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The Be All and End All of Closing Time

February 22, 2007 By:
Andrew Lasner, JE Feature
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Prior to actual closing day -- whether you're seller or buyer -- there are several things you should do to be certain that your real estate transaction will close on time, and that everything will go smoothly. A day or two before closing, you should review your final closing statement, commonly called the HUD-1 Statement.

The HUD-1 is a form used by the settlement agent (also called the closing agent) to itemize all charges imposed upon a borrower and seller for a real estate transaction. It gives each party a complete list of their incoming and outgoing funds.

The settlement company is the entity that determines from whom and to whom these moneys are paid, and they enter all the financial details on the most important document needed for settlement -- the HUD-1 Form.

The statutes of the Real Estate Settlement Procedures Act require this document be used as the standard real estate settlement form in all transactions in the United States that involve federally related mortgage loans. Where I work, it's used for nearly all transactions that involve a buyer and seller, including cash closings.

You should go over all the calculations, and make certain that you're given credit for all your deposits, as well as any other credits due you from the seller or for other items agreed upon between buyer and seller. After a seller and buyer negotiate terms in the contract, all the financial requirements of that contract must eventually be performed.

Money required of both the seller and buyer has to be dealt with: deposits paid; sales price confirmed; mortgages paid off; new mortgages taken; subsidies to the buyer/seller carried through; and fees for lender, title, insurance, taxes and various other services accounted for.

RESPA states you should be given a copy of the HUD-1 at least one day prior to settlement. In real life, entries may still be coming in a few hours before closing.

The More Eyes, the Better
Most buyers and sellers study the statement on their own with their real estate agent and with the settlement agent. The more people who review it, the more likely that any errors will be detected. Your Realtor or attorney will get a first glance of this form early on -- or they should. Unfortunately, mistakes are routinely made on this form that could cost you thousands of dollars.

Don't assume that all parties involved are always correct. Mistakes happen. I've been in more than one closing where an error was found at the last minute.

A word of warning on reviewing the HUD-1 Form; both buyers and sellers look at the settlement process as just the final hurdle to get out the door and into their new home. Be patient and take your time in looking over this document. This is the piece of paper that determines just how much money you're walking away with if you're a seller, or how large the check will be that you're going to have to write before walking out the door if you are a buyer.

Review each line, and have the settlement agent explain any charges you don't understand. If need be, ask for proof of the charges. Certified copies of all municipal and mortgage documents should be available for cross-verification.

Now, the HUD-1 Form tracks all the costs related to the transaction, and you need to be pretty familiar with your contract to make sure the right charges are flowed to the correct side of the form. The left side of the form calculates the buyer's credits and debits; the right side tracks credits and debits for the seller.

The amount for these two slots is the same -- the contract sales price.

Generally, the form will start with "Gross amount due to the buyer," and add on or deduct from that amount. Since most of the "gross amount" is in the form of a mortgage, how much a buyer must actually write out on a check will be determined from this point.

The buyer is going to face charges like settlement fees; earnest money deposit; taxes; assessments; loan origination fee; loan discount; appraisal fee; credit report; and mortgage-insurance premium, among others.

There are many more items on a HUD-1 too numerous to list for this article.

Depending on how the contract was negotiated, the seller could face paying the same fees on some of the above items, except for those a particular loan program requires that the buyer pay for from his or her own funds.

Many of the items may be marked "POC" -- which means "paid outside of closing." This notates the items the buyer or seller paid for prior to settlement, such as home inspections, credit report, appraisal, real property, etc.

A seller can sometimes postpone paying for fix-up fees, new carpeting and other incidentals in preparing the property if he can get the vendor to wait on getting paid until settlement. In that case, the seller needs to notify the settlement agent that such funds need to be dispersed from the proceeds of the sale.

You have now successfully translated probably the largest financial transaction in your life. As a seller, you are hopefully feeling pretty good about getting this all behind you. Yet there is one additional, important hurdle you need to take care of before you're finished.

Mark your calendar for about 60 days after your closing. You should be receiving from your mortgage company, if you had a mortgage on your ex-house, a "Letter of Satisfaction." If you don't receive this important document, call the company right away and ask when you will receive the letter. Also, insist that they record the mortgage with the county land records, showing that the mortgage and promissory note has been canceled and satisfied.

Andrew Lasner is a Realtor and a senior real estate specialist at Keller Williams Preferred in Newtown. He can be reached at 215-860-0800 or e-mailed at: Andrew1 @comcast.net.

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