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#1995627 - 02/12/15 04:49 PM Tolerance for Prepaid Property Taxes
RegObsessed Offline
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Joined: Aug 2011
Posts: 45
Befuddled...............

Based on the criteria for determining what tolerance for fee/charge increases apply, prepaid property taxes seem to be a zero increase tolerance.

Any thoughts?

TRID rule states that in general, all fees should not increase from what was disclosed on the initial Loan Estimate. However it does provide exceptions in the “10% tolerance category” and the “variations permitted” (unlimited) category.

The prepaid Property Taxes do not appear to fit into the 10% exception or the variations permitted exception.

Zero increase permitted unless fee falls into the 10% or unlimited exemptions below:

19(e)(3) Good faith determination for estimates of closing costs.
19(e)(3)(i) General rule.
1. Requirement. Section 1026.19(e)(3)(i) provides the general rule that an estimated closing cost disclosed pursuant to § 1026.19(e){Loan Estimate}, is not in good faith if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate.

Although § 1026.19(e)(3)(ii) and (iii) provide exceptions to the general rule, there are charges that
remain subject to § 1026.19(e)(3)(i) {Zero increase} include, but are not limited to, the following:

i. Fees paid to the creditor.
ii. Fees paid to a mortgage broker.
iii. Fees paid to an affiliate of the creditor or a mortgage broker.
iv. Fees paid to an unaffiliated third party if the creditor did not permit the consumer to
shop for a third party service provider for a settlement service
v. Transfer Tax


10% Increase:

19(e)(3)(ii) Limited increases permitted for certain charges.
1. Requirements. Section 1026.19(e)(3)(ii) provides that certain estimated charges are in good faith if the sum of all such charges paid by or imposed on the consumer does not exceed the sum of all such charges disclosed pursuant to § 1026.19(e) by more than 10 percent. Section
1026.19(e)(3)(ii) permits this limited increase for only the following items:


i. Fees paid to an unaffiliated third party if the creditor permitted the consumer to select a
settlement service provider that is not on the list provided pursuant to § 1026.19(e)(1)(vi) and
discloses that the consumer may do so on that list.

ii. Recording fees.

From Commentary- Page 1704
4. Recording fees. Section 1026.19(e)(3)(ii) provides that an estimate of a charge for a third-party service or recording fees is in good faith if the conditions specified in
§ 1026.19(e)(3)(ii)(A), (B), and (C) are satisfied. Recording fees are not charges for third-party services because recording fees are paid to the applicable government entity where the documents related to the mortgage transaction are recorded, and thus, the condition specified in
§ 1026.19(e)(3)(ii)(B) that the charge for third-party service not be paid to an affiliate of the creditor is inapplicable for recording fees. The condition specified in § 1026.19(e)(3)(ii)(C), that the creditor permits the consumer to shop for the third-party service, is similarly inapplicable.
Therefore, estimates of recording fees need only satisfy the condition specified in § 1026.19(e)(3)(ii)(A) to meet the requirements of § 1026.19(e)(3)(ii).


Unlimited Increase:

19(e)(3)(iii) Variations permitted for certain charges.

1. Good faith requirement for prepaid interest, property insurance premiums, and
escrowed amounts. Estimates of

i. prepaid interest,
ii. property insurance premiums,
iii. and amounts placed into an escrow, impound, reserve or similar account

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#1995817 - 02/12/15 10:26 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
John Burnett Offline
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Cape Cod
What do you mean by prepaid property tax? That doesn't seem to be one of the LE disclosures. It does appear on the CD.
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#1995848 - 02/13/15 06:56 AM Re: Tolerance for Prepaid Property Taxes John Burnett
RegObsessed Offline
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Joined: Aug 2011
Posts: 45
Section F-Prepaid on the Loan Estimate.

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#1996938 - 02/19/15 06:06 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
MortgageMaker Offline
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Joined: Mar 2011
Posts: 16
I agree with your intrepretation you have listed. There appears to be no exemption for Property Taxes in Section F. This is concerning as this becomes a cannot change category.

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#1998041 - 02/24/15 11:10 PM Re: Tolerance for Prepaid Property Taxes John Burnett
RegObsessed Offline
Junior Member
Joined: Aug 2011
Posts: 45
Pre-Paid Property Taxes would be defined as bullet i & ii below:
Commentary pg. 156 - 1026.37(g)(2) Prepaids.
Examples of periodic charges that are disclosed pursuant to § 1026.37(g)(2){section F-prepaid on LE} include:

i. Real estate property taxes due within 60 days after consummation of the transaction;
ii. Past-due real estate property taxes;
iii. Mortgage insurance premiums;
iv. Flood insurance premiums; and
v. Homeowner’s insurance premiums.



Edited by RegObsessed (3 seconds ago)

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#1998800 - 02/27/15 05:20 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
Jerod Moyer Offline
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Posts: 667
Sioux Falls, SD
FWIW our take on pre-paid property taxes is that it's an unlimited tolerance. However, we don't have much to back it up (as we agree the reg does't say one way or another specifically) other than the model form examples provided by the CFPB. Specifically H-24B and H-25B which are supposed to correspond to one another. H-24B doesn't disclose any prepaid taxes in Section F while H-25B does. If this were a zero tolerance item there would be a cure noted in the calculating cash to close section. If it were a 10% tolerance item and let's just assume for arguments sake that everything that could be a 10% item on H-24B remains such on H-25B, the addition of prepaid taxes on H-25B $631.80 would exceed the 10% tolerance and therefore would require a cure. However, none was disclosed. That's our take based on the model form examples.

As to why there are even 6 months of prepaid taxes listed in section F on a purchase transaction, I have no idea! Section N shows what's due from the seller to the buyer for the current year taxes due next year, it doesn't show any transfer for the previous year taxes due this year and Section F is just odd!
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#1998928 - 02/27/15 08:05 PM Re: Tolerance for Prepaid Property Taxes Jerod Moyer
RegObsessed Offline
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Joined: Aug 2011
Posts: 45
Thank you Jerod. Informational gaps in the rule seems to be a reoccurring theme!

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#2016061 - 05/26/15 08:08 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
terpsfan Offline
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Joined: Feb 2007
Posts: 2,058
Has anyone asked the CFPB for an opinion on this charge?

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#2016271 - 05/27/15 05:22 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
SnuffytheSeal Offline
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State of Confusion
I listened to the CFPB webinar yesterday where they answered "common questions". Question: Are HELOC's covered by the rule?"

With my best Seth Meyers/Amy Poehler impression, "REALLY? SERIOUSLY". Of all the common questions they've received that's the one they choose to answer?

So.. me think the answer to Terpsfan question is "Yes, someone probably has" and "No, don't expect an answer"
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#2016372 - 05/27/15 08:01 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
acdheeler Offline
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Joined: May 2015
Posts: 5
West Virginia
I am also looking for clarification on this topic; we are an equity lender, we do not collect homeowners insurance or property taxes at closing; or any prepaid for that matter. First question would be - do we have to disclose prepaids on the LE or the closing disclosure at all since we don't collect them? And if we do - did anyone ever get good feedback from the CFPB on whether property taxes is a zero tolerance or good faith field?

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#2016403 - 05/27/15 08:34 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
terpsfan Offline
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Posts: 2,058
Would you not collect past due taxes or taxes that are currently due?

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#2016415 - 05/27/15 08:57 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
acdheeler Offline
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Joined: May 2015
Posts: 5
West Virginia
Currently if we have a situation where taxes are past due - we add it as a required disbursement just like a payoff to a creditor; we are an equity lender so we don't collect pre-paids or establish escrows. Our situation is also complicated in the fact that we are a zero closing cost equity lender and must offset charges with lender credits.
Last edited by acdheeler; 05/27/15 09:14 PM.
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#2019717 - 06/11/15 01:18 AM Re: Tolerance for Prepaid Property Taxes RegObsessed
time flies when you're having fun Offline
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Posts: 289
I'm wondering if anyone has received any confirmation that prepaid property taxes fall into the unlimited increase category. Our LOS has hard coded property taxes and flood insurance as zero tolerance items. We are submitting a case to their legal department regarding flood insurance, but I am wondering if anyone has heard anything definative from the CFPB regarding property taxes. I found this in the preamble which seems contradictory to the rule:

19(e)(3)(iii) Variations Permitted for Certain Charges

Page 360
Some industry commenters asked the Bureau to clarify that property taxes, insurance premiums and homeowner’s association, condominium, and cooperative fees are included in the costs subject to proposed § 1026.19(e)(3)(iii), regardless of whether these costs would have been placed into an escrow or similar account.

Related CFPB Response – page 364
Finally, as noted above, a number of the commenters sought clarification on various other aspects of the proposal. As is currently the case under Regulation X, final § 1026.19(e)(3)(iii)provides that property insurance premiums are included in the category of settlement charges not subject to a tolerance, whether or not the insurance provider is a lender affiliate. The final rule also mirrors current Regulation X in that property insurance premiums, property taxes,homeowner’s association dues, condominium fees, and cooperative fees are subject to tolerances whether or not they are placed into an escrow, impound, reserve, or similar account

This language seems inconsistent with the rule which clearly excludes items placed in escrow. Do you think they missed the word "not"? The rule is clear that insurance premiums are not subject to a tolerance. So, I'm hopeful that all of these items -- taxes, homeowner's dues, condo fees, coop fees are NOT subject to a tolerance. Has anyone heard?

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#2019992 - 06/11/15 09:07 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
SC Girl Offline
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Joined: Dec 2009
Posts: 26
I read this and then went back to the Official Interpretations. Does anyone believe that the wording of 1026.19(e)(3)(i) which is referring to estimate closing cost, rather than prepaids, makes a difference in this discussion of tolerance?

1. Requirement. Section 1026.19(e)(3)(i) provides the general rule that an estimated closing cost disclosed pursuant to § 1026.19(e) is not in good faith if the charge paid by or
imposed on the consumer exceeds the amount originally disclosed under § 1026.19(e)(1)(i). Although § 1026.19(e)(3)(ii) and (iii) provide exceptions to the general rule, the charges that
remain subject to § 1026.19(e)(3)(i) include, but are not limited to, the following:

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#2020331 - 06/15/15 01:26 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
time flies when you're having fun Offline
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Posts: 289
Good morning. I'm wondering what position others have taken on this. Jared are you still planning to treat these items as not subject to tolerance? Randy, thoughts. Dan? Others? Thank you!

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#2022345 - 06/23/15 09:01 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
raitchjay Online
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Posts: 9,086
OK
After sharing Jerod's thoughts on this issue with our LOS provider, i got this response:

"Thank you for sending the info. Our position is that the regulation makes it very clear, anything that is not explicitly included in the Unlimited or 10% category is in the 0% category. I notice there’s no reference to portion of the regulation which addresses that. Clients need to be wary of taking a position based on analysis of one of the sample forms. Only the regulations are legally binding."


Any ideas? I don't want to have to accept that these things are zero tolerance items as that seems crazy to me.
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#2022368 - 06/23/15 09:52 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
raitchjay Online
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OK
I feel like this is a potentially huge issue and if many of the providers are like ours, we're all going to be dealing with zero tolerance for these items.

Anybody have any experience with trying to get clarification on such things from the CFPB themselves? I'm figuring that would be a nightmarish wait, but i feel like we need some clarity from them on this.
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#2022387 - 06/24/15 01:43 AM Re: Tolerance for Prepaid Property Taxes RegObsessed
Truffle Royale Offline

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Maybe I'm misreading this thread, but I don't understand the issue with taxes that are either past due or due within 60 days of closing being zero tolerance. You KNOW what the exact amounts due would be in both these cases, don't you?

Now those three insurance premiums listed in RegObsessed's post above concern me if they're supposed to be zero tolerance too.

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#2022392 - 06/24/15 03:44 AM Re: Tolerance for Prepaid Property Taxes raitchjay
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Posts: 21,293
Originally Posted By raitchjay
I feel like this is a potentially huge issue and if many of the providers are like ours, we're all going to be dealing with zero tolerance for these items.

Anybody have any experience with trying to get clarification on such things from the CFPB themselves? I'm figuring that would be a nightmarish wait, but i feel like we need some clarity from them on this.


They generally respond within two weeks.
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#2022408 - 06/24/15 12:26 PM Re: Tolerance for Prepaid Property Taxes Truffle Royale
RR Becca Offline
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out of the frying pan...
Originally Posted By Truffle Royale
Maybe I'm misreading this thread, but I don't understand the issue with taxes that are either past due or due within 60 days of closing being zero tolerance. You KNOW what the exact amounts due would be in both these cases, don't you?

Now those three insurance premiums listed in RegObsessed's post above concern me if they're supposed to be zero tolerance too.


Re: property taxes - I haven't had enough coffee yet to think of any situation when that would not be true, but it irks me that they are declaring "anything that is not explicitly included in the Unlimited or 10% category is in the 0% category." Especially since there is a clear list of the 0% items in the commentary to .19(e)(3)(i) and property taxes aren't on it.

Re: the insurance premiums - the LOS's legal department is wrong. Those ARE clearly included in the list of unlimited change items. Anybody know how those of us using that system go about lobbying them to get it changed?
Last edited by RR Becca; 06/24/15 01:08 PM. Reason: fix the quote
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#2022423 - 06/24/15 12:54 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
RR Joker Offline
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The Swamp
Just curious from reading this thread...I went back to look at the comparison chart on one of my test files where I had disclosed property insurance (we don't escrow, so I have not done any prepaid tax testing).

It's not included in either category (no tolerance-related items are listed, just 0 and 10's)

As far as Flood premiums are concerned...that's ludicrous. Chances are you wouldn't even know it was in a flood zone when you prepare an LE and I don't believe that's a reason to prepare a COC once you have knowledge, nor would you have any good way to get an exact quote on the spot. crazy
Last edited by RR Joker; 06/24/15 12:56 PM.
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#2022791 - 06/24/15 07:09 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
BankerBettie Offline
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Our LOS shows flood and any prepaid taxes as unlimited tolerance. For now.

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#2025163 - 07/03/15 06:26 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
time flies when you're having fun Offline
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Just confirming understanding here. if the bank requires that hazard insurance be in place and that taxes be current, the amount of the insurance premium and taxes that were paid by the client outside of closing (and likely before we received the loan application) would be disclosed on the LE, correct? These would be disclosed as prepaids, correct? I ask because these are not likely to be collected at closing and would not be for amounts due before the 1st payment as prepaids are described in the rule...

As it relates to tolerances and the accuracy of the LE, I don't know about the rest of you, but in my world the business requires that I prove what is required. Doing something because I say is a "best practice" doesn't fly. So gathering exact property taxes for the sake of the LE is an extra exercise they don't want to deal with at application if the information can be updated later (e.g., during underwriting) and updated on the CD. I have battled using the "Good faith standard" argument which requires that the bank acting in good faith exercise due diligence to obtain accurate costs so they can't just through out an estimate and change it later because they didn't act in good faith to begin with. That gets their attention but doesn't have the same hold as a clear statement regarding tolerance.

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#2027336 - 07/15/15 08:12 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
Hilde Offline
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I just got off the phone with an attorney from the CFPB who responded to my question about whether or not prepaid property taxes and flood insurance charges disclosed in Section F - Prepaids - of the LE are zero tolerance items. I had e-mailed the question, together with a link to this thread, on July 9th. He indicated that they were subject to zero tolerance. He suggested that one approach with respect to the property taxes was to estimate on the high side to provide some cushion (we do not escrow so it would be issue of knowing the exact amount of taxes owing and required to be paid before closing.) We also discussed the difficulty of accurately disclosing the amount of flood insurance premiums to be due at the time of giving the LE. He suggested that if the bank learned additional information about the property that would change the premium for flood insurance that could be considered a changed circumstance specific to the borrower and a revised LE could be given. I regret not asking the basis for treating homeowner's insurance as not subject to any tolerance while treating flood insurance as a 0 tolerance item when both are "property taxes." I then asked if we gave a LE that did not disclose a premium for flood insurance because we had not yet determined that the property was in a flood zone and then got a determination that the property was in a flood zone if we would have to issue a revised LE with the flood insurance premium and he responded yes.

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#2027340 - 07/15/15 08:15 PM Re: Tolerance for Prepaid Property Taxes RegObsessed
raitchjay Online
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Funny, i just go an email from our LOS that said they had come around to my/our way of thinking on flood insurance (that is, unlimited tolerance), but were still adamant that property taxes were a zero tolerance item. I think i'm ok with that, since i don't anticipate the taxes really being an issue...get the quote from the tax assessor--that's the charge on the CD. If months down the road, our borrower owes more; not really our issue.
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