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Timeline > Consumer Financial Protection Bureau

Source: Timeline > Consumer Financial Protection Bureau

Timeline

Here’s a full timeline of how we created the Loan Estimate and Closing Disclosure forms, part of our Know Before You Owe: Mortgages project. It’s a look back at our effort to make mortgage disclosures simpler and more effective, with the input of the people who will actually use them.

You can also return to the main page to view an interactive timeline.


July 21, 2010

The Dodd-Frank Wall Street Reform and Consumer Protection Act is signed into law.

The new law required the CFPB to combine the Truth in Lending and Real Estate Settlement Procedures Act disclosures.


December 6, 2010

The Treasury Department hosts a mortgage disclosure symposium.

The event brought together consumer advocates, industry, marketers, and more to discuss CFPB implementation of the combined disclosures.


February 21, 2011

Design begins.

Starting with the legal requirements and the consumer in mind, we began sketching prototype forms for testing.

During this process, the team discussed preliminary issues and ideas about mortgage disclosures. This session set the context for the disclosures and was a starting point for their development. The team continued to develop these issues and ideas over more than a year during the development process.


May 18, 2011

Know Before You Owe opens online.

We posted the first two prototype loan estimates. We asked consumers and industry to examine them and tell us what worked and what didn’t. We repeated this process for several future rounds. Over the course of the next ten months, people submitted more than 27,000 comments.


May 19, 2011 – May 24, 2011

Qualitative testing begins in Baltimore.

We sat down with consumers, lenders, and brokers to examine the first set of loan estimate prototypes to test two different graphic design approaches.

Disclosures tested:

Prototype A
Prototype B


June 27, 2011 – July 1, 2011

Los Angeles, CA

Consumers and industry participants worked with prototypes with lump sum closing costs and prototypes with itemized closing costs.

Disclosures tested:

Prototype A
Prototype B


August 1, 2011 – August 3, 2011

Chicago, IL

Again, we asked testing participants to work with prototypes with lump sum closing costs and itemized closing costs.

Disclosures tested:

Prototype A
Prototype B


September 12, 2011 – September 14, 2011

Springfield, MA

Another round of closing cost tests, as we presented participants with one disclosure that had the two-column design from previous rounds and another that used new graphic presentations of the costs.

Disclosures tested:

Prototype A
Prototype B


October 17, 2011 – October 19, 2011

Albuquerque, NM

In this round, we presented closing costs in the itemized format and worked on a table that shows how payments change over time.

Disclosures tested:

Prototype A
Prototype B


November 8, 2011 – November 10, 2011

Des Moines, IA

We began testing closing disclosures. Both designs included HUD-1-style numbering for closing details, but two different ways of presenting other costs and Truth in Lending information.

Disclosures tested:

Prototype A
Prototype B


December 13, 2011 – December 15, 2011

Birmingham, AL

One form continued to use the HUD-1 style numbered closing cost details; the other was formatted more like the Loan Estimate, carrying over the Cash to Close table and no line numbers.

Disclosures tested:

Prototype A
Prototype B


January 24, 2012 – January 26, 2012

Philadelphia, PA

In this round, we settled on prototypes formatted like the Loan Estimate, but one included line numbers and the other didn’t. We also began testing the Loan Estimate with the Closing Disclosure.

Disclosures tested:

Prototype A
Prototype B
Prototype C


February 20, 2012 – February 23, 2012

Austin, TX

Participants reviewed one Loan Estimate and one Closing Disclosure (with line numbers) to see how well they worked together.

Disclosures tested:

Prototype A
Prototype B


February 21, 2012

We convene a small business review panel.

A panel of representatives from the CFPB, the Small Business Administration (SBA), and the Office of Management and Budget (OMB) considered the potential impact of the proposals under consideration on small businesses that will provide the mortgage disclosures.


March 6, 2012

We meet with small businesses.

The panel met with small businesses and asked for their feedback on the impacts of various proposals the CFPB is considering. This feedback is summarized in the panel’s report.
(Note: Link to large PDF file.)


March 26, 2012

Back to Baltimore!

We conducted one final round of testing to confirm that some modifications from the last round work for consumers.

Disclosures tested:

Prototype A
Prototype B
Prototype C


July 9, 2012

Proposal of the new rule.

The CFPB released a Notice of Proposed Rulemaking. The notice proposed a new rule to implement the combined mortgage disclosures and requested your comments on the proposal.


November 6, 2012

Comment period on most of the proposed rule closes.

Between the public comment period and other information for the record, the CFPB reviewed nearly 3,000 comments. These comments helped us improve the disclosures and the final rule.


October 11, 2012 – December 13, 2012

We test Spanish language versions of the disclosures across the country.

We conducted qualitative consumer testing on Spanish language versions of the proposed disclosures. We tested in three cities: Arlington, Va. (October 11-12); Phoenix, Az. (November 14-15); and Miami, Fla. (December 12-13).


April 23, 2013 – June 13, 2013

Validating our testing

With the help of Kleimann Communication Group, the contractor who helped us throughout the testing process, we conducted a quantitative study of the new forms with 858 consumers in 20 locations across the country. By nearly every measure, the study showed that the new forms offer a statistically significant improvement over the existing forms.


June 18, 2013 – July 26, 2013

Additional testing with modified disclosures

In response to comments, we developed and tested different versions of the disclosures for refinance loans, which we tested for three rounds. (In our last round, we tested a modification for both purchases and refinances.) We also did one more round of Spanish language testing for the refinance versions. The modified disclosures tested well and are the ones included in the final rule.


November 20, 2013

A final rule

The CFPB issues a Final Rule. The final rule creates new integrated mortgage disclosures and details the requirements for using them. The rule is effective for mortgage applications received starting August 1, 2015.


June 24, 2015

New Effective Date Proposed

The CFPB proposes a new effective date of October 3, 2015 for the Know Before You Owe mortgage disclosure rule.


July 21, 2015

New Effective Date Announced

The CFPB issues a final rule moving the effective date to October 3, 2015.


Can I Get a HUD?

After October 3, 2015 you will no longer be receiving a HUD-1 settlement statement before consummation of a closed-end credit transaction secured by real property.

Say what?!?!

That’s right, I just said consummation of a closed-end credit transaction and no more HUD. There is new jargon to go along with the new, easy-to-read, consumer friendly, disclosures.

Bon Voyage HUD!

After October 3, the ‘HUD’  will be called a ‘Closing Disclosure’ (CD). ‘Closing’ will be referred to as consummation and the ‘Good-Faith-Estimate’ (GFE) will be called a ‘Loan Estimate’.

Take a peek at the new disclosures!

www.closing-disclosure.com

Closing-Disclosure_Page_1 Closing-Disclosure_Page_2 Closing-Disclosure_Page_3 Closing-Disclosure_Page_4 Closing-Disclosure_Page_5


Stay Afloat Post-TRID

2015 Florida Realtors® Convention & Trade Expo


 

Each year, the Florida Realtors® Convention & Trade Expo gathers thousands of Realtors looking to up their game. This years theme is Celebration 15; the event falls on August 19-23 and is held at the Rosen Shingle Creek in Orlando, Florida. The free two-day Expo is on Thursday and Friday–all you have to do is register. There are over 30 education sessions sorted into six learning tracks–technology, broker, productivity, trends, personal growth, and continuing education. Along with the Convention, the Trade Expo has over 200 exhibitors that come packed with promotional materials and exquisite raffle prizes. This years keynote speaker is Notre Dame’s former Head Coach Lou Holtz.

On October 3, 2015 the TILA-RESPA Integrated Disclosure (TRID) rule will go into effect. The Florida Agency Network (FAN) is leading the industry through uncharted waters to the new disclosures. Title agencies in the FAN network are prepped and ready to keep you afloat before, during, and after these industry changes. Join us at booth 625 as we say Bon Voyage to the HUD-1 and celebrate the implementation of the new Closing Disclosure (CD). Get social with us and enter to win an Apple iWatch!


Consumer Financial Protection Bureau Finalizes Two-Month Extension of Know Before You Owe Effective Date

Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today issued a final rule moving the effective date of the Know Before You Owe mortgage disclosure rule, also called the TILA-RESPA Integrated Disclosures rule, to October 3, 2015. The rule requires easier-to-use mortgage disclosure forms that clearly lay out the terms of a mortgage for a homebuyer. The Bureau issued the change to correct an administrative error that would have delayed the effective date of the rule by at least two weeks, until August 15, at the earliest.

The Bureau is finalizing Saturday, October 3 as the effective date. The Bureau believes that moving the effective date may benefit both industry and consumers with a smoother transition to the new rule. The Bureau further believes that scheduling the effective date on a Saturday may facilitate implementation by giving industry time over the weekend to launch new systems configurations and to test systems.  A Saturday launch is also consistent with industry plans tied to the original effective date of Saturday, August 1.

The final rule issued today also includes technical corrections to two provisions of the Know Before You Owe mortgage disclosure rule.

A copy of the final rule is available here: https://files.consumerfinance.gov/f/201507_cfpb_2013-integrated-mortgage-disclosures-rule-under-the-real-estate-settlement-procedures-act-regulation-x-and-the-truth-in-lending-act-regulation-z-and-amendments-delay-of-effective-date.pdf

Source: www.consumerfinance.gov


CFPB Will Push TRID Implementation to Oct. 1

CFPB-Article-201401291630

After months of denying requests from real estate, mortgage and settlement service industry professionals and trade groups to either delay implementation of the TILA-RESPA Integrated Disclosures (TRID) regulation or agree to enact a “hold harmless” enforcement period, the Consumer Financial Protection Bureau (CFPB) announced today that it will push the Aug. 1 implementation deadline to Oct. 1.

The industries that will be affected by the regulation will now have two more months to prepare their mortgage processing systems, staffs and partners for the sweeping mortgage transaction changes.

The new implementation date came as a relief to many who have been concerned about their ability to comply with the new rule due to technical and operational challenges — not to mention tackling the onslaught of other mortgage industry regulations thrown at them in the last two years — but many are wondering why the bureau had a sudden change of heart.

Richard Cordray.
CFPB Director Richard Cordray

According to CFPB Director Richard Cordray, the bureau “made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks. We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.”

In its announcement, the CFPB did not elaborate on the nature of its “administrative error.” However, a spokesman from the CFPB told Inman that the bureau failed to timely notify Congress about the Aug. 1 deadline, a responsibility it has under the Congressional Review Act, which requires agencies to submit the rule to Congress and the Government Accountability Office 60 days before the effective date.

Had the CFPB submitted the rule to Congress and the GAO, its submission should have included a copy of the rule; a concise general statement relating to the rule, including whether it is a major rule; and the proposed effective date of the rule.

Many in the industry are curious about why, after months of trade group letters and comments, testimony in congressional hearings to push for a lenient enforcement period through the end of the year and even federal legislation calling for the CFPB to hold the industry harmless as it adjusts to the sweeping changes, the bureau refused to delay implementation — only to abruptly reverse course less than two months before the Aug. 1 deadline for something as seemingly innocent as an “administrative error” and children starting a new school year.

And some are wondering if that’s the real reason behind the delay.

On March 26, Inman reported that one industry professional, speaking on condition of anonymity, predicted that the CFPB would “announce a delay right after June 18,” which happened to be the date that mortgage industry software provider Ellie Mae planned the release of an update to its mortgage management system, Encompass.

The update included TRID support, but for software that supports about 80 percent of the loan origination systems at small and midsized banks to be released less than 60 days before TRID implementation — during the busy summer months, no less — there are bound to be glitches, our source said.

Other sources tell Inman that other software used by some of the top mortgage lenders and settlement agents in the country “blew up” this week.

Regardless of the reasons behind the CFPB’s announcement, many in the industry are breathing a collective sigh of relief and retooling their preparation efforts for the fall.

“You’ve got to give them credit for pushing the effective date to October,” said Michelle Korsmo, CEO of the American Land Title Association (ALTA), which from the CFPB’s release of the final rule in November 2013 has been the industry trade group that has taken the lead in the educational, training and preparation efforts. “The bureau could have changed the effective dates for a shorter period of time.

“Clearly, the bureau listened to the concerns that industry has for consumers. Consumers would be helped even more if the CFPB also announced a specific hold-harmless period for industry to understand how the forms will work in real-life transactions. Under TRID, some mortgage lenders and settlement service providers may initiate additional risk management tactics that could slow the closing process for homebuyers.”

National Association of Realtors President Chris Polychron said in a statement that “Realtors appreciate that the CFPB has demonstrated an understanding of the need for additional time to accommodate the interests of the many consumers and providers. We will continue to work with CFPB to minimize any possible market disruptions or uncertainty that could develop following the implementation.”

And Mortgage Bankers Association President and CEO David H. Stevens lauded the CFPB for continuing “to prove itself capable of working in a transparent, constructive manner throughout this process.”

“The complexity of this rule, which impacts not just mortgage disclosures but also the business processes behind the entire real estate transaction, warrants the additional time to get it right and ensure that consumers are not adversely affected by the transition,” Stevens said.

“MBA will be providing comments on this proposal to recommend the best way to implement the delay in a manner that protects consumers and mitigates disruptions for lenders in the middle of this complex conversion.”

We likely won’t know the full details of what happened at the CFPB until it issues an official proposed amendment to delay the effective date of the TRID rule. The public will have an opportunity to comment on this proposal, and a final decision is expected shortly thereafter.

But we are already hearing that some companies that have been testing new or updated mortgage processing software in the last two weeks are experiencing significant technical glitches.

Source: www.inman.com


Top of the List: Pinellas Boasts Bay Area's Wealthiest ZIP Codes

Belleair Beach

The May 15 issue of the Tampa Bay Business Journal contains a List of the wealthiest ZIP codes in the Tampa Bay area. The rankings are provided by the Environmental Systems Research Institute (Esri).

Pinellas County is home to the highest number of ZIP codes on the List. The nine Pinellas locations represents a significant increase from the five that appeared on last year’s List. Hillsborough County, which was home to the highest number of ZIP codes on last year’s List, saw its number drop from eight to six.

In addition, Esri has a national ZIP code lookup tool, which allows you to view the demographics of any ZIP code in the country, including Esri’s Tapestry Segments.

Source: www.bizjournals.com


Breaking News from Wells Fargo

 

 

Excerpted from the Wells Fargo Settlement Agent Communications

TILA-RESPA Integrated Disclosure Rule

In the September 24 issue of our settlement agent communication, Wells Fargo announced that we would control the generation and delivery of the borrower Closing Disclosure (CD) to meet internal compliance and regulator expectations when the new CD becomes effective in August 2015.

Since our September announcement, Wells Fargo leaders have attended numerous industry events including the ALTA Annual Conference, the MBA Compliance and Regulatory Conference and the MBA Annual Convention. We’ve also participated in several title agent meetings and round table discussions.

During those events, we’ve talked with many of you, answered numerous questions and carefully listened to your feedback. Some of you expressed surprise at our decision – and an equal number of you indicated you were not surprised and anticipated the decision. Some of the most frequently asked questions are answered below.

Will all lenders collaborate on a standard and consistent process for meeting all of the TILA- RESPA Integrated Disclosure Rules?

No.

Each lender is accountable for compliance and must determine its own method for achieving compliance.

 

Wells Fargo made an operational decision in September regarding our method for achieving compliance and we continue to build processes to support our approach.

Can we begin using the new CD form earlier than August 1, 2015?

No.

In fact, there will be several weeks/months that we will be required to use the previous disclosures with some loans and the new LE and CD on other loans*.

 

Applications prior to August 1, 2015 will use the previous GFE, initial TIL, final TIL and HUD-1.

 

Applications taken on or after August 1, 2015 will use the new Loan Estimate (LE) and CD.

 

There are no exceptions to this requirement – early use of the LE and CD are not allowed.

 

*Note: The new disclosures do not apply for home equity lines of credit, mortgages securing mobile homes that are not attached to real estate or for creditors who make five or fewer loans per year.

Can settlement agents prepare the CD and send it to the lender for approval, just as today for the HUD-1?

No – not for Wells Fargo loans.

Lenders are accountable for compliance, which includes the CD timing and accuracy. The new CD is governed by the Truth-in-Lending Act (TILA), not the Real Estate Settlement Procedures Act (RESPA).

 

TILA and RESPA have different accuracy expectations and enforcement provisions, as well as differences in definitions. The risks and penalties for Wells Fargo are more severe with TILA than RESPA. 

How will Wells Fargo determine the exact fees that are applicable on loans?

Collaboration and input from our settlement agents on fees applicable for each transaction continues to be critical.

 

Wells Fargo will continue to work closely with settlement agents to determine the fees and other content required on the CD. This interaction must occur earlier in the process than is typical today.

How will Wells Fargo determine buyer/seller pro-rated amounts on purchase transactions?         

Just as today with the HUD-1, we will work closely with our settlement agents to determine the amounts to be disclosed on the borrower CD.

 

The settlement agent will be responsible for the seller CD.

The TILA-RESPA Integrated Disclosure Rule uses the term “consummation” – what does that mean?

The TILA-RESPA Integrated Disclosure Rule requires that the borrower receive the CD at least three business days prior to consummation.

 

TILA defines consummation to be: “The time that a consumer becomes contractually obligated on a credit transaction.”

 

Wells Fargo considers consummation to be the date the borrowers will sign the note for all transactions (becomes contractually obligated), including transactions in escrow states.

What happens if the pre-closing walk through identifies a change to the buyer/seller agreement that will impact the CD?

The settlement agent must notify the lender’s closing contact if there are any changes that impact the CD. Wells Fargo will determine if an updated CD can be provided for delivery at the closing or if the change triggers the three-day receipt requirement to be restarted.

Will Wells Fargo assume the responsibility for disbursing loan proceeds?

No.

The settlement agent is critical and continues to be responsible for executing the closing including document signing, notarization, disbursement of funds, document recordation and delivery of final documents post-closing.

What education and training materials can we expect?

Specific Wells Fargo training plans are under construction in collaboration with other industry partners such as ALTA, title underwriters and other service providers. Plans include many educational communications and an information guide.

 

More details will be provided as available.

 

We appreciate your responses to our survey!

As you may recall, the September 24 issue of our settlement agent communication included a feedback survey link. Many of you have asked for information on the results so here are the responses to a few of the questions from the survey:

 

Survey Question

Strongly Agree

 

Agree

Neither Agree or Disagree

 

Disagree

Strongly Disagree

I am well informed about the new requirements.

34.33%

126

43.87%

161

14.71%

54

4.63%

17

2.45%

9

My company is currently preparing for the

54.08%

31.79%

10.87%

1.63%

1.63%

changes that are effective August 2015.

199

117

40

6

6

My company is relying on our technology

 

 

 

 

 

software providers to be ready for the changes by August 2015.

43.99%

161

38.25%

140

13.11%

48

4.10%

15

0.55%

2

The Realtors/Builders I do business with are well informed about the new requirements.

3.81%

14

10.08%

37

31.34%115

34.60%

127

20.16%

74

The lenders I do business with are talking to me

7.95%

20.27%

24.11%

35.89%

11.78%

about their plans for the new Closing Disclosure.

29

74

88

131

43

I prefer that the lender be responsible to

 

32.70%

120

 

22.62%

83

 

21.25%

78

 

9.81%

36

 

13.62%

50

generate and deliver the Closing Disclosure to the borrowers to meet the compliance requirement that it is received no less than 3

business days prior to closing.

 

Thank you to all who took the time to respond to this survey and those who provided comments via the mailbox or direct contact! The abundance of feedback received provides valuable information for our use when planning and developing future communications, training materials and implementation plans.

Knowing your concerns and questions helps us proactively address what matters to you.

For example, question four shows us that real estate agents and builders need more information on the rule changes effective August 1, 2015, and that it will be critical to engage them in the evolving process changes. On purchase transactions, collaboration to coordinate timing details must begin when the contract is written and continue through scheduling and preparing for closing. We all must work closely together to ensure that the CD receipt requirements are met and to help avoid delayed or rescheduled closings.

Updated appraisal delivery process coming soon

Regulations require lenders to provide a copy of the appraisal to the customer no later than three days prior to closing, unless the customer has signed a waiver of this timing requirement.

Wells Fargo’s business process team has completed an assessment of the internal process and will implement changes in late January 2015 to significantly reduce the number of transactions that require your support to deliver the appraisal at the loan closing. The majority of appraisals will be delivered to the customer prior to closing.

With the updated process, you are no longer required to return a copy of the appraisal as proof of delivery. Instead, a new Appraisal Delivery Confirmation form will be signed by customers for Wells Fargo’s compliance tracking.

For those few times when we do need your assistance in delivering the appraisal, the appraisal delivery requirement will appear in the Transactional Loan Closing Instructions. At the same time, an email to you will provide the appraisal document(s) and the new Appraisal Delivery Confirmation form. 

Simply provide the appraisal document(s) to the customer at closing and have them sign the Appraisal Delivery Confirmation form. Return the signed form with the closed loan documents. 

We heard you! Page count tool now available for estimating recording fees

Since the first publication of this newsletter in June 2013, we have frequently set the expectation to disclose accurate and exact fees on the HUD-1. In response to multiple requests for support to enable you to estimate recording fees as accurately as possible prior to recordation, a page count reference tool is now available.

The tool provides page count information for all recordable documents that are lender-provided in the closing package and will be provided with the preliminary closing package. Your Wells Fargo closing  contact will work with you to determine the applicable loan documents and page counts as part of the HUD- 1 preparation and approval process. If you have not yet seen the new tool or have questions, please talk to your Wells Fargo closing contact when preparing for your next Wells Fargo closing.

This is an interim solution. In early 2015, additional changes will be implemented making a transaction- specific list of recordable documents and their page counts part of the preliminary closing package for most Wells Fargo loans. 

Thank you for your continuing collaboration and the importance you place on communication. Please share this important information with your colleagues and management teams. If you have any comments, questions, suggestions for future newsletters or requests for copies of previous editions, contact us at: 

WellsFargoSettlementAgentCommunications@wellsfargo.com

Regards,

Wells Fargo & Company

 

 

 

 

 

 

 


Flood Insurance Update

The United States Senate has just passed “The Homeowner Flood Insurance Affordability Act” by a vote of 72-22 (both US Senator Nelson and Senator Rubio voted in favor of the bill. This is the bill the US House passed on March 4. This is incredible news for Florida REALTORS® and property owners. The bill will now be sent directly to President Obama for his signature!

* Reinstates Grandfathering – This bill permanently repeals Section 207 of the Biggert-Waters Act, meaning that grandfathering is reinstated. All post-FIRM properties built to code at the time of construction will have protection from rate spikes due to new mapping – for example, if you built to +2 Base Flood Elevation, you stay at +2, regardless of new maps. Also importantly, the grandfathering stays with the property, not the policy. 
* Caps Annual Rate Increases at 18% – This bill decreases FEMA’s authority to raise premiums. The bill prevents FEMA from increasing premiums within a single property class beyond a 15 percent average a year, with an individual cap of eighteen percent a year. Pre Biggert-Waters, the class average cap was 10%. Currently (Post Biggert-Waters), the class average cap is 20%. The bill also requires a 5% minimum annual increase on pre-FIRM primary residence policies that are not at full risk. The updated legislation also states that FEMA shall strive to minimize the number of policies with premium increases that exceed one percent of the total coverage of the policy (e.g., 1% of $250,000 = $2,500). 
* Refunds policyholders who purchased pre-FIRM homes after Biggert-Waters (7/6/12) and were subsequently charged higher rates 
* Permanently Removes the Sales Trigger – This bill removes the policy sales trigger, which allows a purchaser to take advantage of a phase in. The new purchaser is treated the same as the current property owner. 
* Allows for Annual Surcharges – This legislation applies an annual surcharge of $25 for primary residences and $250 for second homes and businesses, until subsidized policies reach full risk rates. All revenue from these assessments would be placed in the NFIP reserve fund, which was established to ensure funds are available for meeting the expected future obligations of the NFIP. 
* Funds the Affordability Study and Mandates Completion – This legislation funds the affordability study required by Biggert-Waters and mandates its completion in two years. 
* Includes the Home Improvement Threshold – This bill returns the “substantial improvement threshold” (i.e. renovations and remodeling) to the historic 50% of a structure’s fair market value level. Under Biggert-Waters, premium increases are triggered when the renovation investments meet 30% of the home’s value. 
* Additional provisions: This legislation includes several other provisions including preserving the basement exception, allowing for payments to be made in monthly installments, and reimbursing policy holders for successful map appeals.


YES, we offer these services as well, please contact us with questions!

Online Auctions: Future of the Housing Market? 

Online-Housing-Auction

The housing market has been through a lot of changes in recent years. Economic and social factors continue to shape the way the housing market functions. Recently, an interesting development in the housing market has emerged: online real estate auctions. The growing popularity of these online marketplaces could potentially transform the way real estate is bought and sold.

Online Real Estate Auctions

Although some things vary depending on the particular auction site, there are some basic commonalities of most online real estate auctions.

Much like their offline counterparts, these auctions often involve selling foreclosed homes. However, the number of auction sites offering to buy and sell non-distressed properties is growing as well. Unlike traditional foreclosure auctions, the entire bidding process is done online rather than at a courthouse or hotel ballroom.

As with traditional auctions, all sales in online auctions are typically final. However, if the sale involves a foreclosure, depending on the state, there may be a redemption period where the original owner could possibly purchase the rights to the property back (rendering the auction purchase void).

Types of Properties Available Through Online Auctions

Many home auction sites predominantly involve selling homes that have been foreclosed on by the bank. However, many sites have also developed into online marketplaces where both buyers and sellers can exchange a great variety of property types, including:

  • Commercial – Office buildings, multi-family, hotels, industrial
  • Residential – Non-distressed owner-occupiers, non-distressed mid-market homes
  • Non-distressed luxury homes

These are just a few examples of the types of properties that can be bought or sold online through an auction site.

Online Auction Process

Again, the online auction process may vary depending on the specific site, but the general process will be the same. The first step in the auction process is to register for the auction site on which you will be bidding, which is usually free.

Most auction sites will provide for a pre-auction bidding period. During this period it is possible to place a (usually limited) number of bids before the auction begins. If a pre-auction bid is sufficient and meets the seller’s expectations, you can purchase the property before it ever reaches auction.

After the pre-auction period ends, the online auction begins. Online auctions are similar to traditional auctions except the bidding is done from the convenience of your own home or office. Most auctions include minimum bid increments and have set ending dates which can be slightly extended in the case of aggressive last-minute bidding.

If you are the winning bidder, most sites will send you a confirmation email that is shortly followed up by a phone call from a site representative. Unlike traditional auctions where the winner may have to produce the required funds within hours of winning, online auction sites typically only require a deposit upfront.

The potential for online real estate auctions as the future of the housing market lies in their transparency, their level playing field and their convenience. The ability to bid from the comfort of home coupled with the flexibility of payment options upfront makes buying or selling real estate online an attractive option for prospective buyers and sellers. Also, the way auctions level the playing field by providing the average person the same opportunity to bid for a property as a large institution has added to their popularity. If these online real estate marketplaces continue to grow and develop, there is a strong possibility that they could truly be the future of how real estate is bought and sold in the housing market. 

 

By: The crew at KCM blog