Issue

You found the perfect house for your client and are three days away from closing. You would like to see the closing disclosure, but your client’s lender refuses, citing privacy concerns. Can a lender or settlement agent do this? Well, the answer is complicated. Bear with me here – or just skip to the conclusion for the summary!

Background

Under federal laws, a mortgage lender is required to disclose certain information to buyers and sellers before closing, generally called the Closing Disclosure (CD). For many years, different federal laws required various information to be disclosed prior to closing, with little uniformity or cohesion between the laws and related regulations. The closing information was communicated to consumers using a Good Faith Estimate and the HUD-1 Settlement Form. Over the past several years, the Consumer Finance Protection Bureau (CFPB) has attempted to integrate the required disclosures from these laws and create new, streamlined forms. These efforts resulted in the Know Before You Owe (KBYO) mortgage disclosure, or TILA-RESPA Integrated Disclosure (TRID), rule (KBYO/TRID Rule), which took effect in 2015.

Since then, real estate professionals report reluctance on the part of settlement agents and lenders to share the closing disclosure form (CD) with real estate agents. For the most part, this reluctance stems from the lender’s fear of violating another federal law and releasing a client’s non-public personal information to a third party (including real estate professionals representing the buyer and/or seller). This federal law, the Gramm-Leach-Bliley Act (GLBA), prohibits a financial institution from sharing a customer’s non-public personal information with a non-affiliated third party without providing notice and an opt-out option to the customer. If you obtain permission from your client to receive the closing disclosure, then you are entitled to the closing disclosure that your client receives – seller may receive a different disclosure with buyer’s information redacted.

If permission is not obtained, real estate agents claim that an existing exemption to the notice and opt-out requirement should apply to them. NAR has lobbied the CFPB to clarify the applicable regulations, expressly stating that financial institutions can provide information without notice and opt-out.

So, the specific issue for real estate agents is whether the lender can provide you with your client’s closing disclosure without providing your client notice and an opt-out option.

New Amendments

On October 10, 2017, new amendments to the KBYO/TRID Rule took effect. One part of these amendments addresses the issue. Essentially, the amendment does two things:

• it adds comment language stating that the CFPB understands an exemption to the notice and opt-out requirement applies to real estate agents; and
• it adds a rule applying to third parties the rules and comments for modifications of the closing disclosure form for sellers.
  
  

The Exemption

The GLBA provides several exceptions to the notice and opt-out requirement. The CFPB references two as applicable to real estate agents. The first exception allows a lender to forego notice and opt-out when specially required by law – federal, state, or local. Since no such law is known to be applicable to Alabama REALTORS®, this first exception is of little value. The second exception allows the lender to share without notice and opt-out when sharing is a usual, appropriate, or acceptable method to provide the lender’s customer, or the customer’s agent or broker with a confirmation, statement, or other record of the transaction, or information on the status or value of the financial service or financial product.

Since the first exception holds little value to Alabama REALTORS® as noted above, let’s focus on the second exception. As to this exception, the CFPB acknowledges its applicability to real estate professionals. First, the CFPB notes that a CD is considered a record of the transaction (37752). Second, the comments state that “based on [the CFPB’s] understanding of the real estate settlement process, it understands that it is usual, appropriate, and accepted for creditors and settlement agents to provide the combined or separate Closing Disclosure to consumers, sellers, and their agents as a confirmation, statement, or other record of the transaction or to provide information on the status or value of the financial service or financial product to their customers or their customers’ agents or brokers.” Thus, the CFPB acknowledges that this exception probably applies to real estate agents.

Modified Disclosure Form for Third Parties

The new rule makes applicable to third-party disclosures the existing rules that allow a financial institution to modify the disclosure form for sellers by deleting privacy information of customers. In other words, the rule allows financial institutions to provide modified disclosures to third parties, like real estate professionals, and makes existing rules on modified disclosures to sellers applicable to modified disclosures to third parties. Without getting into the details, the modified disclosure is a way a lender can protect the privacy of its customers and still provide relevant data to other parties – whether the seller or third parties.

Conclusion

To receive your client’s closing disclosure or a modified disclosure, you either need to obtain written consent from your client, or explain to the lender that you fall within an exception. Although the lender is not prohibited from sharing, federal laws and rules give some flexibility to the lender on what and when to share, especially with third parties. From the recent amendments, CFPB acknowledges that real estate professionals probably fall within an exception and/or that lenders can modify the disclosure form for third parties such as real estate professionals. However, it is ultimately the lender that decides how to protect the private information of its customer and whether to provide closing disclosures to real estate professionals without notice and an opt-out option to customers. If a lender refuses to provide the closing disclosure or a modified closing disclosure, you can still ask your client for written authorization.

Sources:
82 F.R. 154 (11 August 2017), pp. 37749-37753; 37791-37792
12 C.F.R. §§ 1026.38(t)(5)(v)-(vii); 12 C.F.R. § 1016.15(a)(7)(i)
15 U.S.C.S. §§ 6802 (e)(1) and (8);6809(7)(A)

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