Q: How are seller credits disclosed on the Loan Estimate or Closing Disclosure?
A: On the Loan Estimate, seller credits are disclosed as follows:
If the seller credit is a specific seller credit (i.e., it is being used to offset all or part of a specific fee) it may reflected in the total amounts disclosed for those specific fees in Loan Costs and Other Costs or it may be disclosed in the Calculating Cash to Close table. (Comments 37(h)(1)(vi)-1 and -2)
On the Closing Disclosure, seller credits are disclosed:
If there is a difference between the amount of seller credits disclosed on the Loan Estimate and those disclosed on the Closing Disclosure, not attributed to rounding, there must be a statement on the Closing Disclosure that the consumer should see the details of the credits. (Comment 38(i)(7)(iii)(A)-1)
If the seller agrees to cover the entire charge for a service and the creditor is aware of that agreement at the time it provides the Loan Estimate, the creditor may chose not to disclose the charge in the Loan Costs or Other Costs section of the Loan Estimate. However, if the creditor chooses to omit the charge in the Loan Estimate and the seller later renegotiates with the buyer to not provide the seller credit or if the charge increases, the creditor may have a good faith tolerance violation. For example, assume the creditor is aware of a specific seller credit of $500 for an appraisal, and that the creditor choses, relying on the specific seller credit, not to disclose a charge for the appraisal in the Loan Costs section. If the appraisal charge then increases to $750, the creditor would not be able to reset the tolerances for purposes of determining good faith (unless the creditor could otherwise establish a changed circumstance or other triggering event under § 1026.19(e)(3)(iv)). If the creditor discloses the increased $750 appraisal fee on the Closing Disclosure, with these facts the creditor would have a tolerance violation for the increased appraisal amount because appraisals have a zero tolerance standard. (Comment 37(h)(1)(vi)-2)
On the other hand, assume a seller offers to provide a $500 credit to the consumer to cover the anticipated cost of the appraisal and that the terms of the legal obligation between the creditor and consumer indicate that the consumer has agreed to be charged for any amount above the estimated $500 for the appraisal. The creditor, deciding the charge is one imposed on the consumer, discloses an appraisal fee of $500 on the Loan Estimate in the Loan Costs table and includes a seller credit of $500 in the Seller Credits on the Calculating Cash to Close table. However, the creditor later learns that the actual cost of the appraisal is $750. In these circumstances, the creditor can reset the tolerance and issue a revised Loan Estimate for the appraisal fee, assuming the other requirements for resetting tolerances are met and a revised Loan Estimate is provided timely.
However, assume the creditor neither disclosed the appraisal fee on the Loan Estimate nor included the $500 seller credit in the Calculating Cash to Close table because the creditor assumed the appraisal fee would be covered by the $500 seller credit for the appraisal. In these circumstances, an increase in the appraisal fee would result in a zero tolerance violation, unless a change in circumstance or borrower requested change is present.
For more information about how to disclose general and specific seller credits, including the amount of any difference in seller credits, see the TILA-RESPA Guide to Forms.