TRID requires a lender to provide a good faith estimate of the fees that may be charged to, or imposed on, the borrower. That means that any fee disclosed on the initial LE will be held to the respective tolerance whether paid by the buyer or the seller at closing.
How you disclose the seller credit may influence whether you may realize a tolerance violation in the end.
Say you know of and disclose a seller credit on the initial LE as a lump sum in Calculating “Cash to Close” section at the bottom of page 2 and disclose all the fees and charges the buyer may expect to pay at closing in the appropriate sections.
If there are no bona fide changes, the tolerance limits will be based on what is disclosed in the relative sections for the loan costs on the initial LE.
The seller credit may reduce the charges to the buyer. However, a reduction in the seller credit may not increase the costs to the buyer. The fees charged to or imposed upon the buyer would remain constant as initially disclosed.
If a fee is increased but not justified, the seller credit may not go toward the cure. Since the seller credit was disclosed to offset the fees and charges initially disclosed to the buyer, it does not cover any increases.
You need to be very careful if you use a proposed seller credit to offset a fee that is normally paid by the buyer, e.g. appraisal. If you decide to omit the charge for the appraisal on the initial LE because it is supposed to be paid by the sellers, then the sellers change their mind, you can’t charge the fee to the buyer at closing. This is because no fee was ever disclosed in the first place. You end up eating that fee.
The best approach is to initially disclose all the fees and charges that may be charged to, or imposed on, the buyer/borrower relating to the loan
If you are aware of a seller credit at that time, disclose it in the section for Calculating Cash to Close at the bottom right of page 2 of the LE. Best case is not to disclose the seller credits up front. Wait until you know actually gets paid at the closing.
At closing, whatever the seller credits charged can be entered as payment toward a specific fee initially disclosed on the LE. Or, they can be entered in the Calculating Cash to Close and the Summary of Transactions sections on the final CD as a lump sum, or a combination of both.
Either way, the total paid by the buyer and seller toward any fees initially disclosed to the buyer must remain within tolerance based on what was disclosed on the initial LE.
It’s pretty simple. It doesn’t matter if a fee that is normally paid by the borrower is paid by the buyer or seller, or a combination of both, all fees must remain within tolerance as disclosed.
Lenders cannot use seller credits/payments to offset any cures required as the result of improper or inaccurate disclosures.
BTW, keep in mind that some CDs may reflect certain fees as being paid by both a seller and a buyer. This may appear as a tolerance violation.
When this occurs, be sure to check with the closing agent to determine if such fees paid by the seller are fees that are actually due from the seller and not the buyer. If so, these fees may be excluded for the determination of any tolerance violations.
You can find information about seller credits and much more in CFPB’s Small Entity Compliance Guide.