Under 12 CFR § 1026.38(j)(1)(v) and 12 CFR Pt. 1026, Supp. I, Paragraph 38(j)(1)(v) – 2, “payoff[s] of other secured or unsecured debt” must be disclosed in the area subsequent to Line K.03 (“Closing Costs Paid at Closing (J)”) of the CD, but prior to the subsection entitled “Adjustments for Items Paid by Seller in Advance”.
This area includes Line K.04 and the subsection entitled “Adjustments” (Lines K.05 – K.07). Oddly, while Regulation Z is detailed about which amounts should be disclosed in which specific lines, no details are provided to clarify whether Lines K.05 through K.07 can only be used for disclosing “amounts . . . that are owed to the seller but payable to the consumer after real estate closing” (Ibid. Paragraph 38[j][v] – 1) or whether it can include other amounts, such as payoffs. We have asked the CFPB about this matter and they have informally and verbally stated that Regulation Z does not prohibit the disclosure of non-adjustment items in Lines K.05 – K.07.
Nevertheless, the CFPB’s “TILA-RESPA Integrated Disclosure: Guide to the Loan Estimate and Closing Disclosure forms” (v. 2.1) states that “payoffs of other secured or unsecured debt” are “generally” disclosed in Line K.04 (see Ibid. pg. 93 – 94; available at: https://www.consumerfinance.gov/policy-compliance/guidance/tila-respa-disclosure-rule/). Also, FNMA’s Uniform Closing Dataset (UCD) requirements permit payoffs to only be disclosed in Line K.04 and only adjustments to be disclosed in Lines K.05 through K.07 (see pg. 166 through 169 of the “UCD Implementation Guide”, v.1.4, available at: https://www.fanniemae.com/singlefamily/uniform-closing-dataset).
These sources, together with 12 CFR Pt. 1026, Supp. I, Paragraph 38(t)(5)(ix) -1 (which permits an addendum to the CD to be used to disclose “a breakdown of payoff figures”) have prompted us to provide an alternative solution for disclosing multiple payoffs.
Currently, payoffs are disclosed in Lines K.04 through K.07 of the CD, unless there is insufficient space, in which case they are disclosed in the addendum to the CD within the “spill-over” “Summaries of Transactions” table. While this method will still be available, we are providing an alternative method, in which a total of all payoffs paid at closing is disclosed in one of these lines (preferably Line K.04), with a new “Breakdown of Payoff Figures” table itemizing each payoff amount.
This new method is enabled if the new System Setting “Print Breakdown of Payoff Figures on CD Addendum” (FI 131686) equals “Yes”. Once enabled, clients are responsible for passing to us a description and a dollar amount for the TOTAL of all payoffs paid at closing in one of Lines K.04 through K.07. Note that we are not limiting this function to Line K.04, despite the previous guidance, because there are other amounts which may need to be disclosed in Line K.04 for the same loan (e.g., a principal reduction). If a total of payoffs and an appropriate description are not populated in one of Lines K.04 through K.07, the payoffs will not be included in the necessary calculations on the CD. Setting Field 131686 to “Yes” will also trigger the caption “See attached page for additional information” to appear just before Section L on page 3 of the CD.
On the CD addendum, when FI 131686 equals “Yes”, a new “Breakdown of Payoff Figures” table will appear. The format of this table is similar to the “Summaries of Transactions” table (per the requirements of 12 CFR Pt. 1026, Supp. I, Paragraph 38[t] – 5), though the hardcoded captions will be different and there will be no line numbers. Each line in this table will disclose any payoff if at least one of the following exists for that payoff: a description; a payee; or a payoff amount. The table should populate without the need to alter any existing payoff fields. Payoffs paid outside of closing will be included in the “Breakdown of Payoff Figures” table, but the amounts will appear first and the description will automatically indicate that they are paid outside of closing (e.g. “$500 P.O.C. Credit Card Balance to ABC Bank”). Consequently, the P.O.C. amounts will not appear in the column with the amounts that are paid at closing, and should not be included in the Total Payoffs amount in Section K of the “Summaries of Transactions” table on page 3 of the CD.
This new payoff disclosure method will only apply to the standard CD and not to the alternative CD (where payoffs are disclosed in the “Payoffs and Payments” table). This method will be supported in both the English-version of the CD (Cx18566) and the Spanish-version (Cx18991).
This alternative payoff disclosure method will be available on Production servers on January 30, 2019, and is available for testing on Stage servers immediately. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.