Settlement Agents Must Provide Seller Closing Information to Lender
April 21, 2016
While implementation of the TILA-RESPA Integrated Disclosures (TRID) rule has required lenders, real estate agents and title insurance professionals to radically change the way they conduct business and exchange information, it changed nothing in regard to data privacy. However, there’s been significant confusion about what information can be shared with various parties involved in the transaction.
Lenders need seller information to check the accuracy of the borrower’s Closing Disclosure—both for audit purposes and for investors who may acquire an interest in the mortgage. Due to privacy concerns of sharing non-public personal information, lenders are having difficulty obtaining the seller information from title and settlement agents. Under TRID, though, title and settlement agents must provide the seller’s information to the lender, according to Richard Horn, the former CFPB attorney who led the TRID final rule and the design of the forms, and has since formed the law firm Richard Horn Legal PLLC.
The TRID rule allows seller information to be provided on the borrower’s Closing Disclosure or on a separate document that is not provided to the borrower. Specifically, according to Horn, section 1026.38(t)(5)(v) and (vi) allows for the separation of borrower and seller information onto separate Closing Disclosures because of privacy concerns. He notes that this does not apply to the seller’s closing costs, which must appear on the borrower’s Closing Disclosure. The separate Closing Disclosure provided to the seller can either be a standard Closing Disclosure with the borrower’s information left blank, or a separate seller-specific format of the Closing Disclosure provided in the rule. Section 1026.19(f)(4)(iv) of TRID requires settlement agents to provide a copy of the seller’s Closing Disclosure to the lender, when the borrower and seller disclosures are provided separately pursuant to section 1026.38(t)(5)(v) and (vi).
“In all cases, the seller information will have to be provided to the lender under the TRID rule,” Horn said. “Either the seller’s information will be included on the borrower’s Closing Disclosure or it will be provided to the lender in the form of a copy of the seller’s Closing Disclosure.”
Federal privacy requirements under the Gramm-Leach Bliley Act (GLB) permit disclosures of NPI as required by law. GLB states that it does not prohibit disclosure “to comply with federal, state, or local laws, rules, and other applicable legal requirements.” (15 USC 6802(e)(8)). The CFPB’s Regulation P provides the same exception for the disclosure of NPI (12 CFR 1016.15(a)(7)(i)).
“I suspect many state laws provide similar exceptions for disclosures of NPI that are required by law, but you should conduct a review of your state’s law to be certain,” Horn said. “Even if the state law does not contain such an exception, it is likely that TRID would preempt any such state law prohibition, because federal law would directly contradict that state law.”
While TRID does not technically place an affirmative obligation under TRID for the lender to obtain the seller’s Closing Disclosure, Horn said there are reasons why settlement agents should provide a seller Closing Disclosure to the lender.
“One such reason is that the preamble indicates that the CFPB considers retention of the seller’s Closing Disclosure to be required of lenders, and that examiners will expect to see it in the lender’s file,” Horn added.
In addition, lenders should obtain the seller’s Closing Disclosure to verify the accuracy of the seller information it is obligated to disclose on the borrower’s Closing Disclosure, Horn said. The majority of information is identical between the borrower’s and seller’s CDs (see comment 38(j)-3 for a list of this information). For example, much of the information between section 1026.38(j) and (k) is identical. The seller’s Closing Disclosure can help verify the information for the borrower’s Closing Disclosure, which the lender is liable for under TRID.
“This liability means that the accuracy of the seller’s closing costs and other information that must appear on both the borrower’s and seller’s Closing Disclosure should be of concern to lenders,” Horn said. “Both disclosures should also reconcile with any other ALTA Settlement Statement or disbursement document that is used by the settlement agent.”
Contact ALTA at 202-296-3671 or [email protected].