TRID v. HUD=1 – What’s a Broker to Do? Questions Raised with New Federal Law

By Janet B. Thoren, Legal Counsel

For any licensees who may have missed it, the new TILA-RESPA Integrated Disclosure Rules (TRID) became effective October 3, 2015. This has caused a lot of concern for brokers and closing attorneys in North Carolina, and has raised some questions as to how the Real Estate Commission might consider a broker’s duty under G.S. §93A-6(a)(14) in light of the new federal law, as well as whether or not a statutory change might be necessary.

First, G.S. §93A-6(a)(14) states that the Commission has the authority to discipline a licensee if, following a hearing, the Commission determines that the licensee is guilty of “failing, at the time a sales transaction is consummated, to deliver to the broker’s client a detailed and accurate closing statement showing the receipt and disbursement of all monies relating to the transaction about which the broker knows or reasonably should know.” That duty remains unchanged. A broker must detail for his client all receipts and disbursements relating to the transaction about which the broker knows or reasonably should know. A broker is not expected to provide an accounting to a party who is not the broker’s client, nor is the broker required to learn of items about which the broker does not know or reasonably should not know.

For example, a broker who knows that the seller paid the buyer a concession and that is not disclosed or that the buyer inspection costs are inaccurately stated cannot ignore those facts. However, a buyer’s agent may not know or have reason to know that the seller hired a roofer to replace a shingle and that item is being paid as part of the closing.

The statute goes on to state “If a closing statement is prepared by an attorney or lawful settlement agent, a broker may rely on the delivery of that statement, but the broker must review the statement for accuracy and notify all parties to the closing of any errors.” This has provided comfort to brokers and Commission staff alike in the past as it alleviated the broker’s duty to prepare any accounting but still required the broker to review the statement prepared by the attorney for accuracy and to report any discrepancies the broker knew of or should have known about. With the exception of those inclined to commit loan fraud, the Commission has rarely had any occasion to use this particular section when considering whether or not to discipline brokers.

Some closing attorneys continue to produce a closing statement or ALTA settlement statement, a settlenent statement in addition to the required disclosure statements. Others are preparing something similar. Remember that the law does not require review of the specific HUD-1 closing statement, only of a generic “closing statement.” In cases where an attorney provides some form of closing statement, brokers may continue to rely on the attorney’s document as long as they review it and report any errors. The confusion for brokers arises in situations where the closing attorney is not using the HUD-1 or any other familiar form of a closing statement in addition to the required closing disclosures. The closing disclosure for the buyer, and the closing disclosure for the sellers, when viewed together, are sufficient. While the NCAR standard form contract now specifically authorizes the release of these disclosures to the parties and their brokers, in many cases, the broker is not provided with both sides for review. What is a broker to do then?

Listing Agent Duties – TRID rules permit a settlement agent to provide the seller with a separate Closing Disclosure or with a copy of the Buyer/Borrowers’ Closing Disclosure as long as it contains all of the seller’s transaction information. A broker representing the seller should review the disclosure and report any inaccuracies. The broker may or may not be given a copy of the buyer’s disclosure. In that case, the broker is not obligated to disclose what the broker is not given. A broker may not refuse to look at the disclosure if offered or emailed to the broker, but if the broker is not provided with a copy of the buyer’s disclosure, the broker must review the seller’s disclosure and correct any errors contained therein. If a broker knows or reasonably should know of a receipt or disbursement related to the transaction that is left off of either disclosure, the broker must disclose the possibility of the receipt or disbursement as a material fact to the closing attorney and lender.

Buyer Agent Duties – If the settlement agent provides the seller with a separate Disclosure, then the settlement agent must also provide a copy of the Seller Closing Disclosure to the borrowers’ lender, but not to the borrower.While the buyer agent may not necessarily see the Sellers’ Closing Disclosure, the buyer agent may see a summary of the sellers’ side of the transaction on page 3 of the buyer’s Closing Disclosure, as with the current HUD-1. A broker representing the buyer may still rely on these, but should review the buyer’s disclosure and the summary of the seller’s side, and report any discrepancies or omissions.  Again, the broker is not obligated to disclosd information not provided.

The Commission will continue to monitor this process as it evolves, and if a statutory change is necessary, will proceed in that direction. For the time being, brokers should review the disclosures or closing statements they have access to, refrain from avoiding access when offered, and be sure to disclose any errors, discrepancies, or omissions of which they know or should have known.

This article came from the Feb 2016-Vol46-3 edition of the bulletin.