- Emerging trend of municipalities introducing variable real estate transaction tax increases to address local policy issues poses a new TRID compliance challenge for lenders
- Following state and local elections nationwide in November, scores of new, differing rules are being put into effect quickly, greatly compressing the amount of time lenders have to respond to the changes
- Responsibility to monitor hyperlocal real estate transaction tax changes, which can involve complex variability, substantially increases lender exposure to regulatory risk
- In certain high-cost municipalities, failure to properly disclose increased real estate transaction taxes can cost lenders substantial amounts in fee cures
- Ernst Fee Service continuously tracks and updates the system with fee changes, helping lenders address these challenges efficiently and effectively while reducing regulatory risk, fee cures and time spent monitoring fees
Black Knight, Inc. (NYSE: BKI) a leading provider of integrated software, data and analytics solutions, reports that its Ernst Fee Service solution has been enhanced to help clients address the challenges that are resulting from a growing number of municipalities requiring additional and more complex real estate transaction taxes.
According to Ernst Fee Service data, there is a shift taking place in how real estate transaction taxes and fees are being levied. Historically, increases to these taxes and fees were infrequent, made at the state level and had lengthy execution timelines — allowing mortgage lenders to implement changes in a timely and accurate manner. Recently, a fast-rising trend has developed, with municipalities implementing real estate transaction fee changes to support local policy issues. These changes are frequently marked by complex, variable schedules, short implementation timelines and substantial fee increases, making them difficult for lenders to track and adhere to. Following the November election, a significant number of localized changes must now be incorporated into lenders’ operations to remain TRID compliant.
The changing tide in the way real estate transaction taxes are being used at the local level is of special consequence to mortgage lenders because TRID classifies these line items as zero tolerance fees. Except under specific circumstances, fees that fall into the zero-tolerance category should not increase after the delivery of the Loan Estimate. If they do, lenders may have to pay borrowers a fee cure covering the difference between the amount they were quoted and the amount they were charged.
“Federal rules give lenders zero tolerance in the disclosure of real estate transaction taxes and were designed at a time when these fees were implemented with great uniformity at the state level,” said Rich Gagliano, president of Black Knight Origination Technologies. “But the paradigm has shifted, and there is a growing disconnect between the localities that are rapidly implementing variable tax tiers for specific neighborhoods and the resources it takes for lenders to compliantly implement these changes at scale and on time. By doing the heavy lifting and the legwork for our clients, the Ernst Fee Service helps lenders roll new requirements into production workflows on time and meet increasingly short deadlines.”
Failure to properly disclose updated fees can be extraordinarily costly for lenders. For instance, in Los Angeles, a ballot measure was passed that places a 5.5% transfer tax on properties sold for $10 million or more. Through March 31, 2023, a $10 million property in Los Angeles is subject to a $45,000 local transfer tax. But one day later, on April 1, 2023, that same property will be subject to a $595,000 local transfer tax.
“The cost of fee cures due to faulty disclosures can be substantial and is continuing to increase. Ernst Fee Service helps alleviate the challenge of keeping track of the changing municipal tax increases and implementing them on short timelines,” continued Gagliano. “The platform is especially valuable today, when so many new and specifically localized rules, fees and taxes must be absorbed into lenders’ workflows.”
Ernst Fee Service automates end-to-end fee management for mortgage lenders to support lender TRID compliance and minimize zero percent and 10% tolerance fee cures. An integration with Empower, the Black Knight loan origination system (LOS), allows Ernst Fee Service to generate the Loan Estimate and Closing Disclosure forms prefilled with up-to-date transfer and property tax fees, as well as title, recording, settlement, and inspection fees. Black Knight’s Fee Cures Suite completes the process by helping lenders identify costly cure trends and assisting lenders with mitigating cures in the future.
About Black Knight
Black Knight, Inc. (NYSE: BKI) is an award-winning software, data and analytics company that drives innovation in the mortgage lending and servicing and real estate industries, as well as the capital and secondary markets. Businesses leverage our robust, integrated solutions across the entire homeownership life cycle to help retain existing customers, gain new customers, mitigate risk and operate more effectively.
Our clients rely on our proven, comprehensive, scalable products and our unwavering commitment to delivering superior client support to achieve their strategic goals and better serve their customers. For more information on Black Knight, please visit www.blackknightinc.com.
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