to borrowers, the Loan Estimate (the “LE”) and the Closing Disclosure (the “CD”).
The LE replaces the Good Faith Estimate and is required to be given to the borrower within 3 business days after receiving a borrower’s loan application. The CD replaces the HUD-1 and is required to be given to the borrower 3 business days prior to “consummation,” which is generally the closing date.
Replacing the HUD-1 with the CD is not problematic, as the information set forth on both documents is similar. The important distinction is the required delivery date of the CD.
Currently, a final HUD-1 with actual closing figures is not required to be provided to the borrower until the closing. Because a final CD must generally be provided 3 business days prior to closing, the practice of waiting to finalize adjustments and other closing figures at the closing table will need to change. In many instances, final figures will need to be confirmed 3 business days prior to closing. If certain figures change after the CD is disclosed, a lender will need to provide a revised CD and wait an additional 3 business days prior to closing. As such, it is expected that following the effective date of the Rule (loan applications taken on 8/1/15 and thereafter), many closings may experience short delays. Proper planning and cooperation by lenders, borrowers, attorneys, settlement agents and all other parties involved in the closing process can minimize this result.
Important Tip: There is nothing at the moment that a real estate licensee needs to do regarding the change from the HUD-1 to the CD. However, we encourage real estate licensees to share this information with the various real estate professionals who will be affected by this change in order to encourage an environment of cooperation and collaboration so that the implementation of the CD will not be overly disruptive to the closing process.
The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP