Federal Disclosure Law Flashcards
The 4 important federal and state laws protecting residential and personal property transactions.
1) . Real Estate Settlement Procedures Act
2) . Truth-in-Lending Act
3) . Dodd Frank. Act
4) . Lead-based Paint Act
RESPA. (Real Estate Settlement Procedures Act). USC 2601
What is its purpose?
1) . Require disclosures regarding settlement costs be made
2) . Eliminate kickbacks or referral fees (ie: escrow giving kickbacks to lender)
3. Limit the amount required to be placed in an escrow account
RESPA applies if borrower receives mortgage loan regarding residential property from a federally insured lender.
Commercial, agricultural and business transactions are exempt from RESPA.
If RESPA applies what are the requirements?
- Lender must provide a LE : Loan Estimate to the borrower under TRID : Truth-in- Lending RESPA Integrated Disclosure
A). Not later than 3 business days( not counting Sundays or holidays). After lender receives loan application or sufficient info to complete the loan application
B). At least 7 business days before consummation
What is an LE?
An LE is an estimation of costs associated with the loan and closing of property.
Closing costs include origination fee, escrow fees, insurance fees, gov. Recording charges, transfer taxes,, homeowners insurance policy, daily interest, and the loan amt. w/ associated fees.
Standardized form to help consumer compare different lenders.
The only fee that a lender is permitted to charge is the cost of the credit report.
A loan must not close sooner than 7 business days from delivery of the LE.
Lenders required to give borrowers a booklet within 3 business days of applying for a loan.
What is a CD. (Closing Disclosure)
Formerly known as the settlement statement or settlement sheet.
A federal form for purchasing real estate loans.
Done by 3rd party like escrow agent or lender or qualified party.
Similar to a balance sheet. An accounting of costs and prepaid items ( credits and debits) summarizing the sale.
Borrower has a right to inspect theCD for3 business days.
What is TILA?
Implemented through REGULATION Z
THE LAW AND REGULATION IS TO PROTECT THE CONSUMER in consumer credit transactions, residential-related transactions by requiring disclosures from creditors about credit terms and costs
The TILA does apply many credit situations including residential real property but does NOT involve credit for business, commercial or agricultural purposes.
The finance Charge is the borrowers cost of receiving a loan.
The finance charge can include: interest, credit report fees, origination fees, discount points, funding fees, appraisal fees, mortgage broker fees, underwriting fees, loan servicing fees, MIP and PMI.
Does not include: finance charge in real-estate related transactions does NOT include
Loan application fees, notary fees, title examination fees, title insurance, transfer taxes, fees for loan preparation ( deed, mortgages and promissory notes) , recording fees, escrow fees, survey costs, termite inspections, seller’s points and attorney fees.
(APR) Annual Percentage Rate is actual cost of borrowing money. Expressed in form of ANnual interest rate to compare vendors.
APR adds the finance charge over the length of the loan to the interest rate.
APR considered accurate if it is computed to be within ⅛ of 1% of actual rate OR
if not it must be rounded to the nearest ¼ of 1%.
What is the Right of Recission?
Only good on certain transactions. Ability to cancel a transaction after it closes.
The right of recission is 3 business days from closing.
Applies to home equity loans, reverse mortgage loans and refinancing funds of a different lender in an owner occupied property.
If creditor fails to give borrower a notice of the right to rescind, the borrower has3 years
To rescind from the transfer of borrower’s interest in the property. Or
Upon sale of the property, whichever occurs first.
What does the right of recission NOT INCLUDE?
A residential property being used as security for a loan to purchase that property (purchase money mortgage). When a consumer buys a home on credit and uses his home as collateral for the loan, there is NO RIGHT OF RECISSION.
Refinancing by same creditor that already has a secured interest in the consumer’s residence up to the amount of the unpaid principal balance. The right of recission applies to only the amount that exceeds the unpaid principle balance.
What is the Dodd-Frank Act (DFA)?
Federal law that permits government to regulate the financial industry.
It created a new regulatory body,
The Consumer Financial Protection Bureau. (CFPB)
Regarding real estate transactions CFPB integrates TILA and RESPA, The disclosures collectively are known as TRID: Truth in Lending RESPA Integrated Disclosure.
What are the Violation of THE TILA or Regulation Z. If there is a violation of TRID, there can be civil liability, criminal liability or both.
1). Civil penalties from$5,000. To $1,000,000.00/ day for known violations
First tier= $5,000./day
Second Tier= $25,0000/day.
Third Tier: $1,000,000./day
2). Criminal
