TRID and Correcting the Closing Disclosure

Issue/Inquiry

If the Closing Disclosure did not disclose the cost of the owner’s and lender’s title insurance on the correct lines, is the Bank required to provide a revised Closing Disclosure within 30 days?

Response Summary

Generally, when an event, for the purposes of the TRID rules, occurs within 30 days after consummation that changes the amount paid by the consumer, a revised Closing Disclosure should be provided within 30 days of discovering the event. If there was an underdisclosure of the costs that the consumer was required to pay as a condition of the loan, a reimbursement should be made within 60 days after consummation and a revised Closing Disclosure should be provided. In this scenario, the disclosure error would not be considered an event for TRID purposes and was arguably not an underdisclosure. As a matter of best practice, a revised Closing Disclosure should be provided for informational purposes to demonstrate good faith and clarify the record of the loan.

Response Detail

Under the TILA-RESPA Integrated Disclosure (“TRID”) rules, if an event related to the settlement of a transaction occurs within 30 days of consummation that causes the disclosures to become inaccurate, and such inaccuracy results in a change to the fee paid by the consumer from the amount disclosed in the Closing Disclosure, the creditor must deliver or mail corrected disclosures no later than 30 days after receipt of information adequately evidencing that such event has occurred. 12 CFR 1026.19(f)(2)(iii).

The term “event” is not defined by the TRID rules in the context of providing corrected disclosures, but the official commentary lists examples of such, including changes in the fee charged by the recording office, transfer taxes paid to the state, or municipal property taxes. Official Interpretations, 1026.19(f)(2)(iii) – 1. In each case, the change had been the result of some action committed by a third party.

Changes due to clerical errors may result in a corrected Closing Disclosure being provided. An error is considered to be clerical in nature only if it does not affect the numerical disclosures, delivery, or other requirements of the TRID rules. 12 CFR 1026.19(f)(2)(iv).

The TRID rules also provide that, if amounts paid at closing exceed the amounts disclosed in the Loan Estimate by more than the allowed tolerance, a creditor is not in violation of the requirement for providing a good faith estimate of the costs of the loan if the creditor refunds the excess to the consumer no later than 60 days after consummation and mails disclosures reflecting the refund. 12 CFR 1026.19(f)(2)(v).

In this scenario, the discovery of the error would not be an event for the purposes of the TRID rules, since it was not the result of an event occurring in the 30 days following consummation that caused the consumer to pay more than was disclosed in the Closing Disclosure.

It would also not be a clerical error, since it involved the disclosure of numerical terms.

In this scenario, the estimated cost of the owner’s title insurance was unreasonably low due to the Bank’s failure to disclose the cost of the lender’s and owner’s title insurance on the appropriate lines of the Closing Disclosure. Specifically, the Loan Estimate shows a cost reflecting the subtraction of the cost of the lender’s title insurance from the sum of the owner’s title insurance plus the issuance premium, while the Closing Disclosure shows the cost of the owner’s title insurance as being the sum of the cost of the owner’s title insurance, the issuance premium, and the lender’s title insurance.

Arguably, this is not an underdisclosure, as the TRID tolerance rules generally apply to costs that the consumer is required to pay as a condition of the loan, which would not include the owner’s title insurance, and scenarios in which the disclosure of the owner’s cost in the Closing Disclosure also disclosed the portion given to the lender’s title insurance. However, it still remains a risk to the Bank.

Under the circumstances, there is no requirement to correct the Closing Disclosure, and a revised Closing Disclosure probably will not cure the failure to disclose the title insurance costs on the appropriate lines. As a matter of best practice, however, the Bank should provide a revised Closing Disclosure for informational purposes in order to demonstrate good faith and clarify the record of the loan.

This response is for informational purposes only and is not intended for legal guidance

This entry was posted on Monday, January 27th, 2020 at 6:00 am.