Page 4 - John Hundley 2010

► For most transactions, any increase of more than .125% in the Annual Percentage Rate
(“APR”) from the initial TIL disclosure requires that the TIL disclosure be revised and re-
issued to the buyer and that the buyer receive the revised TIL statement at least three
business days before closing. Reg. Z, § 226.19(a). Considering the many things that can change
or occur before everything is finalized in a transaction, there are a number of things that can impact
the buyer’s APR, such as the effect of general economic trends on an unlocked rate, a change in the
loan amount, a change in type of loan, a change in closing date, changes to fees, etc. Any of these
may trigger a new TIL disclosure requirement – and a new waiting period.

If the homebuyer is financing the property, these new regulatory
guidelines will impact the closing date. In the past, buyers and sellers
often would agree on a date and then expect everyone else (lenders,
title providers, appraisers, closing agents, etc.) to move mountains to
meet that date. Purchase contracts still can be written with a specific
date in mind. However, that date should be far enough in advance to
allow time for proper disclosures. Although picking a closing date 30-45
days from contract signing will probably in most instances be workable,
the new regulations will virtually eliminate “RUSH” deals where
lenders, appraisers, title companies and closing agents are
expected to close the transaction post-haste.

Buyers, sellers, their lawyers, real estate agents and all others involved in real estate sales also
should consider the implications which these changes may have on the form of contract used. How
firm must the mortgage commitment be to meet the mortgage contingency clause? What if, on the
deadline for the close of the contingency period, the buyer gets a commitment on terms which require
new disclosures and waiting periods? Whose fault should it be if the closing legally cannot occur on
the set date because of some waiting period arising after the contract is signed?

The situation created by these new regulations is complex enough
when everyone involved wants the deal to close – but sometimes changed
conditions, or a change of heart, causes one side to want to get out of the
deal. Planning and providing for the uncertainties which may arise as
a result of these changes will be a new challenge for real estate
contract drafters.
In addition to the changes outlined above, the
settlement statement required to be used at closing
under the Real Estate Settlement Procedures Act
(12 U.S.C. § 2601 et seq.) (i.e., the “HUD-1”) has also been changed. At
least at the outset, parties should not be surprised if these changes cause
some delays in the closing which constitutes the legal transfer of the home.
Real estate agents, lenders and others involved in the process should attempt to avoid giving buyers
and sellers unrealistic expectations during the period of transition to the new forms and regulations.
John\Sharp Thinking\#29.doc
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