Closing Disclosure

A Closing Disclosure is the standardized form a creditor must provide before consummation of most closed-end consumer mortgages, setting out the actual terms of the transaction and the final figure for every charge. Its content is prescribed by 12 CFR 1026.38, headed "Content of disclosures for certain mortgage transactions (Closing Disclosure)", and it appears in the rules as form H-25. The delivery duty sits at 12 CFR 1026.19(f)(1)(i).

The form is built to be compared rather than merely read, and it says so on its own face: 12 CFR 1026.38(a)(2) requires it to carry the statement "This form is a statement of final loan terms and closing costs. Compare this document with your Loan Estimate." Its Calculating Cash to Close table goes further, setting each final figure beside the Loan Estimate's version of the same figure under a column headed "Did this change?" The older name for the same territory is the HUD-1 settlement statement, which the Closing Disclosure replaced in 2015 for most consumer mortgages, though older publications, including some current IRS guidance, still refer to the HUD-1 by name.

The three-day clock, and the near-universal error about it. The consumer must receive the Closing Disclosure "no later than three business days before consummation" (12 CFR 1026.19(f)(1)(ii)(A)), and where it is not delivered in person, receipt is presumed three business days after mailing. Business day here carries Regulation Z's precise meaning, all calendar days except Sundays and federal holidays, so a Saturday counts.

The rule is easily read as meaning that any change restarts the three days. It does not. 12 CFR 1026.19(f)(2)(ii) lists the corrections that require a new waiting period and there are three of them: the annual percentage rate "becomes inaccurate, as defined in § 1026.22"; "the loan product is changed"; or "a prepayment penalty is added". Every other inaccuracy is handled by paragraph (f)(2)(i), which requires corrected disclosures "at or before consummation" with no new waiting period at all. The broader reading is not harmless, because it teaches borrowers that raising a question about a fee in the final week will delay their closing. Usually it will not.

The day-before inspection right. The same paragraph (f)(2)(i) adds an obligation that stands on its own: the creditor "shall permit the consumer to inspect the disclosures provided under this paragraph, completed to set forth those items that are known to the creditor at the time of inspection, during the business day immediately preceding consummation", and it may withhold only items relating solely to the seller's side. That is a right to see the day-before state of the numbers, distinct from the three-day delivery requirement, and it exists precisely for the situation where figures are still moving.

The charge may not exceed what the provider received. 12 CFR 1026.19(f)(3)(i) states that "the amount imposed upon the consumer for any settlement service shall not exceed the amount actually received by the settlement service provider for that service." A creditor or settlement agent may not mark up a third-party service and keep the difference. The one exception, at (f)(3)(ii), permits an average charge, and it is fenced: the average must not exceed the average actually paid across a defined class of transactions, the class must be defined by an appropriate period, geography and loan type, the same average must be used for every transaction in the class, and it may never be used for any kind of insurance, for any charge based on the loan amount or property value, or where another law prohibits it.

The form has to confess an overcharge. Where the final Total Closing Costs differ from the Loan Estimate's figure, the "Did this change?" column must say so. And where the increase exceeds the limits Regulation Z places on increases in closing costs, 12 CFR 1026.38(e)(2)(iii)(A)(3) requires a statement "that such increase exceeds the legal limits by the dollar amount of the excess", together with a pointer to where any refund is shown. The tolerance rules that produce that conclusion belong to the closing costs entry; the point here is that the form is required to state the answer rather than leave the borrower to compute it.

After signing, three separate deadlines keep running. If an event in the 30 days after consummation makes the disclosures inaccurate and changes an amount the consumer actually paid, corrected disclosures are due within 30 days of the creditor learning of it (12 CFR 1026.19(f)(2)(iii)). Non-numeric clerical errors may be corrected within 60 days (f)(2)(iv). And most usefully, where amounts paid exceeded what the good-faith rules permitted, the creditor must refund the excess and send corrected disclosures "no later than 60 days after consummation" (f)(2)(v). Comparing the two forms after closing is therefore still worth doing, which is not obvious and is not printed anywhere on the form.

Two things it costs, and one thing it does not. No fee may be imposed by a creditor or servicer "for the preparation or delivery" of the Closing Disclosure (12 CFR 1026.19(f)(5)). Separately, the settlement agent must give the seller its own version covering the seller's side of the transaction (12 CFR 1026.19(f)(4)). And the three days to read the form are not three days to cancel: the right of rescission is a different provision, and it does not attach to a mortgage used to buy a home. That distinction is drawn under refinancing and home equity loan.

The creditor prepares the form once the final figures are known, and the consumer must have it three business days before consummation. During those three days the comparison against the Loan Estimate is the work: heading by heading, figure by figure, using the "Did this change?" column as the index of what moved. On the day before signing, the consumer may ask to see the form as completed to that point. At signing, the transaction is consummated and the post-closing correction deadlines begin.

A hypothetical example that separates the two kinds of change. Consummation is set for Thursday, and Priya receives her Closing Disclosure on the Monday.

Case one, an ordinary change. On Tuesday the title company's fee comes in $150 higher than the form shows. That is not an inaccurate annual percentage rate, not a changed loan product, and not an added prepayment penalty, so it needs only a corrected Closing Disclosure at or before consummation. Thursday stands.

Case two, a product change. On Tuesday the lender substitutes a five-year adjustable-rate loan for the thirty-year fixed the form describes. The loan product has changed, so a new three-business-day waiting period runs from receipt of the corrected form and Thursday does not stand.

And the money. Her Loan Estimate showed a $650 appraisal the lender required and did not permit her to shop for, a charge Regulation Z holds to the amount disclosed. The Closing Disclosure shows $825. The excess is $825 − $650 = $175. Because that increase exceeds the limit on increases in closing costs, the form itself must state that it does and name the $175, and the creditor must refund the $175 and send corrected disclosures no later than 60 days after consummation. She does not have to notice it during the three days for the refund to be owed, though noticing it is how she finds out whether it arrives. Figures are illustrative.

Pros

• It must be received three business days before signing, which is a guaranteed window to read the final numbers rather than meet them at the table.
• It repeats the Loan Estimate's layout and sets the two side by side under a "Did this change?" column, so the comparison takes minutes rather than an evening.
• Where a charge exceeded its legal limit, the form has to say so and state the amount, and the refund obligation survives closing by 60 days.
• Settlement services may not be marked up above what the provider actually received.
• The creditor may not charge you anything for preparing or delivering it.

Cons

• The three-day window arrives in the busiest week of a move, which is when a careful comparison is hardest to do.
• The three-day rule reads as though any change restarts it, which discourages borrowers from querying a late change at all.
• The day-before inspection right appears nowhere on the form itself, so a borrower has to know it exists in order to ask.
• The form is long, and the figures that matter most are spread across pages with unfamiliar headings.
• Receiving it is not the same as being able to cancel. On a purchase there is no right to unwind the loan after signing.