Managing Costly TRID Fee Cures Amid Changing Transfer Tax Conventions
This is part two of a two-part blog series about managing TRID fee cures. The information provided herein is for general informational purposes only, and does not, nor is it intended to, constitute legal advice.
As discussed in part one of this blog series, the TILA-RESPA Integrated Disclosure (TRID) rule requires mortgage lenders to accurately communicate the costs and fees associated with purchasing a home via loan disclosures. Misquoting zero tolerance fees can be costly for lenders who can be required to pay borrowers a fee cure covering the difference between the amount they were quoted and the amount they were charged.
Real estate transaction taxes and fees that are leveraged by local governments fall into the zero and 10% tolerance categories respectively, and while they have never been easy to accurately quote, they are now even more complex. Municipalities will shift how they levy taxes and fees to support local initiatives, and those changes present lenders with new TRID compliance challenges along the way.
When TRID was enacted, its rule-makers placed transfer taxes into the zero tolerance category. These taxes are often based on the sale amount, assessed value or mortgage amount and vary based on different county recorder and municipality locations throughout the country.
But more recently, local municipalities have begun to view transfer taxes as a funding stream to support local initiatives. Municipalities can often implement variable fee schedules on short timelines based on local statutory requirements. This becomes a challenge to lenders who must keep up with these new fee changes that are more complex and can occur with minimal warning,
Here are a few examples of local transfer tax changes that have recently or will soon go into effect:
City of Los Angeles, Calif.
Los Angeles residents passed a ballot measure, colloquially known as the “mansion tax.” It places a 4% transfer tax on properties sold for between $5 million and $9,999,999.99, and a 5.5% transfer tax on properties sold for $10 million or more. This measure increased transfer taxes on these properties by tens to hundreds of thousands of dollars. Before March 31, 2023, a $10 million property in Los Angeles was subject to a $45,000 transfer tax. But one day later, on April 1, 2023, that same property was subject to a $550,000 transfer tax.
City of Santa Monica, Calif.
A third-tier transfer tax of 5.6% has been created for properties sold for over $8 million and went into effect on March 1, 2023.
Town of Gardiner, N.Y.
Effective Feb. 1, 2023, a newly created taxing sub-jurisdiction will begin levying a 1.25% conveyance tax for properties over the median value, which is currently $350,000.
Constantly monitoring for local tax changes is burdensome, and slip-ups that result in five- and six-figure fee cures can be a gut punch for lenders, especially in today’s tight mortgage market.
Luckily for lenders, the Ernst® Fee Service from Black Knight has a three-step process that automates a large portion of fee management research to support lender’s TRID compliance efforts and help reduce zero percent and 10% tolerance fee cures.
First, because Ernst Fee Service keeps tabs on transfer taxes nationwide, it is able to more accurately quote fees and generate Loan Disclosures and Closing Disclosures up front. Second, because Ernst Fee Service monitors fees quoted by lenders and runs them by transfer tax changes on an ongoing basis, it alerts lenders to changes within 24 hours. Via integration with Empower®, Black Knight’s loan origination system (LOS), Ernst Fee Service can automatically generate and deliver revised change in circumstance Loan Disclosures within the required timeframes, further reducing any scramble associated with transfer tax changes that go into effect on short timelines. Lastly, the combination of Ernst Fee Service with the Black Knight Actionable Intelligence Platform℠ (AIP) enables lenders to scan their portfolios for fee cures so they can correct past mistakes and develop better fee management processes that can decrease losses associated with future fee cures.
To learn more about how Ernst Fee Service can help streamline fee management, increase profitability and improve the borrower experience, schedule a demo.