Has the Pre-Closing Fee Disclosure been executed at least one day before the Business Day that the home equity loan is scheduled to close? An equity loan may not be closed before one business day after the date that the owner of the homestead receives a copy of the loan application, if not previously provided, and a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing.
•An equity loan may be closed at any time during normal business hours on the next business day following the calendar day on which the owner receives the preclosing disclosure or any calendar day thereafter.
•The owner maintains the right of rescission under Section 50(a)(6)(Q)(viii) even if the owner exercises an emergency or good cause modification of the preclosing disclosure.
PRACTICE TIP: If a Bona Fide Emergency or Good Cause Modification is documented and the pre-closing fee disclosure is not provided one day before the business day of closing or other changes are made at closing, the owner maintains the right of rescission.
PRACTICE TIP: If the Bank provides all homestead owners a pre-closing fee disclosure at 4:30 PM on Thursday, it may close the loan at 9:00 AM the next Business day whether or not a full 24 hours has elapsed from the time the owners received the disclosure. The caveat to remember is that the Bank must close on the next “Business Day,” which does not include Saturday, Sunday or legal holidays with one exception. If the Bank’s offices are regularly open for business on Saturday, you may consider this a business day and close on a Saturday provided the Bank supplied the disclosure on or before the preceding Friday. But, make sure ahead of time that the title company is satisfied the Bank has provided sufficient evidence that it is normally open for business on Saturday and the title company has agreed to close the loan and insure without exception. [See 7 TAC § 153.13 and Tex Const. art. XVI, §50(a)(6)(M)(ii)].
CAUTION: As a general rule, lenders should always provide the pre-closing fee disclosure and seldom, if ever allow an owner to waive it. When considering whether to allow an owner to waive the pre-closing fee disclosure, lenders should work closely with their lawyers and investor. Just because a situation complies with the bona fide emergency or other good cause exception, does not mean an investor will purchase the loan. Also, keep in mind that the Commissions referenced the Federal Emergency Management Association (“FEMA”) and FEMA disaster area when defining a bona fide emergency. They did not intend for owners to waive this disclosure without fully understanding their rights and limiting the circumstances when waiver would be appropriate.
•De Minimis Changes. After delivering the Pre-closing Fee disclosure to the homestead borrower/owners, if any changes are necessary then a new HUD-1 should be prepared and delivered to the homestead owners, and the closing should be pushed back to the following Business day. A de minimis good cause may be presumed if:
(i) the total actual disclosed fees, costs, points, and charges on the date of closing do not exceed in the aggregate more than the greater of $100 or 0.125 percent of the principal amount of the loan (e.g. 0.125 percent on a $80,000 principal loan amount equals $100) from the initial preclosing disclosure; and
(ii) no itemized fee, cost, point, or charge exceeds more than the greater of $100 or 0.125 percent of the principal amount of the loan than the amount disclosed in the initial preclosing disclosure.
If the Owner, title company, lender and investor all agree that a change is de minimis, then a “Consent to Variance” can be executed by all homestead owners in which they agree to the changes and waive their right to wait another day. However, given the specific requirements associated with utilizing this variance, the best practice is to re-disclose any fee changes and close the following Business day.
Do all fees when added together, excluding interest fall under the 2% cap?
If Discount Points are charged are they bona-fide? A fee labeled discount point that does not buy down the interest rate, will likely not be characterized as interest and therefore will be included in the 2% fee limitation.
Confirm that no party or the title company has agreed to a mail-out since Texas Home Equity loans may only close at the office of a title company, attorney’s office or the Bank’s office. Most title companies will strike portions of the title insurance endorsements if the loan does not close in their office.
Has the three-day right of rescission been considered in scheduling the closing and funding date? The homestead owner and owner’s spouse if any, have three calendar days after closing a home equity loan to rescind without penalty or charge. If the third calendar day falls on a Sunday or federal legal public holiday then the right of rescission is extended to the next calendar day that is not a Sunday or federal legal public a holiday. However, since Texas home equity lenders must also comply with the provisions of the Truth-in-Lending Act that permits the Owner three business days to rescind, compliance with the federal 3-day right-of-rescission satisfies the requirements of Texas home equity law.
Will a Federal Holiday affect closing or the 3-day right of rescission? Federal legal public holidays: New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
If using a power of attorney, has it been approved by the title company, lender and investor? This can delay closing if not approved ahead of time. In the limited circumstances where a title company will permit a home equity to close with a power of attorney, they often require that their attorneys prepare.
PRACTICE TIP: If you have an Owner whose spouse is incarcerated, in order to close you will have to use a Power of Attorney. You must work closely with the title company and determine whether they will insure the transaction and under what circumstances. Most title companies that agree to insure, will require use of their approved Special Power of Attorney form. Their form will likely include release language through which the incarcerated spouse disclaims all causes of action against the title company. You should also secure written approval from your investor consenting to the use of the Power of Attorney.
Is the property vested in all owners of the homestead? Will all owners of the homestead and their spouses sign the closing documents? Regardless of how the property ownership is shown in the real property records (i.e. the commitment for title insurance), each homestead owner and each homestead owner’s spouse must sign the security agreement granting the security interest as well as related documents required by state and federal law. If the Owner is married, his or her spouse must attend closing and sign all of necessary documents even if their credit is not being used. The “necessary documents” include the following: Truth-In-Lending, 3-Day Right of Rescission, Deed of Trust, Riders to Deed of Trust including the Affidavit & Agreement as to Purpose of Homestead Refinance, Compliance Agreement, Name Affidavit(s), Notice to Borrower(s), and Collateral Protection Insurance.
Have all borrowers been provided a copy of the loan application if it was not previously provided? An equity loan may not be closed before one business day after the date that the owner of the homestead receives a copy of the loan application, if not previously provided, and a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing.
Have you reviewed the title commitment and confirmed with the title company that they intend to issue the T-42 and the T-42.1 endorsements without exception or deletion? Any deletion from either of these endorsements will likely result in a suspended loan.
Will the cumulative loan-to-value for all outstanding liens equal 80% or less? Reconfirm that the all outstanding loan balances when added together do not exceed a maximum cumulative loan-to-value (“CLTV”) ratio of 80% of the fair market value of the homestead on the date the extension of credit is made.
Has the appraisal or evaluation been received? Has the name of the appraiser or evaluator, in addition to the value been inserted into the Fair Market Value Disclosure? Reconfirm that the appraisal or valuation is attached to the Fair-Market-Value (“FMV”) Disclosure statement and that the FMV shown in the appraisal or evaluation matches the figure inserted into the FMV disclosure along with the name of either the appraiser or the person performing the evaluation.