Ever since the collapse of the U.S. housing market in 2009, authorities in the financial and real estate markets have realized how important it is to keep the housing industry as transparent as possible. Countless homeowners were forced into foreclosure during the collapse because of poor lending practices; moreover, a significant number of these borrowers didn’t understand the terms of their loan agreements and mortgages.
The U.S. Consumer Financial Protection Bureau (CFPB) was created in 2011 in an effort to make the real estate market more honest and fair for average Americans. Whether a first-time homebuyer or a small business owner, consumers have the right to be protected when purchasing property.
The biggest changes in real estate laws in recent years apply to the Real Estate Settlement Practices Act (RESPA) of 1974. Unsurprisingly, a lot has changed in the real estate market since 1974. Homebuyers today often find themselves inundated with paperwork and surprise fees. The U.S. Department of Housing and Urban Development (HUD) has enacted reforms in attempts to make the process of buying a home simpler and more affordable. Here are some of the most important changes made in real estate laws recently:
1. Loan Estimate Form: The Loan Estimate form was once split into two documents: the Good Faith Estimate and the Truth-in-Lending Disclosure. Both of these documents provided information to the consumer about estimated closing costs for a loan. These documents were combined into one form, the Loan Estimate, which is sent out after applying for a loan. It neither accepts nor rejects the loan application; it simply provides information intended to assist consumers who wish to take out a loan or mortgage. This information includes:
- Estimated interest rates
- Monthly costs
- Total closing costs
- Estimated taxes
- Penalties of paying off the loan early
- Estimated changes in payments over time
2. Closing Disclosure Form: This form is also the result of combining two previous documents, similar to the Loan Estimate form. The Closing Disclosure contains a second Truth-in-Lending Disclosure, as well as a form previously known as the HUD-1 Settlement Statement. The Closing Disclosure provides a comprehensive statement about final costs of a loan or mortgage, rather than mere estimated costs. The information provided includes:
- Final figures for closing costs
- Information on prepaid taxes
- Any relevant fees
- Mortgage terms
- Costs paid by the buyer and costs paid by the seller
- How much money is being paid to any relevant real estate companies
3. The Three Day Period: Lastly, both the Loan Estimate form and the Closing Disclosure statement are subjected to specific time constraints. After a consumer applies for a loan, the lender must provide a Loan Estimate form to the consumer within three days of the application. Prior to agreeing to closing terms, the Closing Disclosure must be provided to the consumer at least three days before closing. Previously, it was possible for lenders to provide consumers with their actual closing costs on the HUD-1 on the very same day of closing — which didn’t give consumers much time to review actual costs before signing off.
All of these changes went into effect during 2015, but if you’re still having trouble figuring out which changes might apply to your situation, you aren’t alone. Understanding real estate laws is no easy feat. If you have questions about how real estate laws might impact your own property, contact a local real estate lawyer today.