4.3 Financing Regulations and Closing
Key Takeaways
- The Truth in Lending Act (Regulation Z) requires disclosure of the cost of credit as an annual percentage rate (APR) and triggers full disclosure when an advertisement states specific terms like a down payment or monthly payment.
- The Equal Credit Opportunity Act prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
- Under TRID, the Loan Estimate must be delivered within 3 business days of application, and the Closing Disclosure must be received at least 3 business days before consummation.
- Florida foreclosures are judicial: the lender files a lawsuit and records a lis pendens, and the property is sold by the court after a final judgment.
- Title insurance protects against defects in title; the owner's policy protects the buyer and the lender's policy protects the lender for the loan amount.
Federal Lending Laws
Three core federal laws govern consumer mortgage lending, and the exam tests which protection comes from which law:
- Truth in Lending Act (TILA), implemented by Regulation Z — requires lenders to disclose the true cost of credit to the borrower, expressed as the annual percentage rate (APR) and the finance charge. TILA also governs advertising: if an ad states a specific credit term (a "trigger term" such as the down payment amount, monthly payment, number of payments, or finance charge), the ad must then disclose the full terms (APR, down payment, and repayment terms). TILA also gives a three-day right of rescission on certain refinances of a primary residence (not on a purchase).
- Real Estate Settlement Procedures Act (RESPA) — applies to most residential loans. It prohibits kickbacks and referral fees between settlement-service providers and requires standardized settlement disclosures. RESPA also limits how much a lender can require in an escrow (impound) account.
- Equal Credit Opportunity Act (ECOA) — prohibits discrimination in any aspect of a credit transaction based on race, color, religion, national origin, sex, marital status, age, or because income comes from public assistance.
Exam trap: ECOA covers credit discrimination; the Fair Housing Act covers discrimination in the sale or rental of housing. Both list protected classes, but they apply to different transactions.
TRID: The Loan Estimate and Closing Disclosure
TILA and RESPA disclosures were combined into the TILA-RESPA Integrated Disclosure (TRID) rule, which created two consumer forms and strict timing:
| Form | Purpose | Timing rule |
|---|---|---|
| Loan Estimate (LE) | Estimates rate, payment, and closing costs | Delivered within 3 business days of a completed application |
| Closing Disclosure (CD) | Final actual loan terms and costs | Received at least 3 business days before consummation (closing) |
The 3-day rule on the Closing Disclosure is a favorite exam point. If the lender makes a major change after issuing the CD — the APR becomes inaccurate (beyond tolerance), the loan product changes, or a prepayment penalty is added — a new 3-business-day waiting period restarts. Comparing the LE to the CD lets the borrower see whether costs changed.
APR and Predatory Lending
The annual percentage rate (APR) expresses the total yearly cost of credit including interest and certain finance charges (points, mortgage insurance, certain fees). The APR is therefore usually higher than the note rate, which lets borrowers compare loans on an apples-to-apples basis.
Predatory lending practices the exam flags include loan flipping (repeated needless refinancing to generate fees), equity stripping, packing loans with unnecessary products, bait-and-switch terms, and steering borrowers into higher-cost loans than they qualify for. The federal Home Ownership and Equity Protection Act (HOEPA) adds protections for high-cost loans.
A real estate ad states 'Only $5,000 down!' but lists no other terms. Which law has been triggered, and what is now required?
Under the TRID rule, when must a borrower receive the Closing Disclosure?
Foreclosure in Florida
When a borrower defaults, the lender enforces the mortgage through foreclosure. Because Florida is a lien-theory state, all foreclosures are judicial:
- The lender files a lawsuit in circuit court and records a lis pendens — a recorded notice of a pending lawsuit against the property that warns the world the title is in dispute.
- The borrower is served and may respond (Florida allows 20 days to answer a complaint).
- The court enters a final judgment of foreclosure and sets a sale date.
- The property is sold at a public judicial sale; proceeds pay the debt, and the borrower has a statutory right of redemption up until the certificate of sale is filed.
A borrower facing default may avoid foreclosure with a deed in lieu of foreclosure (voluntarily deeding the property to the lender) or a short sale (selling for less than the balance with lender approval).
The Closing / Settlement Process
Closing (settlement) is where ownership transfers and funds are disbursed. The buyer's funds and loan proceeds are collected, liens are paid, the deed is delivered and recorded, and the seller receives the net proceeds. In Florida, title companies or attorneys commonly conduct closings.
Prorations, Title Insurance, and Escrow
Prorations divide ongoing expenses fairly between buyer and seller as of the closing date. Items like property taxes, HOA dues, and prepaid interest are split so each party pays only for the time they own the property. A credit to one party is a debit to the other. Whether an item is prepaid or paid in arrears determines who is credited.
Title insurance protects against defects in the title that existed before the policy date (forged deeds, undisclosed heirs, recording errors, unpaid liens). Unlike other insurance, it is paid once at closing and covers past events:
- An owner's policy protects the buyer up to the purchase price.
- A lender's (mortgagee's) policy protects the lender up to the loan balance and is almost always required by the lender.
Escrow has two meanings the exam separates. At closing, a neutral escrow/closing agent holds funds and documents until all conditions are met. During the life of the loan, an escrow (impound) account lets the lender collect 1/12 of annual taxes and insurance with each monthly payment and pay those bills when due, ensuring the collateral stays insured and tax liens don't take priority.
Which document does a lender record to give public notice that a foreclosure lawsuit is pending against a Florida property?
At closing, the seller has not yet paid the year's property taxes, which are billed in arrears. How is this typically handled in proration?