Residential real estate professionals and consumers looking to buy or sell their homes will see changes in federally required loan closing procedures and protections in 2010. In certain circumstances, the loan originator will have to provide the borrower with a separate written list of closers available in the community. The new requirement may cause significant modifications in Florida business practices.
The Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act of 1974 (RESPA) protects consumers by making the home closing process for "federally related" mortgages more transparent. RESPA also attempts to control abusive business practices that make residential loan closings more expensive for consumers. At a mortgage closing, the borrower executes voluminous, detailed and legally binding contracts committing himself or herself to the home mortgage and granting the lender a lien in the property.
Upcoming Regulation Changes Affecting Settlement Services
RESPA is administered by the U.S. Department of Housing and Urban Development (HUD); the law's detailed procedural requirements are spelled out in HUD's RESPA regulations, known collectively as Regulation X. HUD recently completed a major overhaul of Regulation X, hoping to make residential loan closing costs even lower by strengthening and fine tuning disclosure requirements, improving required forms and helping borrowers shop for closing services more competitively and conveniently. Some of the changes were effective in 2009, but the provision providing borrowers with a written list of closers - also called settlement service providers - becomes effective January 1, 2010.
The new regulation defines "settlement services" broadly to include not only traditional closers, but also other professionals necessary to the transaction such as title examiners; title, hazard and mortgage insurers; appraisers; real estate brokers; pest and mold inspectors; loan processors; underwriters; attorneys; and other providers of settlement services.
HUD hopes that providing a list of settlement service providers to the borrower will make comparative shopping easier and thereby save time, lowering costs, increasing competition and leveling the playing field among service providers.
Impact on Florida Real Estate Closings
In the vast majority of Florida counties - although notably not Dade and Broward - standard practice is for the seller to select the closing agent and purchase title insurance. The standard real estate sale contract form currently in use, as provided by the Florida Association of Realtors (FAR) and the Florida Bar (BAR), allows for marking either the seller or the buyer as responsible for title insurance. The form also delegates the choice of closing agent to the party buying the title insurance (or to the seller if there is no title insurance requirement).
Those watching the new HUD requirement speculate that the standard form may have to change to reflect that it is the buyer who selects and pays for the title insurance and closing service providers. Real estate companies and lenders that have ownership interests or working relationships with particular settlement service providers may not be able to steer business any particular way when buyers receive broader lists of providers from which to choose. Business practices will likely change significantly in the majority of counties where sellers have traditionally chosen title insurers and settlement service providers.
Legal Counsel Important
Everyone - consumers, lenders, real estate agents and other professionals - affected by the new RESPA regulation changes should consult a knowledgeable real estate lawyer for guidance. Real estate professionals will need to learn how to comply with the detailed rules, and consumers should understand the information and service to which they are entitled. Legal documents will need to be reviewed by experienced attorneys for compliance and modification.