I have a question about resetting tolerance basis for a fee increase in the 10% bucket. After reading through 1026.19(e) and several past forum posts on this topic, I have one scenario that I am wondering about. Most of what I have read assumes that all fee increases in the 10% bucket would be due to changed circumstances. I am wondering what happens if the fee that finally takes it over 10% is NOT due to a changed circumstance.

For example:
- Fees A and B are in the 10% bucket.
- On 12/5, a changed circumstance increases fee A which increases the 10% bucket by only 6%, so the LE is not redisclosed and the tolerance basis for fee A is not reset.
- On 12/15, fee B also increases, which takes the total increase in the 10% bucket to 12%. However, the increase in fee B was NOT due to a changed circumstance.

What do we do in this situation on 12/15?
A) Do not redisclose or reset tolerance basis for either fee since the increase in fee A was more than 3 business days ago and the increase in fee B was not due to a changed circumstance. Pay the aggregate cure for both fee increases.
B) Redisclose but only reset tolerance basis for fee A. Only pay a cure if the increase in fee B by itself makes the bucket increase more than 10%.
C) Something else???

Thank you.

I see what you're asking and hadn't really thought along these lines before, but i vote A). On 12/15, you are past the 3 days to revise and reset your tolerance for fee A and you have no valid changed circumstance for fee B.

I concur - you never hit a changed circumstance for the 10% bucket.

When you have a change of circumstance and it increases a fee, you need to re-disclose. Not only re-disclose if it takes the fees over 10%. You need to re-disclose so you can reset your buckets.

In this scenario, youre screwed for not re-disclosing and resetting your buckets.

Hawk

Unless the aggregate amount of the fees disclosed on the initial LE increase by more than 10%, there is not a changed circumstance and you cannot issue an LE to reset your baseline tolerances. So in this example, if the first change was 6%, issuing a revised LE at that time would be an informational LE and would not change your tolerance baselines.

1026.19(e)(3)(iv)(A) Changed circumstance affecting settlement charges. Changed circumstances cause the estimated charges to increase or, in the case of estimated charges identified in paragraph (e)(3)(ii) of this section, cause the aggregate amount of such charges to increase by more than 10 percent.

Comment -1(ii): Charges subject to the ten percent tolerance category. Assume a creditor provides a $400 estimate of title fees, which are included in the category of fees which may not increase by more than 10 percent for the purposes of determining good faith under § 1026.19(e)(3)(ii), except as provided in § 1026.19(e)(3)(iv). An unreleased lien is discovered and the title company must perform additional work to release the lien. However, the additional costs amount to only a five percent increase over the sum of all fees included in the category of fees which may not increase by more than 10 percent. A changed circumstance has occurred (i.e., new information), but the sum of all costs subject to the 10 percent tolerance category has not increased by more than 10 percent. Section 1026.19(e)(3)(iv) does not prohibit the creditor from issuing revised disclosures, but if the creditor issues revised disclosures in this scenario, when the disclosures required by § 1026.19(f)(1)(i) are delivered, the actual title fees of $500 may not be compared to the revised title fees of $500; they must be compared to the originally estimated title fees of $400 because the changed circumstance did not cause the sum of all costs subject to the 10 percent tolerance category to increase by more than 10 percent.

Hawk

Your way is the way my bank has been approaching this up until now. I just realized a few days ago that this is wrong and somehow I have consistently missed this part of the law over the last 5 years in training. In addition to what rlcarey has cited, I also found 1026.19(e)(4)(I)-1 to be helpful in understanding what we have been doing wrong.

Thank you all for your responses to my question. I was trying to cover all basis so I can get my people trained to start handling this correctly. Since the law doesn't specify what to do when the additional increase takes it over the 10% in the case of a non-changed circumstance, I agree with raitchjay and rlcarey that we should do a cure and not reset the basis for the first fee that changed. I would rather be safe doing that and losing a little bit of money than resetting the basis and finding out we have problems to correct later.

Thanks again!

wait, you guys are right. Thinking back, we used to use an excel spreadsheet to calculate tolerance and yeah, we went off the initial column for the baseline and didnt reset it on new redisclosures.

But I did think you had to redisclose even if it didnt go over the 10% in order to be in compliance.

Good to know now.

If the fees in 10% bucket does not change by more than 10%, no re-disclosure is required. It would be noted in the file and then if an additional changed circumstance occurred that put you over the 10% threshold, you would then issue your changed circumstance disclosure. Secondary markets may have additional requirements.