Current Issues Regarding TRID, CLUE, and Electronic Signatures
By David Hamerslough
The TILA-RESPA integrated disclosure rule (“TRID”) went into effect for all loan applications submitted on or after October 3, 2015. Several issues have arisen. First, some escrow closing dates have been delayed because lenders were not prepared to meet their disclosure obligations. For the time being, take this into consideration when writing contracts with respect to close of escrow dates – contact the lender early on to confirm that they can meet their obligations within the proposed timeframes.
Some lenders are now scrutinizing negotiated repairs and commission credits more closely. When a lender refuses to approve these terms, do not be tempted to resolve that issue by rewriting the contract or addressing these issues outside of escrow. Where either of these occur without the lender’s knowledge or consent, lender fraud is involved. One way to avoid this situation is to determine, up front, what repairs and credits the lender allows and incorporate that into the contract terms.
Another issue involves the TRID Loan Estimate document indicating that an owner’s title policy is “optional.” The concern is that some buyers will be tempted to forgo purchasing a title insurance policy. This issue will be addressed in revisions to the PRDS San Mateo County/Santa Clara County Advisory (due out in December). While purchasing title insurance is an option, several issues arise when an owner decides not to obtain insurance: (1) the buyer may not receive a Preliminary Report or may be separately charged for a copy of that report. While a Preliminary Report is only an offer of title insurance and may not identify every item affecting title, it is one resource a buyer can review while evaluating title as part of the decision to purchase. A Preliminary Report is typically provided to a buyer at no cost where the buyer purchases an owner’s title policy. If such a policy is not purchased, the title company may not provide the Preliminary Report but instead only provide a property profile, which generally does not include information regarding easements, boundaries, etc.; (2) lenders’ policies, as distinguished from owners’ policies, are required by lenders and are typically paid for by buyers. The cost of the lender’s policy as well as the cost of escrow services may increase significantly if the buyer does not obtain title insurance. Other observations and recommendations concerning this issue will be identified in the Advisory.
CLUE reports have been the best way for a seller to meet their obligation to disclose five years of known insurance claims. Up until recently, CLUE reports were typically included in the disclosure packages provided by NHDS providers. Many such providers have indicated they will no longer provide the CLUE report. The information in a CLUE report is still information that a seller must disclose and is information that also assists a buyer in evaluating, among other things, whether they will be able to obtain homeowners’ insurance coverage and whether there are potential problems with the property as a result of a prior insurance claim being made by the owner.
The issue that needs to be addressed is how a seller is going to make the required disclosures. The PRDS Advisory will now indicate that this information should be provided by the seller on a disclosure (TDS, SSC, SPQ, or the exempt seller disclosure form). Alternatively, a seller can obtain a CLUE report for free (once a year) by going online to https://personalreports.lexisnexis.com/homesellers_disclosure_report/landing.jsp. Alternatively, the seller can contact their insurance broker to obtain the information. Some of the notices from the title companies and disclosure providers on this subject indicate that the seller can provide this information on the C.A.R. Supplemental Statutory and Contractual Disclosure form (SSD). This would be sufficient provided the SSD is actually used.
The PRDS Advisory will also be updated to include a section on electronic signatures. The basic issue is that the use of electronic documents and signatures may allow a party to skip from one signature line to the next, which may make it easy for that individual to ignore or not read the language preceding each signature line. In those instances where initials are required (e.g., liquidated damages, arbitration), signatures may, again, be added by the party without their having read the particular paragraph or understanding that such a paragraph is optional. Language is being added to the PRDS Advisory to identify these issues and recommend that each document be read, that a party takes its time going through the document, that some signatures/initials are optional, and that if a party has any questions or concerns, it is important to contact the appropriate and qualified individual to respond to those questions and concerns.