Welcome To a Brave New World of the Integrated Disclosures – August 1, 2015
From the Editor
It is hard to believe that we are already starting our third month of the new year. Despite reports of the ground hog seeing his shadow, and the cold spell of weather we have been experiencing these last couple of weeks, here is to hoping that Spring is just around the corner. After the ice storm and wintry weather that moved through the state last week, perhaps the buzzword should be “thaw”. Activity in the housing market does appear to be warming up despite what has been going on outside. Housing prices are reported to be increasing and refinances are reported to be rising a bit, resulting in a flurry of activity and bringing new life to our industry. These trends may result in a sigh of relief from our members even as their daily activities and open orders pick up.
NCLTA is also taking a breather of sorts. After several years of active and/or defensive participation with the Mechanics Lien legislation, our legislative committee is taking a somewhat more passive yet watchful stance for this long legislative session, monitoring various legislative matters that could impact our industry. We are, however, working with the NC Land Records Task Force and coordinating with various other parties to draft potential Manufactured Housing legislation which would provide some practical assistance in dealing with manufactured housing titles and managing liens on these titles, and thereby making it easier to get the titles cancelled and the property appropriately converted to real property. Several drafts have been circulated at this time, but a final version has not been completed. There is still some question as to the most beneficial way to address these titles and uncancelled liens and whether there is support to modify the way manufactured housing is dealt with all together.
Our activities and endeavors to provide value to our members remain constant. Our members continue to participate in various groups and capacities which have an impact on our industry, including the North Carolina/South Carolina Boundary Commission, the NC Land Records Task Force, the CFPB Task Force, and the NCBA RPS Council.
The North Carolina Land Records Task Force was formed in 2014 to deal with issues which affect public records dealing with real estate in North Carolina (as the name indicates). The group is comprised of many different interested parties including local registrars, AOC staff, real property attorneys, various individuals from other governmental bodies including Secretary of State’s Office and the NC Department of Revenue, Banking Commission personnel, and the NC Board of Realtors, as well as several members from our association. The aforementioned list is not all-inclusive and is merely a sampling of participants for illustrative purposes. This Task Force is looking at many issues including providing input to legislators drafting the law and determining how to manage the application of the appropriate state laws with the North Carolina-South Carolina Boundary Clarification issue. If not the most pressing, then likely the most imminent, issue with which the Task Force is actively involved is drafting and proposing potential Manufactured Housing legislation. Other issues which are being or have been discussed include oil and mineral rights and fracking, Mecklenburg Tax Revaluation/Reappraisals, proposed legislation regarding the filing of Assumed Names, redaction of content on certain public records, and GIS mapping to name a few. The participation of so many various groups and the topics of discussion are encouraging and promise to make this group a worthwhile endeavor.
The CFPB Task Force was formed in 2013 by the North Carolina Bar Association Real Property Section to assist with getting the word out and educating those impacted parties, especially our attorney clients, about implementing the ALTA Best Practices into their work place. Members of NCLTA have participated in this group since its inception. Everyone is working very hard to provide as many resources as possible to make this implementation as efficient and cost effective possible. Through the efforts of the NCBA Real Property Association and Real Estate Lawyers Association of North Carolina, webinars are being broadcast at least every two weeks to offer information about available resources and to give participants the opportunity to ask questions and discuss the initiatives that various attorney offices are undertaking to become compliant. At present, there have been three Best Practices webinar broadcasts—one dealing with trust account reconciliations, and two on various computer security, email encryption options, and security assessments. Replays of these webinars will be available on the CFPB website: www.ncclosingattoneybestpractices.org. There are more webinars planned for the upcoming month including the topics: RESPA/TILA Disclosure forms, Professional Liability Coverages in the changing market, practical implementation of security practices into the law firm, and practical discussions with different practitioners on their implementation processes.
Our annual Conference Chair, Karl Knight, and our Executive Director, Anita Turlington, have been hard at work planning our Annual Conference. The conference will be held September 10-12 at the Grand Bohemian in Asheville, North Carolina, right across the street from the Biltmore House. This is a new venue for the Annual Meeting, and we are excited about the location as well as the potential topics for the educational portion of the meeting and additional activities to enjoy in the mountains of our state. We are brainstorming and investigating the possibility of adding a NCLTA PAC event for Saturday evening. Please mark your calendars and plan on attending. More information to follow as the event develops.
Our members are hard at work, and we look forward to more progress as this year unfolds.
All the best,
Lisa Shields-Cook, President
North Carolina Land Title Association
The 2015 legislative session began on Wednesday, January 14, as state lawmakers met in Raleigh to be sworn in, to formally elect their leaders, and to handle other logistics, so they could hit the ground running when the legislature convened on January 28. As expected, Senator Phil Berger (R-Rockingham) was selected for a third term as President Pro Tempore of the Senate, while Representative Tim Moore (R-Cleveland) was elected as Speaker of the House. Former House Speaker Thom Tillis was elected to the U.S. Senate, so there was an open race for Speaker of the North Carolina House. Both leaders are attorneys and serve in chambers with veto-proof majorities - 34 Republicans to 16 Democrats in the Senate and 74 Republicans to 45 Democrats in the House. Republican Dan Forest (R-Wake) will preside over the Senate as Lieutenant Governor.
The one-day session on January 14 was followed by a two-week break. This was a chance to give legislative leaders time to organize. The legislature officially started the 2015 session on Wednesday, January 28.
The chairpersons of the Senate and House Judiciary Committees, which are the committees likely to consider bills of interest to NCLTA and real estate attorneys, are:
Senate Judiciary I – Sens. Hartsell, Newton.
Senate Judiciary II - Sens. Barringer, Daniel, Randleman.
House Judiciary I - Rep. Daughtry, Chair; Reps. Burr, Jackson, Vice Chairs.
House Judiciary II - Reps. Blust, Jordan, Chair; Reps. Faircloth, Glazier, Hurley, McGrady, Michaux, Stam, Vice Chairs.
House Judiciary III - Reps. Davis, Stevens, Chairs; Reps. D. Hall, Harrison, R. Turner, Vice Chairs.
House Judiciary IV - Reps. Blackwell, Bryan, Schaffer, Chairs; Rep. Hamilton, Vice Chair.
The General Assembly’s schedule was disrupted in February due to weather like many businesses and schools across the state. The last two weeks in February were characterized by committee cancellations and delayed debates as winter weather crippled the Triangle. Although many committee meetings were cancelled, both chambers managed to hold important committee and floor votes while the weather was cooperating. The House voted to give approval to a bill containing provisions related to last year's coal ash legislation. The Senate approved a measure to allow magistrates, assistant register of deeds, and deputy register of deeds to avoid performing marriage ceremonies or issuing marriage licenses for same sex marriages where they have sincerely held religious objections. One North Carolina Senator received both local and national media attention for his social media coverage of his “having the General Assembly to himself” one of the days of bad weather. Alleging that he was the only legislator at the General Assembly and referring to himself as a quorum of one, Freshman Senator Jeff Jackson (D-Mecklenburg), an attorney, spent the day on social media jokingly describing all of the state policy issues he was able to resolve in the absence of other state lawmakers. His fictional victories included Medicaid expansion, increasing funding to the state's university system, and nonpartisan redistricting reform.
So far this session, bills have been filed on economic incentives; to restore partisan statewide judicial elections; to create a nonpartisan redistricting process; and to amend the advertising and marketing laws for the State Lottery.
North Carolina Supreme Court Chief Justice Mark Martin provided a State of the Judiciary Address on March 4 to a joint session of the General Assembly in the state House chamber. During the Address, Justice Martin asked the General Assembly to rescue the state's financially struggling court system, saying decades of neglect have put its most basic functions at risk. He connected the lack of funding to its impact on people who find themselves in their local courthouse, frustrated by delays because there are not enough clerks. Justice Martin said the judicial branch has tried to cut costs, realign operations and make better use of technology. But positions have been left vacant to cover shortfalls in the budgets, and areas such as juror pay, court reporters and expert witness costs have gone underfunded, he said. Justice Martin also cited some successes realized in the courts, including the success of specialty courts for veterans and domestic violence, and praised the comprehensive sentencing overhaul that directs more offenders to community treatment in hopes of keeping them from returning to prison. Justice Martin requested an increase in appropriations from the legislature for the Court system.
The following bills introduced to date may be of interest to title insurance companies, title agents, and real estate attorneys:
Senate Bill 83, Criminal Law/Filing False Document, would make it a Class I felony for any person to present a document for filing with the Register of Deeds or Clerk of Superior Court that the person knows is false or contains materially inaccurate or misleading information with the intent that the recorded document be used to alter an identity, defraud another person or entity, or circumvent legal name change procedures. Introduced by Senator Bingham and referred to the Senate Judiciary II Committee.
Senate Bill 119, GSC Technical Corrections 2015, would make various technical corrections to the General Statutes as recommended by the General Statutes Commission. Section 11 of the bill would make technical changes to Section Law 2010-32, a bill that prohibited transfer fee covenants. This session law was enacted in 2010 at the request of the North Carolina Land Title Association. Section 2 of Session Law 2010-32 provides that nothing in this Act shall be interpreted to mean that a transfer fee covenant recorded prior to the effective date of this Act is valid or enforceable. This bill would codify this language in the General Statutes as G.S. 39A-4. The bill would then amend the newly transferred language to G.S. 39A-4 to make specific reference to the effective date of the ban on transfer fee covenants, July 1, 2010. Introduced by Senators Hartsell and referred to the Senate Rules Committee.
Senate Bill 123, Uniform Fraudulent Transfer Act, would amend the Uniform Fraudulent Transfer Act to adopt the amendments approved by the Uniform Law Commission in 2014 and to make related conforming and technical amendments to the statute. The bill would change the title of the Act from “Uniform Fraudulent Transfer Act” to the “Uniform Voidable Transactions Act.” The bill makes various changes to acknowledge and account for electronic records and electronic signatures. The bill would require a creditor establishing a claim under this Act to prove the elements by a preponderance of the evidence.
The bill would amend §39-23.8, Defenses, liability, and protection transferee or obligee, to establish the rules that apply to the extent a transfer is avoidable in an action by a creditor under G.S. 39-23.7. The bill appears to continue to protect a person that took in good faith and for a reasonably equivalent value given the debtor or against any subsequent transferor or obligee. Introduced by Senator Hartsell and referred to the Senate Rules Committee.
Senate Bill 124, Modernize Assumed Business Name Statutes, would modernize the law governing the use of assumed business names and would make related conforming and technical amendments, as recommended by the General Statues Commission. The bill would repeal Article 14 of Chapter 66 of the General Statutes and replace it with new Article 14A and 66-71.1 et. seq. to enact the “Assumed Business Name Act.”
The bill states that the purpose is to afford the public a means of ascertaining the real names of persons engaging in business in the State under an assumed business name by requiring those persons to register the assumed business name as provided in this Article. The filing would be made at the Register of Deeds office in the county where the person would be engaged in business.
The bill would require the Register of Deeds of each county to index in accordance with Article 2 of Chapter 161 of the General Statues every assumed business name with respect to which an assumed business name certificate, a certificate of amendment, or a certificate of withdrawal has been filed in that county.
Not later than 30 days after the date a certificate under this Article is filed, the Register of Deeds would be required to transmit a scanned image of the certificate to the Secretary of State and enter into the central database maintained by the Secretary of State under G.S. 66-71.9 the assumed business name, the real name of each person engaging in business under that name, the type of certificate, the county in which the certificate was filed, and, in the case of a certificate of amendment or certificate of withdrawal, the identification number assigned to the assumed business name by the Secretary of State (SOS ID).
The Land Records Management Advisory Committee established under G.S. 147-54.3 may develop forms for the documents required or permitted to be filed by this Article, but their use is not mandatory. Any person, including the Registers of Deeds, may make the forms available to the public. Introduced by Senator Hartsell and referred to the Senate Rules Committee.
Senate Bill 129, Legal Notices/Require Internet Publication, would require Internet website publication of legal notices in addition to continuing to require newspaper publication. The bill contains additional procedures and protections for posting these online legal notices. Introduced by Senators Sanderson, Apodaca, and Hise and referred to the Senate Rules Committee.
Senate Bill 159, Transferred Properties in Corrected Revals. In 2013, the legislature enacted Session Law 2013-362 to allow Mecklenburg County to perform re-appraisals of real estate under certain circumstances to “make adjustments for previous errors”, and adjust tax values up or down as necessary. Of concern to NCLTA, Session Law 2013-362 provided that where this process determined that property had been undervalued and this resulted in an underpayment of taxes, taxes discovered on such property would be treated as discovered property pursuant to G.S. 105-312, except that discovery penalties in G.S. 105-312(b) would not apply. This tax obligation could lead to title claims.
This bill would amend the relevant provisions of Session Law 2013-362 to address transfers of property during a tax year where errors were discovered. If enacted, the provision would read as follows:
“Interest on taxes paid on parcels with errors that resulted in the parcels having an overstated value shall be calculated at a rate of five percent (5%) per annum. Additional taxes levied on parcels as a result of errors causing the parcels to have an understated value shall be treated as follows:
(1) In instances of parcels that have not been transferred in any tax year for which errors requiring reappraisal pursuant to this act resulted in an underpayment of taxes, the taxes shall be treated as taxes on discovered property pursuant to G.S. 105-312, except that the discovery penalties set forth in subsection (h) of G.S. 105-312 shall not apply.
(2) Notwithstanding G.S. 105-365.1(b), in instances of parcels that have been transferred in a tax year for which errors requiring reappraisal pursuant to this act resulted in an underpayment of taxes, the taxes for each tax year prior to and in the fiscal year in which the transfer occurred shall be collected only using the remedies available in G.S. 105-367 and G.S. 105-368 against the owner of record as of January 1 of each tax year for which unpaid taxes exist. Notwithstanding G.S. 105-355(a), there shall be no lien on the real property for underpaid taxes that arose in a year in which the property is owned by a person other than the current owner as of January 1 of that year, and the current owner shall not be held personally responsible for such underpaid taxes. Such underpaid taxes shall be treated as taxes on undiscovered property pursuant to G.S. 105-312, except that discovery penalties shall not apply." Introduced by Senators Tarte and Rucho and referred to the Senate Rules Committee.
House Bill 3, Eminent Domain, would amend the North Carolina constitution to prohibit condemnation of private property except for a public use (deletes reference to public benefit), to provide for the payment of just compensation with right of trial by jury in all condemnation cases, and to make similar statutory changes. Introduced by Representative McGrady and referred to the House Judiciary II Committee. House Bill 3 was approved by the House and was sent to the Senate for consideration.
House Bill 127, DOT Condemnation Changes, would modify the measure of damages in a condemnation action initiated by the Department of Transportation (“DOT”). The bill provides that interest on a DOT condemnation award shall be paid from the date of taking until the date the judgment is paid. The bill would authorize a defendant in a DOT action to recover attorneys’ fees and costs if the judgment exceeds the deposit by 25% or more. The bill would reduce to 180 days any delay of a building permit issuance due to the Transportation Corridor Official Map Act. The bill provides that a property owner is entitled to compensation in a DOT condemnation action for roadway changes that result in partial control of access. The bill provides that DOT shall send any relocation notice required by federal law within a specified period of time. Introduced by Representatives Stam, Jackson, and Bryan and referred to the House Judiciary IV Committee.
For more information about legislation described in this article, feel free to contact me at firstname.lastname@example.org or (919) 754-1171. Information is also available on the General Assembly’s website: www.ncga.state.nc.us.
Prepared By: David P. Ferrell, Esq. - NCLTA Lobbyist
NCLTA is in the planning stages of our 2015 Annual Convention to be held September 10th through the 12th at the boutique Grand Bohemian Hotel in Asheville, North Carolina. Located in the heart of Biltmore Village, with the lush Blue Ridge Mountains as a backdrop, the European hunting lodge inspired Grand Bohemian was designated a “World’s Best Hotel” by Travel + Leisure and a “Top 40 Hotel in the South” by Conde Naste. In addition to the luxurious accomodations and the opportunity to network and reconnect with friends, NCLTA is planning to offer six CLE credits for attending our educational sessions. Save the date and join us for what is going to prove to be one of the best NCLTA conventions yet! Make your room reservations now by calling 1-888-717-8756 and identifying North Carolina Land Title Association as your affiliation to receive your $289 rate in the room block. Conference registration information will be available soon.
When Aldous Huxley presented his 1932 vision for the future, entitled a Brave New World, he imagined a lot of things that could potentially affect our daily lives by the time we reached 2015. However, he did not imagine the comprehensive overhaul to the way we perform residential real estate transactions every day. He might have imagined a strong government reaction to a problem threatening our society, but did not go as far as to prophesize the Integrated Disclosure. Huxley would have agreed with the CFPB, that financial stability was the "primal and ultimate need" if civilization was to survive. Well, with or without the help of Mr. Huxley, we enter a Brave New World of our own on August 1, 2015.
When the “Housing Bubble” burst in and around 2008, the word “Financial Crisis” became the standard introductory phrase on the nightly news. In the wake of this crisis, Congress became very active to attempt to make sure that this type of financial threat would never happen again. On July 21, 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, H.R. 4173) was signed into law (hereinafter “Dodd-Frank”). Title X of Dodd Frank created the Consumer Financial Protection Bureau (hereinafter “CFPB”). The CFPB was charged with re-thinking and re-inventing the manner in which financial terms were communicated to consumers, codifying this new paradigm in our financial landscape and enforcing the very rules that it promulgated. Specifically, Dodd Frank mandated that the CFPB combine, clarify and streamline the consumer disclosures used in a typical residential mortgage transactions.
Historically, consumers had two different agencies promulgating, regulating and enforcing the use of two different consumer disclosure forms. First, we had Housing and Urban Development (hereinafter “HUD”) that was in charge of these issues as they related to the “Real Estate Settlement Procedures Act” (hereinafter “RESPA”). HUD and RESPA were primarily concerned with the settlement statement (known as the HUD-1), which detailed all of the expenses and credits of the real estate transaction. Second, we had the Federal Reserve Board (hereinafter “Fed”) which was in charge of these issues as they related to the Federal Truth In Lending Act (hereinafter “TILA”). The Fed, through TILA, was charged with accurately informing consumers on the cost of credit (“Annual Percentage Rate” or “APR”) and payment terms. The consumer disclosures required by both agencies were required to be disclosed at similar times on similar issues, while using inconsistent terms and complex calculations.
Congress, through Dodd-Frank, said that the consumer had had enough of competing forms and regulations. Further, Congress asserted that while everything was being done in the name of the consumer, the consumer was the victim of competing government regulations. Section 1032(f) of Dodd-Frank requires the CFPB to combine the RESPA & TILA disclosures within one year of establishment. The CFPB started work on July 21, 2011 and released the proposed 1088 page rule on the Integrated Disclosures on July 9, 2012.
The goals of Dodd-Frank were simple and noble in their origins. First, protect the American economy from unreasonable risks. Second, create an easier to use and easier to understand integrateddisclosure for a consumer residential mortgage transaction, which would allow the consumer to compare financing terms and avoid undesired surprises at the closing table. In order to achieve these objectives, the CFPB conducted numerous forums, solicited feedback, and worked diligently to meet the Congressional mandate and provide the consumer with what the consumer wanted in a disclosure. After listening to all of the data collected, the CFPB issued the final rule on the Integrated Disclosures on November 20, 2013 with an effective date of August 1, 2015.
The integration and consolidation of these closing disclosures did not end with the documents themselves. The promulgation, interpretation and enforcement of the regulations were moved under the purview of the same agency, the CFPB. No longer should intergovernmental wrangling occur over the importance and/or effectiveness of one agency over the other. Four disclosures from two agencies were reduced to two disclosures from the same agency. There are actually two primary Integrated Disclosures, the Loan Estimate (following application) and the Closing Disclosure (preceding consummation).
Previously, the Fed had the initial Truth in Lending Disclosure (hereinafter “TIL”) and HUD had the Good Faith Estimate (hereinafter “GFE”) for initial disclosure by the lender within three (3) days of the receipt of the application. Both of these documents provided the consumer with key loan terms and financial responsibilities. Both of these documents are being discontinued in favor of the new Loan Estimate. Congress saw these disclosures as competing with each other and potentially confusing to the consumer. The goal of this Integrated Disclosure, known at the Loan Estimate, is to provide the consumer with one document per lender for the purpose of comparison shopping. Each lender will have to produce the Loan Estimate within three days of application, so that they consumer may lay them side by side and choose the most appropriate financial decision for their household.
Previously, the Fed had the final TIL and HUD had the HUD-1 Settlement Statement. Both of these documents were iconic in the length of their utility in the consumer residential real estate closing. With only small modifications, the forms endured in excess of forty (40) years. While these replaced forms will still exist in certain types of transactions which are excluded from the Integrated Disclosures Rule, as of August 1, 2015, they will not be a part of most closed-end consumer residential mortgage transactions. While an article of this length could not possibly do justice to the depth information and analysis required to complete and to implement the Closing Disclosure, there are a few significant points that are worth identifying in this short introduction:
a) Closing Disclosure replaces the final TIL and the HUD-1
b) Tolerances on APR deviations are redefined
c) Must be delivered to the consumer three (3) days in advance of closing a) Re-disclosure (restarting the three day period) is required if there are changes in the transaction post disclosure to the consumer such that:
a. The APR tolerances are violated;
b. Change to the loan product; and/or
c. Addition of a pre-payment penalty.
d) Re-disclosure (restarting the three day period) is required if there are changes in the transaction post disclosure to the consumer such that:
a. The APR tolerances are violated;
b. Change to the loan product; and/or
c. Addition of a pre-payment penalty.
e) If there are changes to the final figures post-closing, there are re-disclosure requirements as well.
f) Either the Creditor or Settlement Agent may prepare and provide the Closing Disclosure to the consumer. If it is provided by the Settlement Agent, then the Settlement Agent is considered the creditor for the purposes of compliance with the rule regarding the Closing Disclosure.
g) The HUD-1 line numbers have been replaced with similar section headings, but the items on the Closing Disclosure must be alphabetical within the section headings.
Exclusions From The Integrated Disclosures Rule
While the Integrated Disclosures Rule applies to most closed-end consumer residential mortgage loan transactions, there are exclusions from the rule. Specifically, the rule does not include the following:
a) Home Equity Lines of Credit (hereinafter “HELOC”)
b) Reverse Mortgages
c) Mortgages / Deeds of Trust Secured By Mobile Homes (which are not affixed/attached to the real property in accordance with state law)
d) Creditors that make five or less mortgage loans per year which are covered by the rule
Repackaged Information Designed to Better Inform
At the end of the day, the information contained in the new Integrated Disclosures (whether it be the Loan Estimate or the Closing Disclosure) is an effort to reorganize the information disclosed to the consumer to foster a better understanding of the biggest financial decision that most consumers will ever make. Yes, it has changed the paradigm from the status quo. However, how are we inconvenienced? We have been merely asked to learn where the same old information is disclosed on two new forms. Hardly the Brave New World professed by Huxley.
Aldous Huxley gave a dark view of the role of strong governmental influences in World State in 2540 AD. His Brave New World included government involvement in nearly every aspect of life, from reproduction, to psychological manipulation, to classical conditioning all designed to “improve” society. Some say that we enter our own Brave New World on August 1, 2015. This new paradigm is coming with a similar goal of not repeating the financial instability of the past. All that has been asked of us so far is merely participate in a process that allows the government to eliminate duplicitous disclosures for a better informed consumer. True the format of the new federal disclosures will change forever. However, in several years, we will all wonder what was the big deal.
Jon Biggs oversees risk management functions related to Investors Title’s approved provider system. In this role, he oversees the approval process, develops educational seminars and communications-based initiatives involving approved providers and agents, and manages provider data and analysis related to the company's risk management efforts. Prior to joining Investors Title in 2012, he was partner at a firm in Durham, North Carolina where he practiced residential and commercial real estate law for more than 20 years. Mr. Biggs holds a bachelor’s degree from Duke University and a Juris Doctor from Wake Forest University School of Law.
I hope everyone made it through all of the challenges that the weather provided us over the last few weeks. It is nice to look forward to the spring season and all it has to offer. I hope this latest edition of the NCLTA newsletter will be informative and of some use to you in your practice. Please remember that we are always in need of articles for the newsletter. It is a great way for you to get some good exposure in the legal community and would be very much appreciated by those of us at NCLTA. Please let me know if you have any suggestions or questions.
Investors Title Insurance Company
121 North Columbia Street
Chapel Hill, North Carolina 27514
Phone: (919) 968-2200
Copyright ©2015 North Carolina Land Title Association