What is it?

Section 53.257 of the Property Code requires that on all residential construction loans, the borrower must receive all loan and closing documents one business day in advance.

What loans are covered?

Any financing under a residential construction contract. This would include home improvement loans and new construction on any dwelling to be occupied by the borrower (homesteads, second homes, vacation homes).

What’s included?

All documents to be signed at closing, including the loan documents and title company documents, including the Settlement Statement. Also, the consumer disclosure the lender must give to the borrower must be included in the loan package or have been given in advance.

How do most lenders accomplish this?

Most lenders provide the loan documents and the disclosure to the title company two days in advance of closing and instruct the title company to deliver all loan and closing documents to the borrower at least one business day prior to closing.

What is the penalty for not complying?

The Property Code does not provide for a penalty for not complying. Non-compliance will not affect the lender’s lien. If lender fails to comply as a matter of policy, we think the lender’s regulators would be concerned. Failure on any particular loan would not be serious unless that loan were subject to work-out status and litigation.

Can the one day requirement be waived?

Yes. For a bona fide emergency or other good cause as determined by the borrower. The waiver must be in writing; a form is available from the firm. Frequent exercise of the use of waivers may make the lender’s policy suspect.

What about a situation where the documents get modified after borrower review but before closing?

The one day rule applies to the modifications. However, a written waiver may be executed and usually is on minor revisions.