By Heather MacKinnon, VP - Legal Wisconsin Bankers Association
FIPCO® has recently received clarification from FDIC Chicago regarding two Truth in Lending-Real Estate Settlement Procedures Act Integrated Disclosures (TRID) questions. While these are not new requirements, FDIC’s interpretations are meant to clear up ambiguity regarding expectations on how existing disclosure requirements must be met. The two questions discussed in this article are:
1. How must owner’s title be disclosed on the Loan Estimate when paid by the seller?
2. Who must be listed on the Closing Disclosure as the government entity charging transfer taxes?
FIPCO has received the following information from FDIC’s field management team and the Chicago Regional Office regarding these issues. FDIC supervised banks can expect examiners to follow these interpretations. Non-FDIC supervised banks will need to confirm with their prudential regulator as to whether they have similar expectations.
Owner's Title
Owner’s title is an insurance product that protects the homeowner from title issues. Because owner’s title is not typically required by the creditor as part of the transaction, it is optional for the consumer to purchase. In Wisconsin, owner’s title is typically paid for by the seller, and the standard real estate purchase contract contains default language that the seller is responsible for paying for owner’s title insurance.
TRID requires disclosure of all costs associated with a loan transaction under a heading labeled as “closing cost details.” The costs disclosed include “loan costs” and “other costs.” Loan costs are those services that the creditor requires for making the loan and other costs are all additional costs associated with the transaction. Because lenders typically do not require owner’s title, it would not be required to be disclosed as a loan cost, leaving the question as to whether it must be disclosed as an other cost. This has been a question subject to multiple interpretations since the inception of TRID. FDIC has clarified its expectations that owner’s title must be disclosed as an other cost, even when paid by the seller.
Prior to this clarification, interpretations of this requirement have varied. Prior to sharing FDIC’s rationale, the following is presented as a matter of background. Starting with the rule, Regulation Z section 1026.37(g)(4) requires an itemization of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate, a descriptive label of each such amount, and the subtotal of all such amounts.
One interpretation of this requirement was based upon a strict reading of the rule, that when owner’s title is an amount owed by the seller pursuant to the sale’s contract it is not a fee that would appear on the Loan Estimate. This interpretation relied upon the fact that the rule requires disclosure of fees charged to the borrower. The theory being that when the contract requires the seller to pay the fee, it is not a fee charged to the borrower and thus, would not be a credit, either paid by the borrower or paid by others, but rather, a fee charged directly to the seller. Another interpretation reached the opposite conclusion, that even when the seller paid owner’s title, because it’s an amount that the owner “contracted with another person” to pay, it must be disclosed as an other cost.
Putting the above interpretations aside, FDIC has offered its interpretation on the matter. FDIC’s interpretation is based upon the June 9, 2020, CFPB Fact Sheet - TRID Title Insurance Disclosures, which details how both owner’s and lender’s title insurance should be calculated and disclosed. The Fact Sheet does not reference that the owner’s title would need to be on or off the Loan Estimate if seller paid, only that: “Instead, the cost of owner’s title insurance is disclosed using the following formula: ((full owner’s policy premium) + (the simultaneous premium for the lender’s policy, i.e., simultaneous amount)) – (full lender’s premium). Comments 37(g)(4)-2 and 38(g)(4)-2.”
FDIC has informed FIPCO that its examiners are following the CFPB Fact Sheet/regulation, where the Loan Estimate includes the owner’s title insurance since it is part of the formula to calculate how title insurance, both lender’s and owner’s, are disclosed on the Loan Estimate and Closing Disclosure, and indicated that this approach is consistent with calculations and disclosure methods used by various Wisconsin title insurance companies, CFPB guides, and national training its staff received.
In summary, FDIC’s expectations are that owner’s title must be disclosed as an other cost when paid by the seller. Form examples from FDIC to illustrate their expectations follow.
Transfer Tax
Transfer taxes are charges for the transfer of ownership of property. In Wisconsin, this fee is known as a real estate transfer fee, the value of which is determined by the State of Wisconsin, and collected at a county level by the Register of Deeds when the deed or other instrument of conveyance is recorded.
As discussed above, TRID requires disclosure of all costs associated with a loan, such as taxes and other government fees, which includes an itemization of transfer taxes paid as part of the transaction. Specifically, on the Closing Disclosure, Regulation Z section 1026.38(g)(1)(ii) requires an itemization of transfer taxes, with the name of the government entity assessing the transfer tax.
The rule does not elaborate beyond that, leaving a question as to what specific government entity assessing the transfer tax should be disclosed. One interpretation is that the Register of Deeds could be listed, as it is the entity which assesses the tax in Wisconsin on a county level. Another interpretation is that the State of Wisconsin should be listed.
FDIC has clarified its expectation that the State of Wisconsin must be listed. FDIC’s interpretation is based upon the language within the regulation, which states the following: “(ii) On subsequent lines, in the applicable column as described in paragraph (g) of this section, an itemization of transfer taxes, with the name of the government entity assessing the transfer tax.” Based upon this, FDIC’s position is that it is state statute that assesses the transfer tax; therefore, the State of Wisconsin is the government entity that should be listed.
In summary, FDIC’s expectations are that the State of Wisconsin is the only appropriate government entity to list as assessing the transfer tax.
Conclusion
FIPCO is appreciative of FDIC for sharing its interpretations of TRID, along with its examiner expectations, for purposes of sharing the information with the membership. FDIC supervised banks should be aware that examiners will expect owner’s title to be disclosed under Section H – Other, when paid by the seller. Of course, in the event where a lender requires owner’s title to be paid as a loan cost, then it should be disclosed in the appropriate loan cost section instead. Wisconsin banks should also be aware that FDIC examiners will expect that the State of Wisconsin be listed as the name of the government entity assessing the transfer tax. FDIC’s expectations are prospective in nature, meaning banks are not required to change past practices. FDIC supervised banks should expect FDIC examiners will express their interpretations in upcoming compliance examinations.
Non-FDIC supervised banks should clarify with their prudential regulator what their examination expectations are regarding owner’s title paid by the seller and any requirements of what specific government entity assessing the transfer tax should be disclosed.
FIPCO is currently in the process of revising Compliance Concierge programming to allow for seller-paid owner’s title to appear in the Loan Estimate in Section H as an other charge. As a work around for the time being, users should indicate the owner’s title insurance charge as being paid by the Borrower. In addition, the “Lender Required Service” box should not be checked, and the “Borrower Identified” box should be checked. The charge will then appear in the Loan Estimate under Section H as an other charge. As mentioned above, this instruction is for when owner’s title is not required by the lender.