News
RESPA CHANGES & RELEASE TRACKING |
| Posted on Dec 29 2009 |
On January 1, 2010, the new RESPA requirements go into effect for all residential real estate transactions. For our purposes, the biggest changes were made to the HUD-1 and HUD-1A (“hereinafter referred to as HUD”); and these are directly related to the changes made to the Good Faith Estimate (“hereinafter referred to as “GFE”). The goals are two-fold: First, to help consumers by giving the process some semblance of predictability, to be realized by requiring that the GFE match up as closely as possible to the final HUD. And secondly, to require loan originators to present the borrower with a dependable GFE, which provides for a mechanism by which borrowers are given the opportunity to shop around. Rather than attempting to tackle all of the new RESPA requirements, the focus here is to determine if the RESPA changes affect release tracking services, and if so, how release tracking is to be dealt with in the new RESPA world. If you are currently using Final Trac’s services, then you should be aware that our fee has always been disclosed in the 1300 section of the HUD.
And in the Post January 1, 2010 World - nothing changes FOR RELEASE tracking – IT remains where it has always beEN - to be disclosed in the 1300 section of the HUD.
This is because RESPA’s new regulations provide that not only “[l]ine 1301 and additional sequentially numbered lines must be used to record required services that the borrower can shop for, such as fees for survey, pest inspection . . . . [But] [t]hese lines may also be used to record additional itemized settlement charges that are not included in a specific category . . . .” 24 CFR Ch. XX §3500 App. A (4-1-09 Edition)(emphasis added).
Under the new rules, where an item will be listed on the HUD is greatly determined by where it belongs on the GFE. Based on the new regulations, release tracking services fall within a category that does not appear on the new GFE. And this is why it is appropriate that our services are disclosed in the 1300 section of the HUD. The instructions to the Good Faith Estimate are silent on release tracking specifically, but it is clear that these services fall within those that do not appear on the GFE. To try and fit release tracking within the GFE structure, is to try and put the proverbial square block in the round hole. It just does not work. This is not to say that this type of service was completely unanticipated by the drafters. A place was made for it – series 1300.
In order to consider all possible interpretations, the Straw Man of the 1100 section must be discussed. The theory posits that our services belong in the 1100 section. However, neither the rule as written, nor practical considerations change the conclusion that release tracking is at home in the 1300 series.
We turn to the Rules first. One of the best resources provided regarding the question of where release tracking services belong on the new HUD is the “New RESPA Rule FAQ’s.” These are not put together by some independent group, these FAQ’s are a part of the entire package that is the new RESPA rules. In the section entitled “GFE – Block 3,” question 2 asks “[w]hat services belong in Block 3, ‘Required services that we select’?” The answer is as clear as one is going to get from RESPA, “[b]lock 3 of the GFE contains charges for all third-party settlement services except title services for which the loan originator requires and selects the provider of the service.” (emphasis added). Further clarification is found in question 18 of the section entitled “HUD-1 – 1100 series,” that queries whether “fees charged by a settlement agent for services that are not required by the lender or requested by the borrower be listed on Line 1101 and/or Line 1102 on the HUD-1, or separately itemized on a blank line?” The answer again supports the conclusion that release tracking services belong in the 1300 section, and definitely not in section 1100. The answer states, “’[t]itle service’ is defined to include ‘the service of conducting a settlement.’ If a settlement agent requires an additional service involved in the provision of title insurance, the charge for that service would be included with the total charge on Line 1101 on the HUD-1. If a fee for the additional service is not a processing or administrative service paid to a third party, it must be itemized outside the columns on a blank line in the 1100-series.” (emphasis added). There is no consideration or anticipation of release tracking services here. Section “HUD-1 – 1300 series” clarifies the point even further by answering the question of what charges belong in the 1300 series. The answer strongly supports that release tracking would fall under this section. “The 1300 series of the HUD-1 Settlement Statement is used to record the charges for settlement services that are disclosed in Block 6 of the GFE as well as charges that are not disclosed on the GFE.” (emphasis added).
As a practical matter, the settlement agent is not going to want to list release tracking in the 1100 series. This is because the settlement agent is going to be required to give a dependable fee for line 1101, which translates into GFE Block 4. The reason for this is because part of the new structure of the GFE and HUD require settlement agents to bundle services. This is intended to give the loan originator and more importantly, the borrower, a fee that they can rely on when the closing arrives. So, the settlement agent is supposed to put its services on line 1101. Any of these services that are in fact being performed by third-party service providers, will be presented outside of the column on line 1102 and thereafter, showing the fee and to whom it is being paid. Just to be clear, this fee is outside the column on the HUD because the amount has been included in the line 1101 total fee.
It is inevitable that line 1101 is going to be a very important number for all parties involved. Its intent is to show a true reflection of the settlement agent’s title fees. It is not hard to imagine that this number will go a long way in determining who is going to get the job or not. There will be a downward pressure on attorneys and title companies to keep this number as low as possible in order to remain competitive in the market. Once again, the real estate attorneys are being looked at to reduce their fees. It is because of this pressure that settlement agents are going to want to keep as many fees outside of line 1101 as possible. And with the case of release tracking, it does not meet the requirements of a “title service” pursuant to the new RESPA Rules. To do so, will only artificially inflate the attorney’s fees and make the lawyer less competitive. This discussion is limited to release tracking fees; where a bright line appears to exist. In no way should this be considered an endorsement of removing all third party service providers from the 1100 section and moving them to the 1300 section. In fact, doing so with certain services is both a violation of the letter and intent of the law.
So we are left with the following:
1) Release Tracking does not belong in Block 3, Block 4, or Block 6 of the GFE, in fact it does not fit within any section of the GFE;
2) Release Tracking does not belong in the 1100 series of the HUD;
i) because it does not fall within the new RESPA definition of “title services,” and
ii) because the settlement agent is going to have to give the lowest possible number for the services combined on line 1101, and the GFE Block 4, in order to be competitive under the new RESPA regime;
3) Release Tracking does not belong in HUD section 1301 or 1302 because it is not a service for which the borrower had an opportunity to choose the service provider, which would be disclosed on line 1301, and not line 1302, which is an outside the column list of items that make-up line 1301; and
4) Therefore, Release Tracking does belong in the 1300 series, as a line item within the
column, possibly line 1303, listing both the service provider and its fee.
We, therefore end where we began – Release Tracking Services will continue to be listed in the 1300 series, anywhere after line 1301 and 1302.
*as an aside, our Curative Tracking Services would fall under the GFE’s “Changed Circumstances: Unforeseen Title Curative Requirements,” and therefore also fall outside of Block 3, Block 4, or Block 6 of the GFE; and the 1100 series of the HUD.
Some helpful websites:
