Richard wants to know if the seller has to pay taxes that the title agent failed to collect.

Diane,

I would appreciate your thoughts on this situation:

Preliminary title report lists property taxes for the current year as due, supplemental taxes as payable.  But it doesn't show up in the HUD-1, so seller receives more than she would have if they were accurately reflected. Two months later, the title company tells the seller they have to reimburse the title company for the taxes they paid (the ones in the title report).  Would seem they made a mistake and while they may not be required to pay all the taxes, the seller shouldn't have to pay their fees, since as the title company's representative has indicated they "screwed the pooch".  

Your thoughts much appreciated.

 

Regards,
Richard

Hi, Richard.  One of the documents required for title insurance is an owner/seller affidavit used to bind the seller legally in the event of just such an error.  Title insurance covers human error.  Some errors happen in the closing process because people are human and often rushed at the end of the process.  There are checks and balances in the system to help find and eliminate these types of errors.

The seller has personal knowledge of the property and thus should have noticed that the taxes were not collected on the HUD-1.  The affidavit is supposed to jiggle their memory.  When the seller signed that affidavit, the seller affirmed that all taxes are paid or are being paid on the HUD-1.  The affidavit is made for the purpose of inducing the title insurer to insure.

The seller should pay the taxes.  If the seller does not, the title insurer may litigate to recover damages.

It's a bit like having a store clerk give you the wrong change or a bank accidentally depositing money into your account and discovering the error later.  It's not your money and you can't keep it.  In this case, the seller was unjustly enriched. ;)

Diane

sample of a HUD-1

Test HUD0001 We get many requests to this blog for a sample of a HUD-1.  I decided to post our "test" HUD.  It's not based on a real transaction.  We keep this one on hand for training and the figures you see may be from differing scenarios.  So, please don't try to make logical sense out of the numbers.  This is meant to help you visualize what the form looks like and also see the placement of items like the seller assist.  Hope you find it a useful tool.  ;)

Diane

We have our PA title insurance calculators ready to go with the new rates. Bookmark them!

PA TITLE INSURANCE RATES FOR PURCHASE

PA TITLE INSURANCE RATE FOR REFINANCE

These title insurance rates impact all closings starting with a July 1, 2012 closing date on the HUD-1.

buyer didn't want home warranty

Last month we closed a transaction - conventional loan with a large down payment.  On the HUD-1, pursuant to the sales contract, the seller paid for a home warranty.  We remitted the fee to the home warranty company.

Today I received a call from the buyer who said he had contacted the home warranty company and cancelled it.  They told him they would be sending our check back to us.  He was calling me because he wanted that money.  I told him I couldn't redirect the money to him.  I would be refunding it to the seller.

He then explained that he never wanted the home warranty and had asked the real estate agent to change the contract and have the seller give him a credit for the fee.  There was no seller assist in the contract so there wouldn't have been any problem, I think, getting approval from the lender to do this.

For some reason his agent told him to just take care of it outside of the closing.  This is how people get into trouble.  There is no way the consumers would know that doing things outside of closing isn't kosher.

The HUD-1 was different!

Hi Diane,

I found your blog while looking for an answer to a question about my own closing that took place in NJ two weeks ago.

I was given a copy of all the documents, including HUD-1, by the lender's attorney just before we began signing. Later on, I was reviewing the documents and I could not match the numbers. I contacted the attorney for the seller and obtained a photocopy of the signed HUD-1. The numbers on that signed form matched against the check that I wrote. But sure enough, the numbers were different from the copy of the HUD-1 that I received at the closing.

I am not alleging, nor suspecting any wrongdoing, but I would like to know what happened so I could get comfortable with the numbers. If there were at least two different HUD-1 forms, then I want to be sure the correct form was used. The difference is substantial, around $4,000.

Can you offer any advice, what should I do in this case?

Sincerely,

  A

Hi, A:

It is not uncommon for a HUD-1 to change before and during closing.  Sometimes there are last minute changes, however, every party should walk out of the closing with a fully executed final version.

It's possible that the attorney had clerical help making the copies and that person inadvertently included one of the earlier drafts.  

If you are curious, you could pursue an explanation, but since the one you signed matches up then I have to presume it was the one reviewed at the table and the final version.

Hope this helps.  ;)

Diane

query: what does POC stand for on a HUD-1 form

POC means PAID OUTSIDE OF CLOSING.  In other words, money paid prior to closing or in some odds cases, after closing.  This is money being reported on the HUD-1 form because it is related to the transaction but the figures are not included in the column calculations.

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.

query: I cannot find my title insurance policy.

Unfortunately, that may be a problem.  Hopefully, you have your HUD-1 Settlement Statement.  The HUD-1 will identify the settlement agent/title agent on the first page in the top section.  Start by contacting the title agent.  They are the ones who issue the policy in most instances.

If the title agency is no longer in business or not helpful, look on page two of the HUD-1 in the 1100 section.  You should see the name of a title insurance company near the title insurance premium.  If the HUD-1 was prepared properly, that is the title underwriter.  The title underwriter is a huge company and they will have an almost impossible time finding your policy BUT having a HUD-1 in hand showing that you paid a premium for a policy is evidence of insurance.

If the title agent is out of business, there's a good chance they never sent a title policy to you anyway, so having the HUD-1 as proof of payment is important.  If you also have a copy of your title insurance commitment, you've got an open and shut case and the title underwriter can't ignore you.

Consumers, are you seeing the picture, here?  YOU, unfortunately, must be a careful shopper for title insurance services.  I know, that stinks, but it is reality.  I run a great title insurance agency in a business full of shoddy characters.  It didn't used to be that way but title insurance failed at the same time the mortgage business failed.  They allowed thieves and creeps and ignorant slobs into our business with very little oversight.  The system is still flushing out the bad so be careful.

Always get your title insurance commitment BEFORE you close and review it carefully.  Make sure you understand what is and what is not covered.  Put it in a safe place.

Always get your HUD-1 - fully signed by everyone - at closing.  Put it in a safe place.

Always follow-up after closing - give it 60 days or so - to make certain you get your owner policy.  Check to make certain the exceptions are the same as those in the commitment - nothing added that was not expected.  Put it in a safe place.

Got it?

query: who pays for the endorsements on the HUD-1

The endorsements you see listed on the HUD-1 are tied to the title insurance and most often, the loan policy. The terms of your sales agreement or local custom will determine who pays for the loan policy premium and the attached endorsements. In PA, it's considered a buyer cost.

query: what If I dont agree with the charges in HUD and walk away from closing

That's a good one. If it's a refinance, that's easy, just rescind, but if you are thinking about walking away from a purchase it raises all sorts of issues.

There are several parties to every transaction besides the seller and the buyer. All parties have a duty one to another to act in good faith. I would hope that a buyer would be a good consumer and get quotes from all settlement service providers up front. Remember, you don't go shopping at the closing table. You make all of your selections up front. If you skip the shopping obligations, don't expect sympathy from anyone at the closing table. Even if you have shopped and gotten quotes, there are always unforeseen circumstances. Be patient and listen to the explanations. You may find that there is a valid reason for an additional charge.

So, if you are acting in good faith and not just trying to weasel out of costs you had already agreed to absorb, and a provider is not living up to their agreement, you can threaten to walk away.

Making the threat will often push the bad actor into making good, especially when all other parties in the transaction are looking at them and wondering if they are nuts.

If no one agrees to change the figures and you want to walk away, I would advise taking a break and getting legal advice from your own attorney, not the attorney working for the title company or real estate agency or the seller or the lender. Walking away from a closing is potentially defaulting on a contract and you may have legal obligations.

query: what does a settlement statement look like

Here's a HUD-1 settlement statement. Expect it to change when the new RESPA reform is finalized.

[update:  We changed our website and that link just takes you to our new home page.  Here's a new post with a sample HUD.]

query: how to get a copy of title policy if never received title company closed

OK, this doesn't surprise me too much. Title companies who fail to send title policies to their customers fry my brains.

Take a look at the HUD-1 Settlement Statement. You should have received this form at the closing. Look at the back page in the 1100 section. You should see the name of a title insurance company somewhere there and hopefully it isn't just the name of the agency. Google the title company and explain your predicament. If you can't find a name or get no satisfaction, contact your state insurance regulator for assistance.

Consumers should beware. If you aren 't getting a copy of the title commitment before you close, there's a good chance you are dealing with a sloppy title agent. The problem with sloppy title agents is that they may never actually issue you a title policy and they just MIGHT go out of business before you figure that one out.

Good luck!

query: what is final HUD document

Do you mean the final HUD-1 settlement statement? If you take a peek at our home page* you will find some sample HUD-1 forms. Now these samples are not complete HUD-1 forms, but they'll show you what the form looks like. [update:  We changed our web site in 2012.  You can see a sample HUD-1 here.]

The final HUD-1 will have all lender fees, title charges, prorations, and other settlement costs along with the purchase price, deposits, and mortgage info. It's a two page document that shows you where all the money goes.

If you look at the first page, you'll see it's divided into two sides. The left side is the buyer side and the right side is the seller side.

On the second page, you'll see two columns on the right. The first is the buyer column and the second is the seller column.

Settlement charges are itemized on page two. The total of each column is then entered on page one and the remainder of the transaction is worked out.

Each side has a final bottom line figure with either cash "from" or cash "to" each party.

FINALLY.....  ;)  The phrase final HUD-1 is meant to distinguish between preliminary or draft HUD-1 forms that may have been circulated prior to closing.  A final HUD-1 is the official document which has been approved by all parties and is signed at the closing and becomes the formal record of the movement of money for the transaction.

*[UPDATE:  The HUD-1 form was amended with a new version adopted in 2010.  Here is a copy of the HUD booklet which explains the new Good Faith Estimate and HUD-1 form.]

query: title company settlement statement mistake error

Here's a good one. Who is responsible when there is an error on the HUD-1 Settlement Statement? There's no real rule here, but I'll give you my opinion. Whoever was responsible for paying the item in question in the first place should take care of it when the error is discovered.

I believe each party to the transaction bears responsibility for review and approval of the HUD-1 prior to closing. The title company or agent preparing the HUD-1 has less personal knowledge of the transaction than the seller, buyer, Realtor, or lender. The person preparing the HUD-1 is gathering instructions and data from numerous sources and using the best information available. They are typically receiving this data last minute and finishing the statement in a compressed timeframe, under a lot of pressure. They are likely to make an error or two - even the best make mistakes.

Once the HUD-1 is prepared it is the responsibility of the title company/agent to distribute the statement to ALL parties for review and approval. Each person should carefully review the final figures against their personal knowledge of the transaction.

If you find a mistake, you must bring it to the attention of the title company/agent.

If a mistake slips through and isn't discovered until after closing, the title company/agent will contact the parties and work out a plan for correction.

Here's an example. Last year a member of my staff prepared a HUD-1 with a seller assist of $3000. She was new to HUD prep. She gave the buyer the $3000 credit and failed to hit the button that deducted the $3000 from the seller. Her checks balanced because the computer software created a deposit of $3000 to offset the credit to the buyer. She did not notice the odd deposit on the report. The transaction closed and the seller walked out of closing with $3000 more than expected. She said nothing.

I discovered the error during our monthly escrow account reconciliation. I noticed the odd $3000 deposit in uncleared items. We contacted the seller and she refused to pay because she thought we should eat the mistake. It took three months and a court date with a magistrate before she finally listened to reason. She called her attorney to prepare for the magistrate and upon hearing the facts of the case, he told her the $3000 was her responsiblity and she should pay it immediately. She did.

Oh happy day.