TILA-RESPA Integrated Disclosure Rule (TRID) Summary for Investors

• Only applicable on closings that involve an institutional lender issuing a mortgage loan.
• NOT applicable to all cash, hard money, owner financing, subject to or other such investor style closings.
• Lender required to issue a Closing Disclosure 3 days prior to closing (or what they are calling “consummation”).
• In order for the lender to issue a Closing Disclosure, they will need a final HUD from the closing company well in advance of the closing date.
• Closing companies must now get used to preparing HUDs much further in advance of the closing.
• Lenders already take their sweet time issuing the Clear to Close and drawing Docs, so this new requirement will add a few more business days for most loans to close.
• If there are no last minute changes to the HUD (which always happens), the closing will take place 3 days after the Closing Disclosure is delivered to the borrower.
• However, if there are any significant changes to the HUD after the Closing Disclosure is delivered, a new one may be required restarting the 3 day clock.
• In other words, EXPECT DELAYS when selling a property to a retail buyer who is getting a mortgage to purchase your property

TRID Integrated Disclosure Rule

“The Know Before You Owe Rule”

We’re going to go over legislation of this rule for the United States. It’s when there is an institutional lender lending money on the transaction.

Who This Does Not Effect

• If you’re outside the United States this doesn’t effect you.
• if you’re buying a property all cash
• if you’re buying a property with a local hard money lender
• if you’re flipping a property in the new buyers paying all cash
• if you doing a subject two creative closing where you’re taking over someone’s loan subject too
• if you’re doing a creative owner financing

Who This Applies To:

This is just when we have an institutional lender involved. You have typically that happening when you are reselling a property you have fixed up that is a retail buyer. That’s what I call them. Somebody is going to buy the home to move in and live there. That’s what happened on this particular closing here.

TRID

The first thing I want to point out about this TRID. T- R-I-D, that’s the acronym that the people inside the industry mostly closely nations are calling it. The know before you owe is the street name for it.

• This is the standard settlement statement, HUD statement this has been around for many, many, many years.
• In fact it is issued by the HUD which is Housing and Urban Development Organization with the government.
• What the thirty thousand foot view level of this legislation going to do is supposedly provide more disclosure for buyers. There’s know before you own.In addition to HUD, what’s also going to happen is that a lender is going to have to issue their version of a HUD.
• It’s going to be six pages long but very different from that and it is going to have all these disclosures so that before someone buys the property they supposedly know what they’re getting themselves into. That’s the vision.

Important Point

It means lenders are going to have to get into the HUD creation business if you will. They’re going to have to start creating these disclosure closing statements which by the way this is a funny little tit bit. They’re using the phrase not closing but consummation. Not kidding.

A closing is now a consummation based on this legislation.

It means that now when there’s going to be a closing, that lender … We already know if you’ve been in the business before how difficult it can be for that lender to get the final cleared to close, to get the court docs out, to get everything ready for the actual closing. They now have an entirely new set of responsibilities and involves putting together this disclosure. This is this TRID if you will. That is going to make closings delay at the very least.

This is a Big Change

• if you have any changes that may have to occur, that then has to be changed at the lender level, lender then has to send out potentially a new disclosure and then that puts another three day minimum sometimes more depending on how those closures been the delivered.
• Delay for at least three more days. You can see that the main thing to take away from this, what are the gates? You have so many resources on this you can read about.
• I’m giving you the thirty thousand foot view as a real estate investor. You need to know that come October when there is a closing that involves an institutional lender, you’re going to have delays and if you want to change the documents, such as the closing statements or maybe there’s an extra lien pops up at the end.
• That’s going to delay you. Just be prepared for that. That is critically important.

More Delays

Outside of that legislation that we’ve talked about as far as delaying things because now the lender is getting involved in this world of closing statements, you also have some other things going on in the background. There’s a couple of different software companies that are jockeying for position to be involved in this and some of these larger title company who have had software systems in place such as First American or Republic, they now either have to update their existing software or somehow integrate with other ones. Some are going to be stuck in the old way of doing things and so that’s going to make things difficult as well because they’re going to want to integrate. When I say they, I mean these closing companies.

Real Estate Agents:

As a real estate agent, if you’re representing new buyers that are buying properties and they’re going to institutional loan, you’ve got a big responsibility now because you’ve got to be able to clarify for them what some of these different things are and make sure that everything gets done early so there aren’t delays, because this happens.

Real estate gets delayed in the closing and if it gets delayed too much sometimes people lose their loan lock, sometimes they can’t even get a loan anymore because some other billed popped up. It means that if you are going to be selling to retail buyers and you’re an investor, number one be patient. Things could change and the closing could get delayed.

Number two if you’re representing buyers in the in the space of retail buyers you better know your stuff about this. Normally this business of real estate with the changes that are occurring with this legislation.

Study Up!

I’m trying to give you just an overall view, but go read up on this, go read up on TRID, go read up on Know Before You Owe and specifically the CFPB. I think it’s Consumer Finance Protection Bureau board, something like that. That is the actual part of the government that is issuing this. You can look up on their website and learn everything you need to know about it. You can talk to your law state professionals in your area whether title companies, real estate agents.

I’m just telling you get ready for delays and that is very, very important in this business. To be patient when there are delays and better yet learn this business so well that you can head things off before they become delays so you can always nip every little detail in the bud.

What if you get to a day before closing it up you forgot to do the pest inspection? Well, you better just pay that out of your pocket before you have to stick it on the hood. See what I’m saying? They’ll delay you three days.

• Make sure you put things in order and be organized part of these closings especially when you’ve got a retail buyer involved.
• I’m as an investor loving selling to retail buyers because I make more money.
• If I flip to another investor that works very well when you have a house that needs a ton of work, but if a house just needs some cosmetic work as you seen from other videos, I like to sell to retail buyers.
• That’s why I’m making twenty four thousand four hundred fifty one dollars and thirty seven cents. That’s how it’s done.
• You don’t make that kind of money when you typically to flip to other investors because they take the lion’s share of profit.
• If you’re going to be in the business be prepared for delays and then also learn what’s going on here.
• I talked to your title company, get a feel for what their role is going to be, how easy they’re going to be able to integrate with their software to really get this thing moving.
• There’s going to be changes too. After all that as well expect there to be more delays, more changes in actually rolling this thing out. It already has been delayed once.

Scary Real Estate Scam: The Scenario

Just imagine you spent the last 10 years of your life saving everything to become a homeowner. You’re working two jobs, sacrificed not going on vacation, and not drinking that Starbucks coffee. You’ve done everything to pinch pennies, so you have enough money to finally become a homeowner. At last you get enough money and go through that wonderful process of finding the perfect home.
Months later, you’re making offers and going through that whole experience. Eventually you get a deal under contract and it’s the perfect home. Then you go through the process of getting a mortgage, and how awful that can be. They’re asking you for all these documents, and they make little sense. If you’ve ever secured a loan, you know what I mean.

Finally, it’s the day before closing. You’re excited but also nervous. You get the email with the wiring instructions, because they no longer allow you to go get a cashier’s check from the bank. They require you to wire the money to the closing company, or the title company, or closing attorney, whichever one you’re using for your state. So, you follow the instructions and go to the bank. You wire the money, and voila, you think all is good.

The Day of Closing

The next morning, you get up, you’re refreshed and excited because you’re finally going to get the keys. The phone rings, or you get an email, and they say that the wire hasn’t showed up yet. You think, “Well, that’s strange. Maybe there’s just a slight delay.” Nervously, you contact the bank, and the bank says, “No. No, we wired it yesterday. It’s no longer in your account. It’s out of our system. It’s in their system.” And you’re like, “Huh.” So, you call the title company back, and they say, “Well, send me the instructions and where you sent it.” You send it over to them immediately.

Then the shock and horror. You discover that you did wire the money correctly, but you wired it to a professional cyber criminal’s account. You are the victim of an email phishing scam. What that cyber criminal did was send you an email that looked like it came from your title company or your closing attorney, but it didn’t. You sent the money to a different place, and that money never is coming back. It’s untraceable. The FBI can’t help you. A lawsuit can’t help you. It’s gone. Not only is it gone, but you’re not buying that house.

This is Really Happening

Do I have your attention now? Good. It’s happening. A couple in Washington DC just lost a million dollars that way. A family in Florida just lost $77,000 with this, and a gentleman in Oregon lost $123,000. Thankfully, Fidelity National Title hired this man as their national spokesperson to warn people. This scary real estate scam is becoming more rampant, because as these cyber criminals continue to be successful, they’re doing more and more of it.

Meanwhile, I’ve never experienced this problem and I’ve done literally thousands of wires. I’m both a hard money lender and a real estate investor and I do tons of deals. I literally have special accounts where I pay less per wire because of all the volume and I’ve never made a mistake. How is that possible?

Don’t Let it Happen to You

Well, that’s the good news. The great news is the way you avoid that absolute catastrophe of wiring your money to a criminal’s account instead of the title company’s account. You simply call the title company and you verify, over the phone, each digit of the wiring instructions. That’s it. That’s all you need to do.

You might be saying, “That’s so simple. Why doesn’t everybody do it?” Great question. I looked at a recent study on communications among millennials, and their least used form of communication is that telephone call. They will text, email, social media chats, and every other form of communication before they’ll get on a phone. So, it might be outside your comfort zone, but if you’re about to wire $10,000, or $50,000, or $100,000, or $300,000, pick up the phone and verify the wiring instructions.

Make Sure You Do It Right

When people are buying a house, this is what we recommend they do. If they’re going to be wiring at the bank, go to the bank, coordinate and make sure that title agent’s going to be available, call them up, put them on three-way or put them on speaker phone while you’re there with the banker, and make sure that the wiring instructions are absolutely perfect. It’s worth the extra three minutes to do it right, because if you do it wrong, you’re potentially not getting it back.

I hope I’ve not only scared you but also inspired you with this public service announcement on this scary real estate scam that is continuing to proliferate. However, all you need to do to stop it is to make sure you verify your wiring instructions with the title company over the phone. Make sure you’re talking to the right title company too.

I like to share wisdom with you so that you can be on the know of what’s going on in the real estate world.

Title Insurance

Title insurance acts as a guarantee that the buyer will own the property free and clear of any liens and encumbrances. It insures that no one can lay claim to the title of the property once the new buyer becomes the owner. Title insurance is handled at a state level, so there is no need to look around for the best deal. Every insurance company in your state will follow the same specific numbers.

Title Insurance Example

Suppose you buy a great deal for $70,000 that you can invest $30,000 in renovations and raise the market value to $175,000, while only having $100,000 in total costs into the deal. Your potential earnings would be $75,000. But a week after the purchase closing, you receive a phone call from an attorney who is representing the mother of the previous seller. The attorney informs you that the seller had signed over a quitclaim deed to her mother five years ago. She was insisting that the property was hers, even though the deed was never recorded. Your title insurance company would reach out to the attorney and say, “Michigan state law states that if a deed has been recorded, it supersedes any pocket deed that’s not recorded.” This means that our client is in fact the rightful owner.” Title insurance would protect you from losing the deal and the potential $75,000 profit.

Cost of Title Insurance

Title insurance is based on sales price and varies by each state. For Example, Florida charges $5.75 per thousand; so you multiply the sales price by .00575, which is a little more than half a percent. In Florida, the cost goes down to $5 per thousand if the sales price is $100,000 or more. This means that if the sales price on a property is $100,000, the title insurance cost would be $500. Likewise a $200,000 sales price would yield a $1,000 title insurance bill.

You can Google to research what the exact number is in your state You can also use the Excel spreadsheet on the Closing Costs Calculator to calculate it into your purchase costs. In Florida it is customary for the seller to pay the title insurance fee, but most other states require the buyer to pay for it, since it technically benefit the buyer.

Title Search

In order to obtain a title insurance policy, the title company has to do a title search on the property to see what’s against the title. This is an extra fee of up to $200 that needs to be added to the Closing cost calculation.

Deed Recording Tax

The deed is what transfers the title and it is recorded at the recorder’s office. There is a tax charged for recording the deed and it is based on the sales price of the property. In my county, it’s $7 per thousand, or .007%. This tax is based solely on what the deed shows as the sales price. The only way to save money on title insurance is if you bought a property as an investor and are reselling it a few years later. In that case, you can provide the previous title policy which basically becomes a credit or discount towards the new title insurance.

Quitclaim Deed

You can close deals without title insurance. We use a quitclaim deed to transfer title without having to pay deed recording taxes. If you are in the state of Tennessee, they have a consideration amount that must be filled in at the top of their deeds, that says either the sales price or the value, whichever is greater. This means that a house-flipper can purchase a property for way below market value, but put the actual value on the consideration on the recording of the deed. They might have to pay more in recording taxes but the key is that on public record it will look like they paid more for the property then they actually did.

So, if you paid $70,000 for a property in Tennessee, that values at $130,000, you can pay the recording tax on that $130,000, and put in the $30,000 worth of rehab. When he sells it for $175,000 it won’t look like you made any real money on the deal. This is a powerful tool in the house flipping world because the buyer has no idea how much you paid.

Deed recording taxes are typically a buyer expense since the title is being transferred to the buyer. However, it varies from state to state, and in Florida, it’s “customary” for the seller to pay it.

Property Insurance

This cost which is usually paid at closing is something that is going to depend on what you are using your property for.

• Standard Policy: When you are moving in and the property will be owner-occupied
• Landlord Policy: When a property is being purchased as a rental property.
• Vacant Policy: If the property requires minor fix ups.
• Builder’s Risk Policy: A property that will need major rehab.

Property insurance costs are typically a buyer expense and will vary depending on your policy category. Property insurance is usually paid for by the buyer, because they’re the ones getting insurance on the property.

Closing Management Fees

Closing Management fees includes anything from document preparation fees, to attorney fees. Some states require an attorney to do the closing so there will be additional fees for their services. California requires a closing company, title company, and escrow company. I have a great relationship with my closing company, so they cut these fees way down. They make a lot of money when they get the title insurance policy that they sell. You can save money by making sure you have built a good relationship with the closing company. You can locate the best deal by contacting a few closing companies and asking for their closing schedule of fees.There are many closing companies out there but expect to pay more when there are attorneys involved. If you can choose either a title company or attorney, go with the title company, because you’ll save money.

Real Estate Commissions

Real estate commissions are primarily paid for by the seller. You don’t have to pay 6% as the seller if you do a “Flat Fee Listing”. The 3% will go to the buyer’s agent but you would only have to pay a flat fee of a few hundred dollars. The only way to pull this off is if you know a thing or two about real estate and selling houses. Real estate commissions can be really expensive if you have to pay that 6%. Some people will even try to eliminate the other 3% buyer’s agent fee by attempting to find a buyer themselves. Placing a property on the market exposes it to the entire potential buying pool, which can increase your earnings. When you have a lot of potential buyers looking you can even end up in a multiple offer situation. You net more by accepting that 3% fee than you would trying to cut out agents on the buyer’s side.

Listing Agents

Most successful real estate agents make their money by being listing agents. Once they get the listing and stick it on the MLS for a low price, it’s easy to sell. The toughest part is getting the listing, which is why paying $300 for a flat free agent to get the listing on the MLS is a smart route. Then the buyer’s agent shows the property, and collects their 3% commission.

Pro-Rations

Pro-Rations are things like taxes that have been accruing throughout the year. Usually, you pay your property taxes at the end of the year, so, as a seller, you’re going to be pro-rating those unpaid taxes.If you were to pay property taxes in November, and someone buys the house in December there’s going to be the opposite pro-ration where the buyer ends up pro-rating back to you.Another example of pro-ration would be any oil in a furnace or propane gas in a propane tank. These items are pro-rated because the buyer, pays for the oil or gas in the tanks as part of the purchase. That is unless, of course, you include in the contract that the seller is giving those to you for free.

Loan Fees

If you’re applying for a loan on a property, there are a lot of costs that can get very expensive. If you are applying for a loan. The lender will provide you with an outline of fees called a “Truth in Lending statement”. You can try to save money on loan fees by shopping around for the best deal. Great credit, money in the bank, and a great relationship with the bank can help lower these fees, but there is no way to eliminate them. If you are a novice, and you have bad credit, loan fees can get very expensive.

Closing Costs Calculator

You can determine your deal’s closing costs by clicking here for access to my closing costs calculator. It’s an Excel file, and you can edit and adjust it, after watching a video tutorial located at that link.