Property Taxes in Unlimited Tolerance Category per CFPB not subject to cure

On February 10, 2016, the Consumer Financial Protection Bureau (CFPB) published a correction in the Federal Register which clarifies Property Taxes are considered to be “charges paid for third-party services not required by the creditor” under Section 1026.19(e)(3)(iii) which are not subject to any tolerance limitations. This means no cure amount from Lender will be required if the actual amount collected on the Closing Disclosure (CD) is more than the amount disclosed on Loan Estimate (LE) for Property Taxes in Section F. DocsDirect has been updated so that Property Taxes will be included in the unlimited tolerance category not subject to a cure.

Based upon this correction, whether or not the Property Taxes in Section F are disclosed, the amount would not be subject to tolerance limitations nor result in a cure. However, the spirit of the rule is to disclose the charges the consumer will be required to pay at consummation. Therefore it is our opinion that if the lender finds Property Taxes are due at closing, and this was information that was not available at application or changed after application, this would be a valid change of circumstance and the LE could be re-disclosed to the consumer reflecting the Property Taxes in Section F, at least one day prior to the CD being issued. Please remember, if the CD has been issued, the LE cannot be re-disclosed. Lender should confirm any re-disclosure of the LE meets the valid change of circumstance requirements for their investors.

Best Practice: If Refinance, disclose full year of Property Taxes due in Section F if any possibility exists that taxes are due and payable at time of closing.

If you have any questions, please contact compliance@docsdirect.com.

Link to Federal Register:
https://www.gpo.gov/fdsys/pkg/FR-2016-02-10/pdf/2016-02630.pdf

References:

Federal Register Vol. 81, No. 27, Page 7032, February 10, 2016
12 CFR Parts 1024 and 1026
2013 Integrated Mortgage Disclosures Rule Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z); Correction of Supplementary Information
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Correction of supplementary information.

SUMMARY: In 2013, the Consumer Financial Protection Bureau (Bureau) issued the ”Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)” final rule (TILA–RESPA Final Rule). The Supplementary Information to the TILA–RESPA Final Rule contained a typographical error, which this document corrects, regarding the application of tolerances to property insurance premiums, property taxes, homeowner’s association dues, condominium fees, and cooperative fees.

DATES: This correction is effective on February 10, 2016.

SUPPLEMENTARY INFORMATION: In 2013, the Bureau issued the ”Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)” final rule (TILA–RESPA Final Rule), combining certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan. The Supplementary Information to the TILA–RESPA Final Rule (2013 Supp. Information) contained a typographical error, which this notice corrects. Specifically, on page 79829 of Volume 78 of the Federal Register, in the first column, in the sentence containing ”property insurance premiums, property taxes, homeowner’s association dues, condominium fees, and cooperative fees,” the phrase ”are subject to tolerances” should read ”are not subject to tolerances.”

Section 1026.19(e)(3)(iii) is titled ”Variations permitted for certain charges” and lists certain charges— including property insurance premiums, ”[a]mounts placed into an escrow, impound, reserve, or similar account,” and ”[c]harges paid for third-party services not required by the creditor”— in the category of charges not subject to tolerance. Property taxes, homeowner’s association dues, condominium fees, and cooperative fees are all ”[c]harges paid for third-party services not required by the creditor.” Additionally, the 2013 Supp. Information sentence being corrected here is inconsistent with the sentence that precedes it, because the preceding sentence states that ”property insurance premiums are included in the category of settlement charges not subject to a tolerance, whether or not the insurance provider is a lender affiliate.” Consequently, on page 79829 of the 2013 Supp. Information, regarding ”property insurance premiums, property taxes, homeowner’s association dues, condominium fees, and cooperative fees,” the phrase ”are subject to tolerances” should read ”are not subject to tolerances.”

Accordingly, the Bureau makes the following correction to FR Doc. 2013–28210 published on December 31, 2013 (78 FR 79730): 1. On page 79829, in the first column, in the 48th, 49th, and 50th lines, revise ”are subject to tolerances whether or not they are placed into an escrow, impound, reserve, or similar account” to read ”are not subject to tolerances whether or not they are placed into an escrow, impound, reserve, or similar account”.

Dated: February 2, 2016.
Richard Cordray, Director, Bureau of Consumer Financial Protection.

Federal Compliance / Truth in Lending Act / Regulation Z – Truth In Lending (12 CFR Part 1026)
Part 1026, Subpart C: Closed-End Credit
§1026.19: Certain mortgage and variable-rate transactions
(e) Mortgage loans secured by real property—early disclosures.

(3) Good faith determination for estimates of closing costs.

(i) General rule. An estimated closing cost disclosed pursuant to paragraph (e) of this section is in good faith if the charge paid by or imposed on the consumer does not exceed the amount originally disclosed under paragraph (e)(1)(i) of this section, except as otherwise provided in paragraphs (e)(3)(ii) through (iv) of this section.
(ii) Limited increases permitted for certain charges. An estimate of a charge for a third-party service or a recording fee is in good faith if:

(A) The aggregate amount of charges for third-party services and recording fees paid by or imposed on the consumer does not exceed the aggregate amount of such charges disclosed under paragraph (e)(1)(i) of this section by more than 10 percent;
(B) The charge for the third-party service is not paid to the creditor or an affiliate of the creditor; and
(C) The creditor permits the consumer to shop for the third-party service, consistent with paragraph (e)(1)(vi) of this section.

(iii) Variations permitted for certain charges. An estimate of the following charges is in good faith if it is consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of whether the amount paid by the consumer exceeds the amount disclosed under paragraph (e)(1)(i) of this section:

(A) Prepaid interest;
(B) Property insurance premiums;
(C) Amounts placed into an escrow, impound, reserve, or similar account;
(D) Charges paid to third-party service providers selected by the consumer consistent with paragraph (e)(1)(vi)(A) of this section that are not on the list provided pursuant to paragraph (e)(1)(vi)(C) of this section; and
(E) Charges paid for third-party services not required by the creditor. These charges may be paid to affiliates of the creditor.

Federal Compliance / Truth in Lending Act / Regulation Z – Truth In Lending (12 CFR Part 1026)
Part 1026, Supplement I: Official Staff Interpretations
Supplement I, 1026.19: Certain Mortgage and Variable-Rate Transactions

19(e)(3)(iii) Variations permitted for certain charges. 3. Good faith requirement for nonrequired services chosen by the consumer. Differences between the amounts of estimated charges for services not required by the creditor disclosed pursuant to §1026.19(e)(1)(i) and the amounts of such charges paid by or imposed on the consumer do not constitute a lack of good faith, so long as the original estimated charge, or lack of an estimated charge for a particular service, was based on the best information reasonably available to the creditor at the time the disclosure was provided. For example, if the consumer informs the creditor that the consumer will obtain a type of inspection not required by the creditor, the creditor must include the charge for that item in the disclosures provided pursuant to §1026.19(e)(1)(i), but the actual amount of the inspection fee need not be compared to the original estimate for the inspection fee to perform the good faith analysis required by §1026.19(e)(3)(iii). The original estimated charge, or lack of an estimated charge for a particular service, complies with §1026.19(e)(3)(iii) if it is made based on the best information reasonably available to the creditor at the time that the estimate was provided. But, for example, if the subject property is located in a jurisdiction where consumers are customarily represented at closing by their own attorney, even though it is not a requirement, and the creditor fails to include a fee for the consumer’s attorney, or includes an unreasonably low estimate for such fee, on the original estimates provided pursuant to §1026.19(e)(1)(i), then the creditor’s failure to disclose, or underestimation, does not comply with §1026.19(e)(3)(iii).