We had a sales contract which showed we were going to need a water test fee on 10/17. However, we did not review that contract by the time we sent the initial Loan Estimate on 10/18. On 10/19 we reviewed the sales contract and saw that we were going to need the water test fee so we sent a revised Loan Estimate on 10/19 that showed the fee.

The loan estimate was sent within 3 days of receipt of information necessary to determine we needed that water test fee, but was there a valid change in circumstance since at the time of the initial Loan Estimate on 10/18 we had the contract which indicated we would need that water test?

If you did not actually review the contract by the time you issued the initial LE, then you still have three business days from receipt of the information to get out your changed circumstance disclosure.

Really, Randy? How do you justify having the information but just not looking at it? I have visions of an examiner stating "you had the docs on x date. It's not the borrower's problem you didn't review them before you sent out the LE. Bank error is never a valid changed circumstance."

Well, it all comes down to good faith. If they needed to get the initial LE out and they were not able to review all documentation received from the borrower in that time frame, can you really say there was a good faith violation? I guess it would really depend on exact circumstances and be a business decision.

A fee for a water test sounds like it might be a Section H fee anyway, because likely it would be a requirement just in the sales contract or required in a cash transaction. If it really was a lender requirement, why would they need the contract to make that determination. Might depend on who was going to be ultimately responsible for the payment of the test fee - the buyer? And an unfavorable test kills the deal?

Lots of unknowns here.

Lots of good info to think about. Thanks

Playing devil's advocate here on Randy's second point...perhaps the lender always requires a water test for properties served by a well but was unaware the property was on a well until they reviewed the details of the contract? In that situation you might find that a lender required fee was only necessary after issuing the initial LE. Of course, the existence of the well is usually easily ascertained through the listing and our staff are trained to look for these pieces of information...but i can imagine a situation where it is unknown at the time the initial LE is issued and you would be able to make the argument the LE was still issued in good faith.

Yes, that is correct. The contract showed the well. My question was more since we "should have known" about it at the time we did the initial LE, did we miss our window to redisclose for it even if we still have part of our 3 days left? If you stick to the regulation, we did disclose within 3 days of having the info sufficient to know we needed to charge the fee. So I am counting it as legal since the law is silent on redisclosing for something you knew about before your first LE. It's like a free redo??!??

In reality, not sure why we don't just read the contracts before we disclose and save ourselves having to redisclose - especially when we have plenty of time. When time is tight I understand not doing it, but in this case, we had plenty of our 3 days left to do the initial disclosure.

Once you issue the LE, you don't get a "mulligan" if you catch something on day 2 that you should have caught before issuing the LE. In other words, the three day period is there to allow time to research the paperwork and check prices, etc. If you had the contract with the application and rushed to give the applicant the LE before they left on day zero, I don't think you get a second chance at a revised LE on day 2 when you finally checked the contract. But, as Randy offered at 2:22 p.m. it can depend on the facts and circumstances.

I just don't think the facts and circumstances argue for that changed circumstance mulligan when your only reason for not knowing about the well in your example is that you didn't take time to look until after the LE was provided when the LE is provided on day 0 or day 1.

FWIW I agree with John's comments.

An error on the financial institution's part is never a valid changed circumstance regardless when the error is discovered. In this case the error was not reviewing the contract at hand and properly disclosing a known, or should have known, charge.