Richard Horn
Legal PLLC

CFPB Notice on Prepaid Property Taxes

February 9, 2016

Clients and Friends,

I am writing to inform you that the CFPB will be publishing a Federal Register notice tomorrow, February 10, 2016, to confirm that prepaid property taxes, homeowner’s association dues, condominium fees, and cooperative fees are not subject to the 0% tolerance category.

Some in the industry have taken a conservative view that these prepaid charges are subject to the 0% category, because 0% is the default category and the rule did not specifically place them in the 10% or “no tolerance” categories under section 1026.19(e)(3)(ii) or (iii). In support, they also cited a sentence in the preamble of the December 2013 Final Rule that said these charges are subject to tolerances. But the CFPB has stated in informal guidance that prepaid property taxes are subject to the “no tolerance” category, because they are charges “not required by the creditor” under 1026.19(e)(iii)(E). And I have also mentioned to some of you that the sentence of the preamble was missing a “not” and was actually intended to state that these charges are not subject to tolerances.

In this Federal Register notice, the CFPB confirmed its informal guidance and corrects this sentence of the preamble. Specifically, the CFPB’s notice states that prepaid property taxes, homeowner’s association dues, condominium fees, and cooperative fees are considered “charges paid for third-party services not required by the creditor” under 1026.19(e)(3)(iii)(E). Accordingly, they are not subject to the 0% or 10% category. And the notice acknowledges that the sentence in the December 2013 Final Rule’s preamble that said such charges “are subject to tolerances” was missing a “not” due to a typographical error. The CFPB’s notice formally corrects this sentence of the preamble to read “are not subject to tolerances.”

You can access the pre-publication version of this notice

In this Federal Register notice, the CFPB confirmed its informal guidance and corrects this sentence of the preamble. Specifically, the CFPB’s notice states that prepaid property taxes, homeowner’s association dues, condominium fees, and cooperative fees are considered “charges paid for third-party services not required by the creditor” under 1026.19(e)(3)(iii)(E). Accordingly, they are not subject to the 0% or 10% category. And the notice acknowledges that the sentence in the December 2013 Final Rule’s preamble that said such charges “are subject to tolerances” was missing a “not” due to a typographical error. The CFPB’s notice formally corrects this sentence of the preamble to read “are not subject to tolerances.”

You can access the pre-publication version of this notice here. It will be published and effective tomorrow, February 10, 2016.

Also, I want to let you know that the CFPB announced a webinar on disclosing construction loans under TRID, which will be on March 1 at 2pm Eastern. Here’s the link to register.

Please let me know if you have any questions.

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