In This Issue
TILA-RESPA Integrated Disclosure
Posted by Ticor Title
Assembly Bill 475
Posted by Mike Federwitz – Key Realty School
FHA Foreclosure Sales
Posted by Brian Dziminski Esq.
Lending and TRID
Posted by Mike Dean
- Recent State Bulletins
“Any time an unlicensed assistant has communication with the client or the public, there is always the possibility that those communications will likely result in activity requiring real estate licensure.”
— Jan Holle / Chief Compliance / Audit Investigator
- CFPB / TRID (TILA/RESPA Integrated Disclosure) – What have we learned?
Here we are starting a new year under the CFPB / TRID requirements.
We all spent many hours training and preparing our systems to participate in the delivery of the CFPB required Loan Estimate and Closing Disclosure. The lender is primarily responsible for the preparation and delivery of the Loan Estimate within 3 business days of receiving a complete loan application along with the preparation and delivery of the Closing Disclosure to the borrower in time for the required 3 day review prior to signing their loan documents. The lender relies on the title company or settlement agent to provide them accurate information for fees and other “costs of the transaction”.
What have we learned since October 3, 2015? – The day the TILA/RESPA Integrated Disclosure requirements went into effect.
Time to Learn
Everyone is still learning about TRID. Lenders and their investors have different interpretations of the Consumer Financial Protection Bureau (CFPB) Rule. Concerns for fines and penalties that can be assessed to the lender by the CFPB create requirements for additional documentation or re-disclosures. Some of the additional requirements include signed Seller Closing Disclosures.
Systems are different between lenders. Some are requiring quotes on fee sheets. Some are requiring transferring of information for the preparation of the Loan Estimate and Closing Disclosure via electronic online systems. Some want only our title, escrow and recording fees. Some want everything including pro-rations, transaction fees, home warranty fees, mobile signing fees – All closing costs.
Early communication between all parties is important for a smooth transaction and to reach the goal of the contract closing date.
Protection of the Consumer’s Non-Public Information
Many of the requirements from the lenders include the protection of the Consumer’s Non-Public Information. This includes sending “non-public information” via Encrypted or Secure Mail.
How can the real estate professional help?
- Communicate with the lender and escrow officer.
- Provide transaction/broker/document fees up front. – These are not listed on the purchase agreement.
- Provide amount of commission up front.
- Let everyone know if the buyer will need a mobile notary for the closing documents.
- HOA Demands need to be ordered early in the transaction. Be prepared for any HOA Demand fees that might need to be paid up front. Communicate with the seller.
- Home Warranty – Order early. Especially if the buyer is paying for the Home Warranty or adding additional coverage.
- Is Buyer/Seller married – Will we need a quitclaim deed from the spouse? Will the spouse need a mobile notary?
- Plan an early walk through – Avoid additional costs at walk through that could possibly cause a re-disclosure
- Real Estate Agent’s License Number – Required to be listed on the Closing Disclosure Form.
- Be prepared to accept / open encrypted email. The CFPB and Nevada Law requires anyone sending the consumer’s non-public information via email to send it in a “secure encrypted” method.
The CFPB / TRID requirements brought one of the biggest changes to the real estate industry since 1974. As with any change there is a learning and adjustment curve. We at Ticor Title take pride in your business and working together for a smooth transaction. We are always here to help and answer your questions.
Please feel free to contact us anytime at 702-932-0777.
Assistant Vice President
Ticor Title of Nevada, Inc.
- Assembly Bill 475 and What this means to Nevada Real Estate Licensees
- Summary – In summary, this bill removes Real Estate license Fee Increases and Reverts from Fee Based to General Fund. This bill also reverts licensing fees and license validation periods for terms prior to the 2011 legislative session wherein fees and terms were doubled in the 2011 session. The changes made within the 2011 legislative session should have never taken place and were created in a hasty effort to bring the general fund banking back to normal thresholds. Many licensees failed to renew their Nevada real estate license in light of the 2008 financial crisis and therefore there were not as many licensing fees collected to maintain the budget expenditures of the Nevada Real Estate Division. This bill is designed to reverse the 2011 bill and revert to licensing fees in play prior to the 2011 legislative session. (Everything is back to 2 year license renewal periods)
- Pros – This bill creates a less confusing way of monitoring license validation and renewal periods. The revisions to NRS 645 as noted within this bill synthesize NRS and NAC 645 wherein the period of validation now coincide. Allowing the shorter validation terms allows for smaller fees to be paid incrementally and thus may entice more licensees to maintain the license in consideration of the smaller fee. More licensees in active status or current status equates to more money allocated to the Nevada Real Estate Division from a long term prospective and a more capital licensee environment.
- Cons – This is a situation of if it’s not broken, then don’t fix it squared. Many opponents to the 2011 bill doubling all fees sited shifts in the economy and realization that market places and thus real estate related activity rises and falls over time. The opponents suggested that all fees remain as is and that a change was not necessary as it may actually hurt the licensee marketplace over time. It did, many licensee’s failed to renew their license siting the larger fee and the confusions caused by the contradictions with the licensing laws of NRS and NAC 645. In early 2015 surveys noted that the licensing body finally understood the definition of license validation / renewal requirements and the requirements of continuing education within. Now again in 2015, the legislature modifies (reverts) the licensing to confuse the licensee marketplace again. Once again NRS and NAC645 licensing law will be in disarray as they contradict in certain points.
- What does this mean licensees – In summary, your renewal period is once again 2 years for education and licensing fees accordingly. The exact bill can be read in context here: http://www.leg.state.nv.us/Session/78th2015/Bills/AB/AB475_EN.pdf
- Where can I get more information about continuing education, the courses offered and renewal periods? Use this link: http://www.keyrealtyschool.com/courses/real-estate/continuing-education
Article by Michael Federwitz
Key Realty School
3650 East Flamingo LV NV 89121
Tel.: (702) 313 7000
- HOA Foreclosure Sales in Nevada – What Title is the Purchaser Receiving?
- One of the hottest topics in Nevada real estate law is the effect of a homeowner’s association foreclosure on other recorded instruments, including first mortgages. There currently exists a rift between cases decided in state court and federal court regarding these issues. And, because so many homes have an HOA lien foreclosure somewhere in their recent chain of title, questions arise as to who really owns the property and whether there remain any encumbrances against such title (and if a buyer and their lender can get clear title and adequate title insurance coverage). As such, resolving such questions can get really messy and has resulted in many licensees losing a deal after they have already invested their time and money. Thus, this presents an issue that agents acting for both buyers and sellers will likely continue to see for the foreseeable future, especially until the controlling law is unified, or at least rectified, by the courts. This article provides an overview of such issues and specifically why title obtained at an HOA foreclosure sale remains uncertain.
- In 1991, the Nevada Legislature enacted NRS 116.3116 et seq. in furtherance of the Uniform Common Interest Ownership Act of 1982 (UCIOA) generally governing common interest communities and, specifically, liens and foreclosures arising from the non-payment of HOA dues, assessments and other charges. NRS 116.3116 generally provides a homeowner’s association with a lien on its homeowners’ residences and the right to foreclose upon such lien in conformance with other provisions set forth in NRS Chapter 116. NRS 116.3116 splits an HOA’s lien into two segments – the first being a “superpriority lien” consisting of the last nine months of unpaid HOA dues and maintenance and nuisance-abatement charges, which is superior to a first deed of trust and the second being a “subpriority lien” consisting of all other HOA fees or assessments, which is subordinate to a first deed of trust. NRS 116.3116 otherwise largely followed the UCIOA, which importantly provides that any HOA foreclosure extinguishes any junior interests recorded against the subject property. Finally, NRS 116.31166(2) provides that a sale of a property as a result of an HOA foreclosure “vests in the purchaser the title of the unit’s owner without equity or right of redemption.”
- Despite these provisions, most banks and many attorneys did not believe that an HOA foreclosure extinguished a first deed of trust, or other subordinate interests such as second mortgages, liens or other encumbrances, and that any purchaser at such a sale was taking title subject to those other recorded interests. The banks alternatively argued that, at a minimum, only a superpriority lien portion of an HOA lien should have priority to a subordinate interest. Such arguments were raised in many court cases in Nevada, and eventually one of those cases – SFR Investments Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408 (2014) (SFR) was heard and decided by the Nevada Supreme Court, which held that an HOA foreclosure extinguishes any subordinate liens, including a first mortgage. The Nevada Supreme Court primarily based its holding on the plain language of the applicable statutes contained in Chapter 116 of the Nevada Revised Statutes, and the general framework of the UCIOA. Our state’s High Court further found that to protect their own interests and foreclosure rights, banks and other lenders could have paid any HOA assessments (like they did with taxes), whether by impounding HOA dues and assessments from mortgage payments or by making such payments if the homeowner stopped doing so.
- At first blush, the SFR Decision seemed to resolve all of the arguments and it initially freed a large logjam in Nevada courts of many pending similar cases. However, with literally billions of dollars at stake, the banks/lenders were not done with their fight, and began advancing other arguments to avoid the effects of SFR decision. Many of those arguments are fact-specific to any given case in regard to an alleged lack of notice, bad faith in the foreclosure process, insufficient consideration when compared to the fair market value of the property, reliance on the mortgagee protection clause found in most CCRs, or some other claimed failure by the HOA to follow either its own rules, or the HOA foreclosure statutes. Once the SFR case was decided, most of those arguments were unsuccessful in state court.
- Undaunted, the banks/lenders moved their fight to federal court where they asserted that an HOA may not foreclose upon an interest held by any United States administrative agency, including any mortgage which is federally insured, i.e. an FHA or VA loan. This argument is based on the Supremacy Clause of the U.S. Constitution which generally provides that federal law controls over any state laws. A few of the United States District Court Judges have agreed with the banks/lenders, albeit at varying levels. Notably, one U.S. District Court Judge entirely agreed with this argument in setting aside an HOA foreclosure of a federally-insured mortgage and declaring the sale void as a matter of law because it violated the Supremacy Clause. Another U.S. District Court Judge similarly found that while an HOA did possess the right to foreclose for non-payment of its assessments, the federally insured mortgage was not extinguished by the HOA sale and the purchaser took subject to that interest. However, a third U.S. District Court Judge rejected these arguments, finding that a federally insured mortgage does not rise to a level of a protectable interest. Similar cases are also working their way through the state courts, though the majority of the state court judges have strictly applied the SFR Decision and enforced its holding that an HOA foreclosure extinguishes all subordinate interests, including those which are federally insured.
- So what’s next? Notably, even though by the time it met in 2015, the SFR decision had been rendered, the Nevada Legislature did not amend NRS 116.3116, or pass any new legislation to limit or qualify that statute or to address the impact of the decided case. This inaction seemingly confirmed the Legislature’s intent per NRS 116.3116, that subordinate interests are foreclosed by an HOA foreclosure sale. Meanwhile, all three of the aforementioned federal court decisions (as well as similarly decided cases) have been appealed. Finally, the Nevada Supreme Court and/or our newly formed Nevada Court of Appeals are also examining some of these new arguments. It is anticipated that decisions from all those courts will be forthcoming, but we just do not know when. Although such decisions should provide further guidance – and hopefully complete clarification – of HOA lien foreclosure law, and the consequences for subordinate interests, with billions of dollars at stake, the last chapter of this drama has not yet been written. Practically, before you as an agent invest time and money into trying to help your clients sell or buy a property, pull a preliminary title report. If you see an HOA lien foreclosure, and if you do not run away, be aware of the odyssey on which you and your clients are about to embark.
Article by Brian R. Dziminski, Esq.
Law Offices of John Benedict
2190 East Pebble Road, Suite 260
Las Vegas, Nevada 89123
Tel.: (702) 333-3770
The Law Offices of John Benedict is a boutique law firm primarily emphasizing its practice in real estate and business law, both transactions and litigation. This article shall neither be considered to constitute legal advice, nor does it create any attorney-client relationship. Should you have any questions, legal issues, or referrals, please feel free to contact John or Brian.
- Mortgage Lending and TRID
What is it- TRID is an acronym for Truth-in-Lending Act/RESPA Integrated Disclosures. It became effective on October 3rd, 2015, and its purpose is to simplify mortgage disclosure forms. TRID is a product of the Consumer Financial Protection Bureau (“CFPB”) which assumed the oversight role previously held by HUD, and is one of many changes resulting from the Dodd-Frank Act. TRID combines the prior TILA and RESPA disclosures into two forms: the Loan Estimate and the Closing Disclosure.
The Loan Estimate – The Loan Estimate is the first disclosure mortgage applicants will see. It contains figures and calculations not previously seen in mortgage disclosures, some of which are helpful, and some of which may cause confusion.
The Good, The Bad, and The Ugly of the Loan Estimate – Gone are the days of a lender grabbing an application fee and roping in the consumer, who of course does not want to lose the fee. One of the requirements of TRID is that the lender cannot charge a fee – except for the credit report – until after a consumer has received a Loan Estimate, and has consented to proceed with the transaction. The consent must be expressed, i.e., if the consumer is silent, this silence cannot be interpreted as consent.
The lender must send the Loan Estimate within three business days after receiving an application from a consumer and the final Loan Estimate must be issued at least 7 business days prior to the closing.
The cost estimates used by the lender in calculating the Loan Estimate must be made in “good faith”, meaning that the numbers will be presumed to be based on the best information available and the lender may have to refund to the consumer certain amounts if the amounts vary between the Loan Estimate and the Closing Disclosure. It’s expected that lenders will “pad” fees to assure the actual fees will come in lower. A consumer has 10 business days after it is deemed to have received the Loan Estimate to decide whether to proceed with the transaction.
The Good Part of the Loan Estimate – The Loan Estimate displays the cost of the mortgage over 60 months, and this cost includes not only the typical mortgage payments, but also any upfront costs which were associated with obtaining the loan. What are these upfront costs? Items such the appraisal fee, title insurance, and escrow fees. These fees can often run into the thousands. By displaying the cost of a mortgage in total, a consumer can more easily compare loan offers.
The Bad Part of the Loan Estimate – Here is where the CFPB meant well, but may have made things worse. The main focus of the Loan Estimate is to alert mortgage consumers to the cost of a mortgage over 5 years, or 60 months. So far, so good. 5 years is a reasonable benchmark because many mortgages do not last more than five years, as homeowners tend to move, or refinance, within that period. Further, many adjustable rate mortgages are fixed for the first five years.
The CFPB created confusion by requiring the prominent display of the APR, and the interest paid over the life of the loan. This is sure to cause confusion. An APR is a theoretical calculation which assumes a perfect amortization over the term of the loan. By perfect amortization I mean identical payments for 15, 20, or 30 years and it only applied to fixed rate mortgages because nobody can predict which way an ARM loan might go. A perfect amortization means no early pay-offs, no home sale, no mortgage refinance no extra prepayments – ever. In a perfect amortization, the APR will reflect the cost of the loan if amortizing not only the loan, but any loan origination charges from the lender. Here’s where the inclusion of an APR causes confusion. Mortgage borrowers rarely if ever keep their mortgage forever! Thus the display of a lifetime APR next to a 60 month summary of costs is confusing. APRs are sacred in terms of finance disclosures for cars and credit cards, but in the case of the Loan Estimate, mixing a 30 year APR for a mortgage with a 5 year snapshot is not helpful.
The Ugly Part of the Loan Estimate – The CFPB also requires that the interest paid over the life of the loan, and when compared to the original amount borrowed, be listed as a percentage. This figure is irrelevant because in all likelihood, the mortgage applicant will not keep the mortgage for life, and even if so, will most likely pay down the mortgage aggressively in later years, thereby mitigating interest charges.
The inclusion of a lifetime APR, and a lifetime of interest paid (expressed as a percentage to the aggregate loan amount no less) is not useful to the typical mortgage applicant. What is useful? The mortgage payment, and the costs to obtain that payment. Fortunately the Loan Estimate includes these two critical figures.
Patience will be required- The Loan Estimate is here to stay, and it is sure to cause headaches. While the intent of the CFPB was to protect and educate consumers, the Loan Estimate itself may cause unintended consequences, especially as it relates to the timing of real estate transactions. If for example any part of the loan transaction changes, such as an adjustment to the loan amount, or loan program, or a higher or lower rate, the Loan Estimate must be reissued, and a new waiting period is established. This has the potential to wreak havoc on loan closings and real estate closings, as most if not all of these transactions “come down to the wire”.
Article by Mike Dean (NMLS ID 162919)
Leader One Financial
701 N. Green Valley Parkway #100
Henderson, Nevada 89074
Tel.: (702) 938 7602