Governor Andrew Cuomo recently signed a bill that clarified the obligations of settlement service providers under two federal consumer statutes by defining the term “consummation of a mortgage loan” as “when the applicant for the mortgage loan executes the promissory note and mortgage.” See N.Y. Banking Law § 2(30). Under both the Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”), lenders and other settlement service providers are required to perform certain acts by the time the consumer consummates the loan. For example, TILA requires a lender on a residential mortgage loan to make “a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance (including mortgage guarantee insurance), and assessment.” 15 USC § 1639c. Likewise, under the Consumer Financial Protection Bureau’s new TILA-RESPA Integrated Disclosure rules (“TRID”), a Loan Estimate form generally may be revised so long as it is provided to the consumer no later than seven business days before consummation. 12 CFR § 1026.19(a)(2)(i). Additionally, a consumer’s time to exercise his or her right of rescission under TILA is based on the consummation date. 15 U.S.C. § 1635.
However, the federal regulations state only that “[c]onsummation occurs when the consumer becomes contractually obligated to the creditor on the loan” but that the date that the consumer becomes contractually obligated “is a matter to be determined under applicable law.” 12 CFR § 1026.2(a)(13); Comment 2(a)(13)-1. Some New York courts previously had defined consummation as the date the mortgagor and mortgagee had signed a loan commitment contract, which would have been prior to the date the note and mortgage were executed. See Murphy v. Empire of Am. FSA, 583 F. Supp. 1563, 1565(W.D.N.Y.),aff’d, 746 F.2d 931 (2d Cir. 1984) (“New York and Federal Courts have held that consummation of a transaction occurs at the time the commitment contract is executed.”). Therefore, this new legislation provides clarity to lenders and other service providers as to their obligations under these federal laws.