Last October, the Consumer Financial Protection Bureau’s (CFPB) new integrated mortgage disclosure rule under the Truth in Lending Act and the Real Estate Settlement Procedures Act (commonly known as the TILA-RESPA Integrated Disclosure rule or TRID) went into effect. Among other things, TRID requires:
- A lender deliver or place the loan estimate in the mail within three business days after receiving the loan application.
- The closing disclosure be provided to the consumer at least three days prior to consummation of the transaction.
According to the American Land Title Association (ALTA), many lenders have revised their closing instructions to require closing and settlement agents to assure compliance with the new forms and timelines implemented under TRID. Some closing instructions state that the lender will look to the settlement agent for indemnity in the event of noncompliance.
As a result of TRID and changes to closing instructions requiring the settlement agent to ensure compliance, it is increasingly important for lenders to carefully consider the nature of potential indemnity available in connection with real estate closings. Last November, we blogged about the new version of the Closing Protection Letter (CPL) introduced by ALTA and now being issued by title insurers. In the new version, title insurers attempt to disclaim indemnity for a loss arising out of:
“federal consumer financial law, as defined in 12 U.S.C. § 5481(14), or other federal or state laws relating to truth-in-lending…[or] consumer protection.”
Consequently, lenders should consider who would be liable in the event of noncompliance with TRID where closing instructions require the settlement agent to assure compliance. Given the language now in the CPL, lenders may want to seek an active dialogue with national title insurance underwriters and their local settlement agents to better define the roles and responsibilities related to TRID and to define the indemnities available. Of course, without the benefit of local settlement agents, national title insurance underwriters would be unable to generate title insurance premiums, and lenders should negotiate on that basis (among others) for protections related to TRID. In addition, lenders should educate themselves on steps the title insurance and closing industry are taking and whether local agents comply with best practices. Lenders might also consider developing an audit or review process to track closing agent performance.