Overview of Title and Closing Compliance

The Real Estate Settlement Procedures Act (RESPA) governs closing practices for federally related mortgage loans. Key requirements include: the Closing Disclosure must be delivered to the borrower at least 3 business days before closing. If material changes occur (interest rate increase, addition of a prepayment penalty, change of loan product), a new 3-day waiting period begins. RESPA prohibits kickbacks or referral fees between settlement service providers. It requires accurate disclosure of all settlement charges. The TRID (TILA-RESPA Integrated Disclosure) rules consolidated the Good Faith Estimate and Truth-in-Lending disclosures into the Loan Estimate, and the HUD-1 and final TIL into the Closing Disclosure. Violations can result in fines of $10,000 per violation, borrower lawsuits for actual and treble damages, and criminal penalties for kickback violations.

Real estate transactions are increasingly subject to anti-money laundering (AML) scrutiny. FinCEN's Geographic Targeting Orders (GTOs) require title insurance companies to identify the natural persons behind legal entities that purchase residential real estate without financing in certain metropolitan areas. The Corporate Transparency Act (effective 2024) requires most LLCs and corporations to report beneficial ownership information to FinCEN. Title companies and escrow agents must comply with the Bank Secrecy Act, including suspicious activity reporting for cash transactions. All-cash purchases above $300,000 in GTO-covered areas require beneficial owner identification. These requirements impact closing timelines and documentation—buyers using entities must provide ownership information earlier in the process.

Closing compliance requires systematic quality controls. Pre-closing audit: verify all documents against the purchase agreement, loan commitment, and title commitment. Signature verification: ensure all signatories have authority (corporate resolution, power of attorney, entity authorization). Fund verification: confirm wire amounts, sources, and routing numbers before disbursement. Post-closing audit: verify recording, policy issuance, and document distribution. Common compliance failures include: closing before the 3-day Closing Disclosure period expires, failing to record documents in the correct order (deed before mortgage), disbursing funds before recording, and failing to collect required withholding (FIRPTA, state withholding). A closing compliance checklist should be used for every transaction to prevent systematic errors.