The European Union (EU) and US recently made the details of the “Privacy Shield” available to the public. A month earlier, EU and US negotiators had reached an agreement on the “Privacy Shield”. It would replace the “Safe Harbor” and allow US companies to be in compliance with EU data security and privacy regulation when transferring EU personal data to the US. Last fall, the European Court of Justice invalidated the EU-US “Safe Harbor”.
The Full Story:
On February 29, the European Union (EU) and US made the details of the “Privacy Shield” available to the public. On February 2, negotiators for the EU and US reached an agreement aimed on allowing US companies to continue to more easily transfer personal data from the EU to the US. The agreement, which is being called the EU-US Data “Privacy Shield”, would replace the EU-US Safe Harbor. The agreement is not final, as EU data privacy regulators need to review the proposal and provide their recommendation to the EU Commission as to whether the deal should be adopted by the EU. This is expected to occur in the next few months.
If implemented, the Privacy Shield would provide US companies with certain regulatory protection from enforcement action if they follow the guidelines of the agreement. To comply with the Privacy Shield Framework, US companies would have to self-certify with the US Department of Commerce and publish their commitments on how personal data would be processed and how individual rights would be guaranteed. These commitments would then be subject to US law and enforceable by the US Federal Trade Commission (FTC).
The Privacy Shield Framework is divided into four specific areas. Those are 1) EU Individuals’ rights and legal remedies, 2) Program oversight and cooperation with EU data protection authorities, 3) Key new requirements for participating companies, and 4) Demonstration of limitations and safeguards on national security and law enforcement access to data. A copy of the Framework can be accessed at: https://www.commerce.gov/privacyshield
The first section of the Framework provides EU citizens with recourse should they believe the privacy or security of their personal data has been compromised. US Companies participating in the Framework must put into place a system to address and investigate complaints. Companies have 45 days in which to respond to the individual acknowledging receipt of the complaint. The individual can also pursue private causes of action through U.S. state courts and participating companies must agree to binding arbitration if the matter has not be resolved through other means.
The next component of the Framework falls on the US Department of Commerce and the FTC. The Department of Commerce has agreed to help ensure compliance with the program by verifying that participating companies submit all the necessary information, identifying and addressing false claims of participation, conducting periodic analyses of the program as well as other safeguarding activities. Both entities would also establish channels of communication with EU data privacy authorities to exchange information regarding complaints and program material and to provide enforcement assistance.
The third area addresses the requirements for participating companies. Companies must inform individuals about their rights to access their data, provide information on the obligations of the company to supply individual data to law enforcement and other authorities and the liability of the company in cases of the transfer of personal data to third parties. Companies must limit the transfer of personal information to the data that is needed for that purpose of processing and enter into agreements with third parties on the limitations and requirements that come with the transfer of the data. The Framework also outlines those instances when companies need interact with the Department of Commerce and FTC.
Finally, under the Framework, the U.S. Department of Justice and U.S. intelligence agencies have provided the European Commission with information about the limitations of US government agencies to access data held by U.S. companies and the policies in place to ensure the data is being accessed in adherence to US laws. If the agreement is adopted, EU citizens who have questions about communications being monitored by US intelligence officials could submit their inquiries to an Ombudsman. The U.S. Department of State would establish the Ombudsman to respond to the inquiries about U.S. intelligence policies regarding communications or signals intelligence.
EU data privacy regulators, known as the Article 29 Working Party, along with a committee comprised of EU member representatives are reviewing the agreement to provide their advice to the EU College of Commissioners. It is not certain that the Working Party will recommend supporting the agreement and if the EU Commissioners will approve it. However, it is likely that some sort of agreement will be reached between the EU and US. In the meantime, the recommendation of Worldwide ERC® is that members continue on the course of implementing and adhering to Model Contract Clauses or Binding Corporate Rules.
Posted by Tristan North
The government of the United Kingdom has been engaged in a series of actions designed to make sure that there is an adequate supply of residential housing. As a part of this program, on December 28, 2015, the government sought comment on a proposal that would increase by 3% the Stamp Duty Land Tax (SDLT) on purchases of “additional residential properties”, to be effective April 1, 2016.
The SDLT is a transfer tax on real estate, payable by the buyer, that applies to purchases in England, Wales, and Northern Ireland. Currently, the tax does not apply to purchases under 125,000 Pounds. It is 2% of the purchase price for transactions between 125,000 and 250,000 Pounds; 5% between 250,000 and 925,000 Pounds; 10% between 925,00 and 1.5 million Pounds; and 12% over than price. The proposal would add an extra 3% to all such transactions (including those below 125,000) if the purchaser already owns another residential property. It is intended to enhance the number of homes available in the market by discouraging purchase of homes as rental properties or as second homes.
In a typical UK relocation home sale transaction, as in the United States, the relocation management company (RMC) or employer will not take title to the old home it purchases from the transferring employee. It will pay the full purchase price, and take over all the ownership costs, risks, and benefits, but will leave the employee in title until the home is sold. Unfortunately, the employee will usually purchase a new home during this period, and will appear to own two residences rather than one. In such circumstances, it may appear that the extra 3% tax should apply to the purchase of the new home.
Although the proposed rules include a provision for a refund of the extra tax if the old home is disposed of within 18 months, the tax will still have to be paid initially, and then procedures will have to be developed to obtain a refund. The tax will be paid by the employer, and it or the RMC will have to waste time and money recovering it. Moreover, this procedure will also burden the government, which will have to process the receipt of payments, and arrange for the refund, in 100% of the relocation cases.
On February 18, 2016, Worldwide ERC® submitted a comment letter suggesting that rather than a refund mechanism there should simply be an exemption for relocation transactions. The letter can be found here
. Such an exemption already exists to excuse collection of SDLT on the RMC’s initial purchase of the home. Worldwide ERC® suggested that the exemption be extended to encompass the additional SDLT in the proposal. It is hoped that the UK Treasury will recognize that the collection and refund of the additional tax would not be useful or productive, and that it will further burden the residential housing market rather than enhancing it.
Coincidentally, Worldwide ERC®’s letter was submitted on the same day as the announcement of the opening of Worldwide ERC®’s new office in London. Both the letter, and the announcement, evidence Worldwide ERC®’s strong commitment to an active presence in EMEA.
Posted by Peter K. Scott
Relocation home sale practices and procedures are different than the usual real estate sales transaction. Structured as two separate, independent sales (one from employee to company or Relocation Management Company (RMC), and a second from that buyer to an outside buyer) in order to comply with applicable tax rules and facilitate a smooth disposition of the employee’s home, these transactions may nonetheless raise red flags with those unfamiliar with the process.
A continuing issue for Worldwide ERC® members involved in these relocation home sale transactions is unfamiliarity with the transactions among some institutions providing home loans to buyers of the homes. Although representatives of larger lenders usually do understand the various procedures involved, representatives of lenders who do smaller numbers of such transactions frequently do not. This often leads to questions about the identity of the seller, the deeding processes used, the application of underwriting guidelines designed to prevent abusive “flips,” etc, that can cause delays and frustrations for the buyer seeking a mortgage, and for the company or RMC that is the seller.
For example, the common “blank deed” process, under which the deed runs from the employee to the outside buyer, sometimes provokes questions about who is the seller in the second transaction, and in some cases insistence on revised deeding. Similarly, in the sale from the employee to the company or RMC the settlement documents common in other types of real estate sales will not exist, again generating questions that can sometimes cause delays or restructuring of the transaction.
Recognizing these and other problems, members of Worldwide ERC®’s Real Estate and Mortgage Forum undertook a project to develop a standard explanation of relocation home sale transactions that could be used by members to help educate lender representatives about the process and rationale of the typical relocation home sale transaction. That document was recently finalized, and is available to Worldwide ERC members and others on the Worldwide ERC® website at http://www.worldwideerc.org/gov-relations/Documents/LenderExplanation.pdf. It is hoped that an explanation from an unbiased and knowledgeable third party will help companies and RMC’s clear up lender questions that otherwise might delay or imperil the outside sale transaction.
Worldwide ERC® is grateful to the Forum members who gave of their time and expertise to produce this very much needed document. They include Forum Chair Eric Arnold of Stewart Title Guaranty Company; Forum Vice Chair Bob Nish of Nish & Nish; Linda Hargreaves of Old Republic Relocation Services, Jay Hershman of Baillie & Hershman, and Karin NeJame of Riefberg, Smart, Donohue and NeJame.
Posted by Peter K. Scott
We will begin this year’s Tax Tips for Transferees with a selection of quotations illustrating why the average taxpayer (including transferees) approaches the tax filing season with trepidation.
“The United States is the only country where it takes more brains to figure your tax than to earn the money to pay it.” Edward J. Gurney
“All the Congress, all the accountants and tax lawyers, all the judges, and a convention of wizards cannot tell for sure what the income tax law says.” Walter B. Wriston
“The trick is to stop thinking of it as “your” money.” Revenue Auditer
In the interest of assisting more transferees to prepare “smart” returns, join the convention of wizards, and keep more of “their” money, here are Worldwide ERC®’s annual tax season filing tips for transferees.
Here are several items deductible as moving expenses that are sometimes overlooked:
Tips to the moving van driver or helpers.
Mileage for driving second or third cars to the new location (in addition to the first car). The deduction for 2015 is 23 cents per mile. (The deduction will decrease to 19 cents per mile for 2016).
Lodging expenses in the departure location for one night after the household goods are packed, and one night in the new location on the day of arrival.
Moving household goods from a location other than your main home, up to what it would have cost to move them from the main home
Storage of household goods for up to 30 days, including the cost of moving the goods into and out of storage. Note that the costs for moving the goods into and out of storage remain deductible even if the goods are in storage more than 30 days.
Expenses not reimbursed by your employer, such as extra crating, shipment of unusual items, tips to van line staff, etc.
And remember: You don’t have to itemize to deduct moving expenses.
Other filing season tips:
If the seller of your new house agreed to pay part of your mortgage points instead of reducing the sales price, IRS says you can deduct those points, even though the seller paid them.
If you ever refinanced your mortgage, don’t forget to deduct the entire remaining balance of points paid on the refinancing in the year you sell your home.
If your new job is for a different employer, and you earned more than $118,500 in 2015, you may have had too much deducted as contributions to Social Security. You can take a credit for the excess over $7,347.00 on line 71 of your Form 1040 tax return. However, you may still owe the additional 0.9% Medicare tax that went into effect in 2013 if combined wages from both employers exceeded $200,000, or if your wages combined with those of your spouse exceeded $250,000. In such a case, you will need to file Form 8959 to report the additional tax, which applies to amounts in excess of the thresholds above, and include it on line 62 of the Form 1040.
If you moved to one of the states with state and local sales taxes but no general income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming) you may benefit from an itemized deduction for state sales taxes. The deduction, which had been temporary and expired after 2014, was reauthorized and made permanent by Congress at the end of 2015.
If you paid a premium for mortgage insurance, you may be entitled to an itemized deduction as mortgage interest for the portion of the premium allocable to 2015. This deduction, which had expired after 2014, was renewed by Congress for 2015 and 2016 at the end of 2015. No deduction is available, however, if your adjusted gross income is more than $110,000.
If you claimed a homebuyer credit on your purchase of a home in 2008 through 2010, and you sold your home or stopped using it as your principal residence when you were transferred in 2015, you may have to repay on the 2015 return the credit taken. See IRS Form 5405 and its Instructions for details. Repayment is always required for credits taken in 2008. However, for credits claimed in 2009 and 2010, repayment is only required if the home ceased to be your principal residence within 36 months of its purchase, which would not be the case if you were still living in it in 2015.
If you sold your home to your employer or a Relocation Management Company as part of your transfer, and that buyer paid interest on your mortgage before paying it off, the interest you did not pay may be included on the Form 1098 you receive from your lender, but is not deductible by you. Be sure to compare the amount shown on the Form 1098 to your records of your own interest payments.
If the sale of your former principal residence was a “short sale,” and you were relieved of some of the mortgage debt by your lender, you may receive a Form 1099-C reporting that debt relief to the IRS. However, a provision of the tax code excusing tax on such relief for acquisition mortgage debt up to $2 million was extended through 2016 in late 2015, and no tax should be due.
Because Friday, April 15, is a holiday in the District of Columbia, the 2015 return will be due on Monday, April 18, 2016, except for taxpayers in Maine and Massachusetts, who will have until Tuesday, April 19, because of Monday holidays in those states.
Posted by Peter K. Scott
The rates are based on an annual study of fixed and variable costs of operating an automobile conducted for the IRS by an independent contractor. The rates for business and moving differ because the rate for business use includes fixed costs such as depreciation, which are not allowed as medical or moving deductions. Both rates include variable expenses such as fuel. Taxpayers are also allowed to deduct items such as parking and tolls in addition to the standard mileage rate.
Use of the standard deduction rates is optional; taxpayers are always free to determine their own actual costs of operating a vehicle. However, such costs must be substantiated through detailed records, while the use of the standard rates avoids any need to substantiate the underlying costs incurred, although taxpayers must still maintain records of the miles driven and the purpose of each trip.
Notice 2016-1 also provides amounts by which taxpayers using the standard business mileage rate must reduce the basis in their automobile for depreciation that is included in the standard mileage rate. Those amounts are 23 cents per mile for 2012 and 2013, 22 cents per mile for 2014, 24 cents per mile for 2015, and 24 cents per mile for 2016.
Some companies use mileage rates higher than the standard rates to reimburse business travelers or transferees. In such cases, the excess amounts are treated as taxable wages, and are subject to withholding and payroll taxes. Amounts up to the standard mileage rates are excluded from the income of the employee. An employee cannot deduct moving expenses using the business travel rate. See Adamson v. Commissioner, 32 T.C.M. 484 (1973).
Generally, the rates the IRS announces in November or December remain in effect during the entire following year, regardless of changes in underlying costs. However, in 2011 the IRS changed the rates in mid-year due to a dramatic rise in fuel costs, the third time in six years in which it had done so. Although the dramatic drop in fuel costs did not cause IRS to lower the rate during 2015, it has now done so for 2016.
On Tuesday, December 15, congressional leaders reached an agreement on an Omnibus Appropriations Bill to fund the federal government through the rest of the current fiscal year. Congress missed its December 11 deadline for passing a long-term funding measure and therefore passed two short-term continuing resolutions to give lawmakers more time to negotiate and pass a comprehensive agreement. The House passed the Consolidated Appropriations Act of 2016 on December 18 by a vote of 316 to 133 on December 18 and the Senate passed it later that day by a vote of 65 to 33. The President signed the bill into law on December 21.
The legislative vehicle used for the Omnibus Appropriations Act was the FY2016 Military Construction, Veterans Affairs and Related Agencies Appropriations Bill. Over the past several months, Worldwide ERC® representatives have met and been in communication with staff of the House and Senate Appropriations Subcommittees on Military Construction, Veterans Affairs and Related Agencies to educate them on the importance of a strong relocation program for federal employees. The efforts of Worldwide ERC® stem from an issue raised at the Department of Veterans Affairs in early 2015.
In the spring of this year, the House Veterans Affairs Committee brought into question the cost to relocate from Washington, DC to Philadelphia, PA a senior executive of the Department of Veterans Affairs (VA). The VA had used an appraised value option (AVO) to facilitate the transfer. As a result of the exposure of the scrutiny of the transfer, language was added during House floor consideration to the FY2016 Veterans Affairs Appropriations Bill to prevent the VA from using AVOs during FY 2016.
Worldwide ERC® representatives met with Republican and Democratic staff for the House and Senate VA Appropriations Committee and House Veterans Affairs Committee to educate them about the importance of relocation programs for federal agencies. All the staff understood the need for federal agencies to have a strong relocation program and their concern was with oversight of the program at the VA. In September, the VA Office of the Inspector General (OIG) released a report stating that the VA employee in question as well as another VA senior executive had abused their positions to orchestrate the transfers.
As a result of the VA OIG report, language was added on the Senate floor to the FY2016 Veterans Affairs Appropriations Bill to prevent the VA from using the AVO for the transfer of VA senior executives. Worldwide ERC® advocated for more narrow language and below is the final language included in the Omnibus Appropriations Bill.
SEC. 242. None of the amounts appropriated or otherwise made available by title II may be used to carry out the Home Marketing Incentive Program of the Department of Veterans Affairs or to carry out the Appraisal Value Offer Program of the Department with respect to an employee of the Department in a senior executive position (as defined in section 713(g) of title 38, United States Code): Provided, That the Secretary may waive this prohibition with respect to the use of the Home Marketing Incentive Program and Appraisal Value Offer Program to recruit for a position for which recruitment or retention of qualified personnel is likely to be difficult in the absence of the use of these incentives: Provided further, That within 15 days of a determination by the Secretary to waive this prohibition, the Secretary shall submit written notification thereof to the Committees on Appropriations of both Houses of Congress containing the reasons and identifying the position title for which the waiver has been issued.
Congress including the language stemmed from the alleged abuse of the VA relocation program by two employees and concerns of inadequate oversight by senior VA officials. Staff for the committees with jurisdiction over the VA understood the need for federal agencies to relocate employees and did not have concerns with the program itself. Worldwide ERC® representatives continue to be in contact with congressional staff about the importance of federal relocation programs.
Of the many issues faced by Congress since it returned from its August recess, one of the more important was the need to renew some 50 tax breaks that periodically expire. Most of the provisions had already expired after 2014, and Congress would need to act to renew them for 2015 and beyond.
Among the expired provisions of interest to Worldwide ERC® members are the exclusion for cancelled mortgage debt of up to $2 million on principal residence mortgages; the deduction for state and local sales taxes; and the deduction for private mortgage insurance. All expired at the end of 2014.
Late on December 15, 2015, negotiators from House and Senate released a large legislative package making some provisions permanent, extending some through 2019, and the rest through 2016. The legislation also made a number of other tax-related changes. The legislation passed both houses of Congress on December 17, and was promptly signed into law by the President.
Provisions made permanent include the deduction for state and local sales taxes. They also include the research tax credit, and the increased expensing limitations for businesses under section 179.
The exclusion for cancelled mortgage debt is extended through 2016, as is the deduction for private mortgage insurance. The cancelled mortgage debt exclusion would also apply to debt discharged in 2017 if the discharge is pursuant to a written agreement entered into in 2016. Extension of the cancelled mortgage debt exclusion is particularly welcome for the relocation industry, as it is useful in enabling relocating transferees whose mortgage(s) exceed value to engage in short sales without incurring tax liability for the portion of their mortgage(s) they do not have to pay.
The legislation also makes a significant change to the due dates of Forms W-2, W-3, and Forms 1099 reporting non-employee compensation (generally, Form 1099 MISC). Currently, those forms are due no later than the end of February if filed on paper, and the end of March if filed electronically. Under the bill, all such forms would be due no later than January 31. The provision will require much faster determinations of items such as gross-up calculations or end-of-year adjustments for relocation items. It would be effective for returns filed in 2017 for tax year 2016, providing a one-year window for companies to make necessary changes.
At the same time, however, Congress acted to establish a “de minimis” penalty safe harbor for errors on such forms. Congress had increased the penalties for incorrect information returns significantly in earlier legislation this year, but now provides a rule that if the error is $100 or less ($25 for errors involving tax withholding) the error is ignored and no penalty will apply. This provision is effective in 2017.
Finally, the proposal also provides explicit authority for the Internal Revenue Service to require employers to “truncate” Social Security numbers on Forms W-2 (that is, using only a part of the SSN, as is commonly done on credit card company statements for example). IRS in 2014 issued regulations permitting truncation on most information returns, but was not able to extend that program to Forms W-2 because the Code required a full SSN on such forms. The new legislation will enable IRS to extend the program to Forms W-2, and it is expected to do so. Whether it will require payors to truncate is not clear. The truncation program is considered important in reducing instances of identity theft.
Numerous organizations, including Worldwide ERC®, had urged Congress to act expeditiously, and Congress has managed to get to the goal line just as time expires in 2015.
The Internal Revenue Service and the Social Security Administration have released adjustments to benefits, deductions, and other items due to inflation for 2016.
and Rev. Proc. 2015-53
the Internal Revenue Service provided its annual changes to tax items subject to inflation adjustments. There are more than 50 such provisions.
Some items increased slightly, while others are unchanged. For example, the standard deduction amounts for singles and married couples remains the same; only the deduction for heads of household increases, from $9,250 to $9,300. The personal exemption rises $50 to $4,050.
The foreign earned income exclusion rises from $100,800 to $101,300. And the Alternative Minimum tax exemption amount goes from $53,600 to $53,900 for singles, and from $83,400 to $83,800 for married couples filing jointly. For high-income taxpayers subject to the 39.6% rate, the income at which that rate kicks in goes up from $413,200 to $415,050 for singles, and from $464,850 to $466,950 for married couples.
To the relief of many, the excise tax on arrow shafts remains at 49 cents per shaft.
The Social Security Administration also addressed 2016 inflation adjustments in an October 15 News Release
and a Fact Sheet
on 2016 changes. Since there will be no cost-of-living adjustment for 2016, the maximum amount subject to the Social Security tax will remain at $118,500 (note, however, that there is no wage limit for the Medicare portion of the tax).
Posted by Peter K. Scott
The protection and use of personally identifiable information of transferees, employees, and others has become increasingly important to Worldwide ERC® members as laws and regulations worldwide have continued to expand and evolve. High profile data breaches are often in the news, and can do significant damage to a company’s business and reputation. Governments worldwide are enacting complex laws and regulations designed to ensure protection of individual data, and to limit its dissemination and use. Business contracts commonly require Worldwide ERC® members to comply with such laws and regulations, and to ensure compliance by service providers with whom they do business.
Recognizing the increasing importance to its members of compliance with laws and regulations concerning the protection of personally identifiable information, Worldwide ERC® appointed a Task Force in 2015 to address the myriad of issues that arise. The Data Privacy and Security Task Force, undertook a detailed study focused on identifying resources that it believed would be helpful to Worldwide ERC® members in seeking to comply with such laws and regulations, and its report is provided here [http://www.worldwideerc.org/gov-relations/Pages/index.aspx
]. The Task Force report contains an extensive collection of important and useful links to sources of detailed information on data privacy and security. It will enable Worldwide ERC® members to find information they need to understand the laws and regulations that apply across the world, and to create a strong culture protecting personally identifiable information of transferees and others. Worldwide ERC® intends that this material will be updated regularly, and will be available to all members.
In an important development subsequent to the preparation of the Task Force report, on October 6, 2015, the European Court of Justice invalidated the EU Safe Harbor, which had been relied upon by many U.S. companies to permit the transfer of data from the EU to the U.S. That decision has far reaching implications for Worldwide ERC® members, and all will need to understand it and work through the necessary data protection changes. Worldwide ERC® immediately advised all members of this development in a Member Alert sent on October 9, 2015, which is available here [http://www.worldwideerc.org/gov-relations/Pages/index.aspx
]. The Alert provides details of the decision, its potential impact, and potential solutions.
Worldwide ERC® members are encouraged to take full advantage of these resources.
Posted by Peter K. Scott
The Worldwide ERC® Real Estate and Mortgage Forum has prepared a list of frequently asked questions (FAQs) to assist Worldwide ERC® members with the implementation of the TILA-RESPA Integrated Disclosure (TRID) Rule. If you have further questions regarding the FAQs, please contact Worldwide ERC® Real Estate and Mortgage Forum Chair Eric Arnold at email@example.com
Definitions and Acronyms:
CFPB – Consumer Financial Protection Bureau
Consumer – The borrower
Consummation – The date the consumer becomes contractually obligated to the creditor on the loan. Generally, the date they sign the note.
Creditor – The lender
RESPA – Real Estate Settlement Procedures Act of 1974
TILA – Truth in Lending Act of 1968
TRID – TILA/RESPA Integrated Disclosure Rule
Frequently Asked Questions:
What types of transactions are exempt from the requirements of the new TRID Rule? Cash transactions, HELOC, reverse mortgages, loans made by creditors making five or fewer loans per year (but they still have to deal with the Loan Originator (LO) Act), commercial purpose loans, mobile home loans, no-interest second mortgages made for down payment assistance, and energy efficiency or foreclosure avoidance are all exempt. Most every other residential 1-4 family dwelling closed-end mortgage falls within the scope of the TRID Rule.
Is the equity acquisition in a home sale program subject to the TRID Rule? To the extent that the equity acquisition is a cash transaction subject to neither RESPA nor TILA, it will not be subject to the TRID Rule. In that case it will not be necessary to use the new forms and there would be no new timelines directly imposed upon the acquisition.
Do the provisions of the new TRID Rule apply to private lenders? The answer is yes and no. There are two new Rules private investors must understand; first is the TILA-RESPA Integrated Disclosure (TRID) Rule and second is the Loan Originator (LO) Act. The TRID Rule has an exemption for any lender making five or fewer loans per year. As an example, if it is a simple seller take-back or a parent/child transaction the TRID Rule will not apply; however, the LO Act may make this type of loan difficult to make. The LO Act can be found at http://www.consumerfinance.gov/regulations/loan-originator-compensation-requirements-under-the-truth-in-lending-act-regulation-z/
The Loan Estimate
Can closing cost worksheets be utilized before the Loan Estimate is sent to the borrower? Yes, closing cost worksheets or other customized documentation may be used before the Loan Estimate is sent, but the TRID Rule requires specific language be included informing the borrower that the document that it is not a Loan Estimate and the costs may increase.
The Closing Disclosure – Content
Where are the buyer's and seller's signature lines on the Closing Disclosure (CD)? The borrower’s CD only provides a signature line for the borrower to confirm receipt of the document and the seller’s CD provides no signature lines. Therefore, the CD provides no means for the parties to acknowledge the accuracy of figures or authorize disbursement as is currently included on the HUD-1 Settlement Statement. However, if the escrow or closing company uses the ALTA Settlement Statement in addition to the CD, signature lines are provided on the ALTA Settlement Statement with authorization language similar to the HUD-1. Additionally, secondary market investors may require the lender to obtain the signatures of the parties on an addendum to the CD.
How will direct bill credits be reflected on the Closing Disclosure? It will depend on whether it is a credit for a specific charge, such as the title policy, or a generalized credit. The former will likely be itemized in the new Paid By Others column on page 2, while the latter would be in subsection L – Paid Already by or on Behalf of Borrower at Closing, on page 3.
How will the loan and owner’s title policies be reflected on the Closing Disclosure when there is a simultaneous issue discount applied? In many states, title companies will provide a discount when both a loan and owner’s title policy is purchased. However, due to concerns that the pricing will be confusing to consumers, the TRID Rule requires the charges be itemized on the Closing Disclosure in a way that often will not be the amounts actually paid for the policies. The loan policy must reflect the full, undiscounted rate (even if that is not what is being charged), and the owner’s policy will be calculated to reflect the remaining amounts paid for the combined policies. Some states are developing required forms to identify the amounts actually charged, and the ALTA Settlement Statement may be provided in other states to document the actual policy costs.
The Closing Disclosure – Preparation and Delivery
What is a Business Day for purposes of delivering the Closing Disclosure? The definition of a “business day” as it applies to the delivery of the CD is all calendar days other than Sundays and the 10 federal holidays.
What determines whether the Closing Disclosure (CD) form was received by the borrower three days in advance of consummation? It will be within the sole discretion of the lender what methods are used to deliver the CD, when it must be sent out and what evidence of receipt is required. Generally, if the CD is not hand-delivered (or delivered in a manner that affirmatively confirms delivery to the consumer), the CD will be deemed to have been received three business days after it is sent to the consumer. This is known as the “Mailbox Rule.” If the Mailbox Rule is applied, the CD typically will need to be sent seven calendar days in advance of closing (three days in transit, three days for review plus one Sunday or federal holiday when applicable). Lenders may apply the Mailbox Rule even if the document is sent electronically.
Is the lender in charge of the seller’s CD? No, the TRID Rule specifically states that the settlement agent is responsible for the seller’s Closing Disclosure. Lenders may, however, require a copy of the seller’s CD from the settlement agent.
Much of the information on the recommended form is what many would consider to be private/personal information. Will this form be shared with the seller and other third parties? You are correct; a number of items on Closing Disclosure (CD) would be considered non-public personal information and recognizing this, the CFPB created a separate two page CD specifically for the seller. In order for a seller or other third party (real estate agent, etc.) to receive a copy of the borrower’s CD, they would need to obtain a signed release from the borrower.
The Closing Disclosure – Revisions
What are the three changes that would cause a re-triggering of the three-day review period? The three instances where a new review period is required are:
If a pre-payment penalty is added,
If the loan product changes, or
If the APR increases beyond the allowable limit (see below).
How much of a change to the APR is allowable without triggering a new three-day review period? 1/8% for fixed rate loan products and 1/4% for adjustable rate loans and those with irregular payment periods. Whether the APR threshold has been triggered is within the sole discretion of the lender, and some lenders have commented they will err on the side of caution and use the 1/8 of a percent change on all loans no matter what loan product is used in the transaction.
What type of changes would affect the APR? In principle, the mortgage APR should include all settlement costs that would not arise in an all-cash transaction. Reg Z §226.4 defines many of the costs associated with the APR. Under §226.4, "It (i.e., APR calculation) includes any charge payable directly or indirectly by the consumer AND imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit."
What about changes or adjustments requested by the real estate agent, buyer and seller for items discovered during the walk-through held the morning of consummation? The final Closing Disclosure (CD) must reflect all terms of the transactions and charges imposed upon the parties. To the extent walk-through discoveries require a change to the borrower’s CD (which it generally will in the case of a repair credit or similar adjustment), they must be approved by the lender. Prompt communication with the lender will be critical to ensure a timely closing, particularly if the lender will be preparing the revised Closing Disclosure (CD). While the lender may authorize the settlement agent to prepare revisions to the CD, (1) it is unclear at this time how common that practice will be, and (2) the final CD would likely still have to be approved by the lender. If the revised CD is prepared in time for closing and the change is not one of the three that triggers a three business day waiting period (see above), there is no requirement under TRID to delay closing. However, there may be instances where this is not feasible, and companies are strongly discouraged from attempting to avoid a delay by handling adjustments outside of closing or otherwise not on the CD.
Can the seller’s side change at closing? The answer to this question is - it depends on why the seller side is changing. There is no seller-side only change that will retrigger the three-day waiting period under the TRID Rule UNLESS the change causes the buyer’s side to change in one of the three areas that trigger the new review period, which is very unlikely. But even if that isn’t the case, certain seller changes may require approval by the buyer’s lender. Minor changes such as a water bill payment, (if it is a payment and not an adjustment) should not cause a consummation problem, but the logistics of getting the CD revised may take some time. The sooner changes are communicated to the lender the better the likelihood that the transaction will proceed as scheduled. To avoid problems at the closing table, there are two strategies. First, request the settlement agent prepare a separate seller’s Closing Disclosure, so that the lender will only have to review revisions that impact the borrower’s Closing Disclosure. Second, many real estate professionals are considering conducting two walk-throughs - one seven days prior to consummation (for most required repairs) and the other one on the day of consummation (to confirm no changes in condition).
What if the buyer agrees to waive the redisclosure? The TRID Rule provides a means for a buyer to waive the three day waiting period in the case of a bona fide personal financial emergency. However, it is in the sole discretion of the lender whether to accept the waiver, and they must determine whether it is an “emergency” or merely an “inconvenience.” The lender would be accepting significant risk of liability and the secondary market would be unlikely to purchase a loan where a waiver was granted, so waivers will be granted in only the rarest of circumstances. The only scenario provided by the TRID Rule would be if the borrower is at imminent risk of losing their home to foreclosure if they are unable to close a refinance in time. The vast majority of scenarios encountered in mobility transactions will likely be considered “inconveniences” rather than emergencies, despite the cost and personal hardship they may pose.
What happens if the buyer MUST be out of his/her/their prior residence before consummation can occur due to a redisclosure trigger? The buyer will need to find alternative housing – including staying in a hotel, with family members or other arrangements. Some sellers may allow early occupancy, however that imposes many risks on the sale and should be considered carefully.
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