Recent changes to the Truth-in-Lending Act (“TILA”) and other regulations may cause closing delays in some transactions. TILA has always required lenders to disclose certain information about the loan, including annual percentage rate (APR), prior to the transaction closing and no later than three business days after the borrower submitted a loan application. The recent revisions to TILA include the following requirements:

• TILA disclosures must be given before the borrower pays any fee other than a bona fide credit report fee.

• TILA disclosures are now required for second homes such as vacation homes, not just the borrower’s principal residence; and for refinances.

• TILA disclosures must be given at least seven business days (every day except Sunday and Federal holidays) prior to the closing of a transaction.

• If any disclosed information becomes inaccurate before closing, the borrower must receive a revised TILA disclosure at least three business days (every day except Sunday and Federal holidays) prior to closing. This requirement is invoked if the APR increases or decreases more than .125% on a fixed rate mortgage or more than .250% on an adjustable rate mortgage (ARM).

This last change is the one most likely to delay closings. Although the borrower can waive the seven and three day waiting periods for a bona fide “personal financial emergency”, it likely will be difficult to prove that closing on a home purchase is a “financial emergency”. Moreover, most lenders are likely going to resist funding a loan without providing the necessary waiting period since the lender could be found to be in violation of TILA in the event the situation was not deemed a bona fide “financial emergency”.

The new regulations do not provide a borrower with a right to rescind or cancel an existing contract with a seller in the event a revised TILA is provided to a borrower. In essence, the requirement for a revised TILA is nothing more than a waiting period to ensure a borrower has sufficient time to review a revised TILA disclosure.

Your local MLS will likely create a new form or modify existing forms to address potential delays in closing as a result of the new TILA requirements. In the meantime, consider including in all residential sale agreements either of the following provisions. The first option is limited to delays caused by TILA, while the second applies more generally:

OR

“If an unforeseen circumstance not caused by the personal fault of Seller or Buyer prevents closing by the Closing Date, the Closing Date shall be automatically extended by up to ____ days”. [Fill in the blank.]