Residential real estate has changed as of this month. There are new contract forms for Maryland and the District, and the new mortgage disclosure rules issued by the Consumer Financial Protection Bureau are now in effect. And there even is new terminology. A lender is now a creditor and the borrower/buyer is a consumer. The initial Truth in Lending statement and Good Faith Estimate we have used for a number of years has been replaced with the Loan Estimate. And the old-faithful HUD-1 (the settlement statement) has been discarded in favor of a "Closing Disclosure".
When you buy a single family house, your lender needs a lot of basic information before a firm loan commitment can be made. You have to provide your income, a listing of assets, and your monthly expenses. Usually, you have all of this information and are able to submit it to the lender. But if you are buying a condominium unit, in order to assess your financial ability to repay the mortgage loan, your lender needs a lot of additional information about the association.
Community associations obtain their income from four sources: regular assessments, special assessments, transfer fees and miscellaneous move-in/transition fees charged at closing. And under the new "Know-Before-You-Owe" disclosure rules issued by CFPB, your lender must provide you with a written Loan Estimate within four days after you request it. More importantly, consumers must be given the Closing Document (the old HUD-1) three days before closing. This means that the length of time between contract and closing -- which typically has been 30 days -- will now most likely stretch to 45 days.
The Community Association Institute (CAI) is a national trade association representing associations, board members, individual owners and professionals who deal with association issues. According to CAI, it "is the only national organization dedicated to fostering competent, well-governed community associations that are home to approximately one in every five American households."
One of the principal goals of the new CFPB rules is to encourage consumers to shop around for the best mortgage terms. According to Dawn Bauman, CAI's Senior Vice-President for Government Affairs, "CAI was concerned it would be inefficient and burdensome for associations to provide assessment information on the same properties to multiple lenders that consumers were exploring and accordingly we advocated for flexibility."
CFPB accepted these concerns, and will allow lenders to use a "best-information-available standard when dealing with community associations. What does this mean? There are a number of sources where the needed information is available, such as MLS listings, the seller, the resale disclosure package, and even the association's website.
This will enable lenders to meet the four day requirement, and will save associations -- and their property managers -- the hassle of having to meet multiple demands for information.
According to CAI, however, "the CFPB does not allow the use of the "best-information-available" standard for preparing the final Closing Disclosure. Lenders and title companies must verify all association charges and ensure all information on the Closing Disclosure is accurate.."
Property managers are usually the front -line for providing the necessary financial information. As such, they should make sure the information they furnish to lenders and settlement attorneys is timely and accurate. In the Washington metropolitan area, all potential buyers must be provided a resale package, which contains such information as the legal documents, the budget and a statement of any capital expenditures approved by the association that are not reflected in the current operating budget. Managers must make sure that this package contains all of the information required by CFPB and the lender.
It will take time for everyone to get used to these new procedures. Potential buyers should review the rules and make the most of the stated purpose behind the rules, namely "Know before you owe". CFPB has published a very informative booklet called "Your Home Loan Tool Kit: A Step-by-Step guide", available free online from ConsumerFinance.gov.It even has a pencil symbol that tells you to circle, check or fill in numbers right on the computer screen.