[kmeade]

I have a question concerning Good Faith 1026.19(e)(3)(iii)-3 for property taxes. An application was taken on 8/5/18 and the property taxes were not included in section (f) Prepaids on the loan estimate. Tax bills for the property were issued 10/1/18 with early payment period due by 10/31/18. The loan is scheduled to close on 10/15/18 and the property taxes are due. The amount is prorated between the borrower and seller. On the CD the property taxes are listed in (f) Prepaids with part of the amount due coming from the borrower and part from the seller. This is showing a tolerance because the borrowers part was not listed on the LE. Thoughts, should this be a tolerance?

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[rcooper]

I think it depends on the circumstances of the transaction, but generally, as the lender, you are probably familiar with when property taxes are due and that determines if they need to be disclosed as a prepaid on the LE.

The Small Entity Compliance Guide (https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/2017-10_cfpb_KBYO-Small-Entity-Compliance-Guide_v5.pdf, p. 52) states it well in regards to tolerances for property taxes: Creditors may only charge consumers more than the amount disclosed when the original estimated charge, or lack of an estimated charge for a particular service, was based on the best information reasonably available to the creditor at the time the disclosure was provided. (§ 1026.19(e)(3)(iii)). Thus, these charges are subject to a “best information reasonably available” standard.…

If a creditor has reason to know that property taxes will be required at consummation, failure to estimate those taxes or providing an unreasonably low estimate of those taxes is not an estimate based on the best information reasonably available, and as a result, is subject to the zero tolerance standard. (Comment 19(e)(3)(iii)-3)
7.4

[kmeade]

Another question, per 1026.37(g)(2)(1)(i) if the borrower pays their homeowner’s insurance monthly (not escrowing). How would this example be shown on the LE and CD? Since two premiums will be due, within the next 60 days after consummation of the transaction, will two premiums be listed in section F-prepaids or does the “within 60 days after consummation of the transaction” only apply to property taxes? If the rule applies to homeowner’s insurance too, how should it be listed in the prepaid section? “Paid before closing” or “Collect at closing” are the only two options, but neither apply in this situation.

[Author]

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