Friday, January 29, 2010

tax service fee for FHA and VA transactions

Our take is that you place the tax service fee on the buyer side of the HUD and put a credit on the first page from the seller.  Depending on the lender, they may allow the credit to be lumped in with a seller assist or they may want the tax service fee credit on a separate line. Either way works.


Diane Cipa said...

BTW - Customs vary by locale on how to handle a tax service fee. The tax service fee is a charge to the buyer at closing and it is a fee that both the FHA and VA have historically deemed unacceptable. Rather than waive the fee most lenders attempt to push the fee off on the seller. In some locales the attorney/title agent and real estate agents community support this practice and may or may not prepare a seller for the fee prior to closing but they support the effort to collect the fee form the seller at closing. In other communities the attorney/title agent and real estate agents will not support pushing the fee off on the seller unless a seller assist has been agreed to in the contract.

In either case, I am of the opinion that the RESPA 2010 rules would consider this a buyer fee paid by the seller - whether or not as part of a seller assist, so unless the lender has decided to waive the fee, you should show it on the HUD in the buyer column on page two with a credit on page one from the seller.

I am very interested to hear of any feedback from FHA and VA underwriters. Please share your experiences or thoughts.

hoyaczech said...

I am a new CPA currently auditing a non-supervised mortgagee. I am very new to the HUD/FHA rules. Recently I came across the question of the tax service fee being charged to the seller. Can you positively state whether it is in fact allowed on FHA loans? When a fee is otherwised disallowed to be charged to the borrower, how can it be okay to charge the seller for it (doesn't that reduce the amount that the seller agreed to pay towards closing?) Please, if you can refer me to some FHA/HUD regulation or some other industry literature that says that is okay...I would MUCH appreciate that.

Diane Cipa said...

Many regulators - federal and state - typically take the position that they do not care what fees are charged to the seller. They are in the business of protecting the buyer. So, when we run up against a rule - new or old - which prohibits a fee being charged to the buyer, some lenders will waive the fee and some will pass it on to the seller. I am not certain that there is a rule affirming the acceptance of passing a fee onto the seller, however, I can tell you that it is a common practice by supervised and non-supervised lender for decades and so has survived annual audits of all - including spot audits conducted by the FHA.

Hope that helps. ;)