Update on important new Texas and Federal legislation affecting Residential Mortgage Lenders

RECENT TEXAS LEGISLATION

I. H.B. 558 – Payoff Statements for Home Loans

a. Texas House Bill 558, effective September 1, 2011, adds Section 343.106 to the Texas Finance Code and directs the Texas Finance Commission to create a standard payoff statement form that must be used by mortgage servicers to provide payoff statements. This form has not yet been created.

b. The lender/servicer must be given at least 7 days to provide the payoff statement to the title company closing the transaction.

c. If the lender/servicer discovers that the payoff statement is incorrect, they may deliver a corrected payoff statement “on or before the second business day before the specified closing date”. The corrected payoff statement must be sent certified mail, return receipt requested and electronically if that is available.

d. If the lender/servicer sends an incorrect payoff statement (less than correct payoff amount) and does not discover the mistake at least 2 days before closing, and if the lender receives payment in the amount specified in the incorrect payoff statement:

i. The difference between the payoff statement and the correct payoff amount remains a liability of the debtor.

ii. For sales, the lender/servicer must still release their lien on the subject property and deliver a Release of Lien to the title company “within a reasonable time after receipt of payment by the mortgagee or mortgage servicer.”

iii. For refinances, the new loan would be a superior lien to any portion of the old loan not paid off in full.

iv. Any proceeds disbursed at closing to or for the benefit of the debtor (excluding closing costs related to the transaction) “are subject to a constructive trust” for the benefit of the lender
Conclusion: Once this law goes into effect, Mortgage Servicing Departments must be more vigilant than ever about their payoff quotes. Underestimating a payoff could result in the lender/servicer absorbing that loss.

II. S.B. 1496 – Filing Correction Legal Instruments

a. S.B. 1496, effective September 1, 2011, amends the Texas Property Code to create a procedure to filing correction legal documents (Deeds, Deeds of Trusts, etc.)

b. The new law authorizes a person who has “personal knowledge” of facts relevant to correction of a recorded instrument to execute a correction instrument to make a “nonmaterial change” for a mistake caused by a clerical error, including an inaccurate legal description, an incorrect party’s name, marital status, date of the conveyance, or recording data for a referenced instrument.

c. The person who executes the correction instrument must disclose in the instrument the basis for the person’s personal knowledge of the correct information.

d. If the correction instrument is not signed by each party to the recorded original instrument, the corrected document must be sent to each party (their heirs, successors or assigns) by first class mail, email or “other reasonable means”.

Conclusion: Beginning September 1, 2011, Lenders who must file a correction loan document (for example, the legal description in the Deed of Trust has an incorrect Lot or Block number) will need to follow the new procedure established in SB 1496.

RECENT FEDERAL LEGISLATION- Dodd-Frank Wall Street Reform and Consumer Protection Act

The Bureau of Consumer Financial Protection (CFPB) (www.consumerfinance.gov)

a. New Federal Bureau of Consumer Financial Protection was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed by President Obama on July 21, 2010. The Bureau will become fully operational on July 21, 2011.

b. The Bureau is charged with implementing and enforcing Federal consumer financial protection laws and has authority to regulate any person who engages in offering or providing a consumer financial product or service.

c. The CFPB is given broad regulatory, supervisory and enforcement authority both for new consumer financial protections laws and existing consumer protection laws, including the following:

1. Truth in Lending Act (TIL)
2. Real Estate Settlement Procedures Act (RESPA)
3. Equal Credit Opportunity Act (ECOA)
4. Fair Debt Collection Practice Act
5. Home Mortgage Disclosure Act (HMDA)
6. Fair Credit Reporting Act (FCRA)
7. Electronic Funds Transfer Act
8. SAFE Mortgage Licensing Act
9. Truth in Savings Act

In other words, the CFPB has authority over all of the consumer protection laws that affect residential mortgage lending!

d. Proposed Merger of Truth-in-Lending Disclosure and Good Faith Estimate of Closing Costs into a single document
Based on the directives of the Dodd-Frank Act, the first major proposal from CFPB is the merging of the early TIL and RESPA Good Faith Estimate Disclosures into one document. Lenders should log onto CFPB’s website to review the proposals.

Conclusion: The CFPB represents a focused effort by the Federal government to streamline and centralize the regulation of all federal consumer protection laws. The proposed documents of the early TIL Disclosure and the Good Faith Estimate of Closing Costs is an encouraging indication that the CFPB will actually simplify the residential mortgage lending process.

 

 

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Posted in Real Estate Law