Closing Disclosure Timing and Fee Tolerance in a Purchase
On Monday, September 9, 2024, you take a completed application for a purchase loan. You issue the Loan Estimate on Thursday, September 12. The borrower locks the rate on Friday, September 20. On Tuesday, October 8, you issue a revised Loan Estimate because the title company increased its fee by $1,200; the APR rose from 6.35% to 6.60%. The revised LE shows a $1,800 title insurance premium. The closing is scheduled for Tuesday, October 15. The settlement agent hand-delivers the Closing Disclosure to the borrower on Friday, October 11. The CD shows a $2,100 title insurance premium and a $650 increase in the lender's underwriting fee compared with the revised LE. The borrower asks whether the closing can still happen on October 15.
1. Is the Closing Disclosure delivery timely for an October 15 closing? Explain the counting rule.
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No. The CD must be received by the borrower no later than three business days before consummation. For CD timing, a business day is every calendar day except Sundays and federal legal public holidays. Delivery on Friday, October 11, gives Saturday, October 12, as day one; Sunday, October 13, is excluded; Monday, October 14, is day two. Tuesday, October 15, is the consummation date, so only two countable business days have passed before closing. The earliest compliant closing date is Wednesday, October 16, assuming the same CD is used and no new changed circumstance requires a revised CD. The settlement agent should move the closing or re-deliver the CD and restart the three-business-day waiting period.
2. What is the significance of the $650 underwriting fee increase and the title insurance change?
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The $650 increase in the lender's underwriting fee is a zero-tolerance fee. The lender cannot pass that increase to the borrower; it must cure the violation by reducing the fee or providing a credit before closing. The title insurance premium is subject to a cumulative 10% tolerance, so you must compare the $2,100 CD figure with the $1,800 revised LE figure and with all other fees in the same tolerance category. A $300 increase on title insurance alone is 16.7%, which exceeds the 10% bucket if there are no offsetting decreases. The revised LE issued October 8 appears timely for an October 15 closing if it was received that day: October 9, 10, 11, and 14 are four business days before consummation. However, the CD still must be corrected and re-delivered with a new three-day wait if the borrower's costs increase.
3. What should you tell the borrower and the settlement agent?
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Tell them the October 15 closing cannot proceed as scheduled. The CD was delivered too late, and the file has a fee-tolerance issue. The lender should absorb the $650 underwriting fee increase, correct the title insurance tolerance, and issue a corrected CD showing the accurate costs. The borrower must receive the corrected CD at least three business days before consummation, so the earliest closing is likely October 16 or later depending on when the corrected CD is delivered. Do not collect the $650 from the borrower. Keep a tolerance cure calculation in the file, document the changed circumstance and revised LE, and ensure the settlement agent does not disburse before the waiting period expires.