Saturday, January 30, 2010

What will happen to seller paid home warranties under RESPA 2010?

This subject was raised by an attorney conducting a RESPA training session for the Pennsylvania Land Title Institute.  I attended the session a few months ago.

He took the position that the home warranty was a buyer cost that should be placed on the buyer side of the HUD with a credit on page one from the seller.

I have done two prelim HUDs using this method.  Neither transaction has closed and I am still waiting to get a reaction from the mortgage lenders.  One transaction is an uninsured conventional loan with a regional bank and the other is a VA mortgage with a national bank.  The VA transaction has a seller assist.  I did a full credit for the assist plus a separate credit for the home warranty.

Though the sales contract typically includes a clause in which the seller does agree to pay for a home warranty, I believe home warranties have been off the radar of lenders.

If the methodology for RESPA 2010 does cause the home warranty to show as a seller paid buyer expense, how will mortgage underwriters react if at all?

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