Get Familiar with the Other Three Day Rule Related to Appraisals

A lot has been written (including by us) about the RESPA-TILA rules new three-day requirement and its potential to cause pauses and delays in the closing process. However, there is another new federally required three-day rule that settlement and real estate agents should be aware of that could make it even more difficult for you to meet your customers closing expectations.

On Jan. 18, 2014, industry implemented the Consumer Financial Protection Bureau's (CFPB) new rules for appraisals, including new requirements for consumers to receive copies of their appraisal. This rule was required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and amended the Equal Credit Opportunity Act (ECOA).

Under the Appraisal Rule, creditors (aka lenders) must provide borrowers with a copy of any and all appraisals and other written valuations developed in connection with a mortgage or deed of trust. These copies must be provided to the borrower promptly upon the earlier of their completion, or three business days prior to consummation. Here in lies the rub.

Generally, an appraisal report includes comments and other scoring based on the condition of the real property and any improvements. It is also common for real estate agents and buyers and sellers to conduct a walk through of the property the day of settlement. If that walk through shows any changes to the condition of either the interior or exterior of the property, it may trigger the need for the appraiser to review the change and comment on those changes in an update appraisal report. This could trigger a new three-day waiting period under the Appraisal Rule.

Now, there is some good news. Unlike the RESPA-TILA three-day rule, the Appraisal Rule does include a waiver provision. This means that the borrower can waive this timing requirement and agree to receive the updated copy at or before consummation. In the event that an applicant waives the timing requirement and the transaction is not consummated, the creditor must provide the copies no later than 30 days after the creditor determines that the transaction will not be consummated. However, the waiver must be received by the creditor at least three days prior to consummation. This means a creditor cannot obtain a waiver after-the-fact or even at the time of discovering the need for a new appraisal report at walk through.