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As of October 1, 2015, under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), the loan application process and closing process will be more streamlined and more user friendly for those financing property through a mortgage lender. Within three days of submitting a borrower loan application, the lender is required to provide a Loan Estimate form to the borrower reflecting the loan terms, projected payments, and costs at closing. This form will allow borrowers to quickly and readily compare loan terms with other lenders’ offers. The Loan Estimate replaces the Good Faith Estimate and Truth in Lending Initial Disclosure forms; the goal being that the Loan Estimate is better formatted for easier understanding and only requires one form. Moreover, the Loan Estimate takes the same format as the Closing Disclosure. The Closing Disclosure is another new document that borrowers will be seeing as of October 1, 2015. The Closing Disclosure will replace the HUD/Settlement Statement and Truth in Lending Disclosure form that is provided at the time of closing; again the goal being to streamline the documents provided to borrowers for better comprehension of the loan and payment terms and costs required for purchasing or refinancing. The Closing Disclosure form must be sent to borrowers three days prior to the closing date allowing ample time for borrowers to review and ask questions. Bergeron, Paradis & Fitzpatrick is fully committed to integrating these changes to the closing process, working with lenders and borrowers to make for a smooth transition into this new process, and are excited to implement requirements that will make the home-buying and refinancing process easier for our valued clients.

If you have any questions related to the TILA and RESPA changes, please contact Real Estate Attorney Elizabeth A. Smith at 802-879-6304 or esmith@bpflegal.com

A prospective home Buyer must be thorough in reviewing the Purchase and Sale Contract and is wise to consult an experienced real estate attorney.

Many times, a Purchase and Sale Contract will contain a disclosure indicating that the Purchaser may need additional available funds at the time of closing to reimburse the Seller for their Statewide Education Tax Prebate/Rebate (“Prebate”).

 

If you are a first time home buyer, the concept of the Prebate can be somewhat confusing. In short, when a homeowner occupies property as their primary residence (aka their homestead) the homeowner has the ability, if they meet certain income restrictions, to apply for a reduction on their property taxes known as the State Education Tax Prebate/Rebate; the Prebate then reduces the gross taxes for following property tax year, running from July to June. The Prebate must be applied for before April 15^th when the homeowner files his or her state tax return and is based upon the applicant’s primary residence as of April 1^st of that year. The homeowner’s gross property taxes will be reduced by the Prebate amount.

When a Buyer purchases property from a Seller benefited by a Prebate, the Buyer will step directly into the shoes of the Seller, meaning the new Buyer gets the benefit of the tax reduction from the Prebate in the form of lower property taxes for that fiscal year. Because the Prebate is based upon the Seller’s income and is considered the Seller’s funds, the Purchase and Sale Contract will require the Buyer to reimburse the Seller unless the parties agree to another arrangement. In addition, if a Buyer purchases property after the Seller has applied for their Prebate for the upcoming tax year and before that tax year has begun (between April 1 and June 30), the Buyer must reimburse the Seller for the full Prebate amount for the upcoming tax year. Depending upon the Seller’s Prebate amount, this can amount to significant additional funds required for the closing.  Further, if the closing occurs before the Prebate amount is determined by the State, the parties typically escrow an estimated Prebate amount based on the previous year or by a worksheet available on the Department of Taxes website.

Although coming up with the additional funds at closing may be a hardship (hence the Purchase and Sales Agreement disclosure), as a benefit of stepping into the shoes of the Seller the Buyer need only pay the net property taxes – being the full tax amount, less the Seller’s Prebate amount for the current and potentially upcoming tax year depending upon the time of purchase.