HUD-1 RESPA – The Legal Assistant

Understanding the HUD-1 Settlement Statement

David J. Brown — Fri, 16 Sep 2011 10:04:55 +0000

What is the HUD-1 Settlement Statement?

HUD is an acronym for Housing and Urban Development, and represents the arm of the U.S. government department responsible for legislation relating to home ownership and property development within the United States of America.

The HUD-1 form, often also referred to as a “Settlement Statement”, a “Closing Statement”, “Settlement Sheet”, combination of the terms or even just “HUD” is a document used when a borrower is lent funds to purchase real estate.

Another acronym used in relation to the HUD form is GFE, which means ‘Good Faith Estimate’. The ‘Good Faith Estimate’ was incorporated into the HUD form in 2010 and presents figures initially estimated by the lender in order to compare with the final HUD figures.

When is a HUD-1 Settlement Statement used?

Another term linked with the HUD is RESPA. RESPA is an acronym for Real Estate Settlement Procedures Act and represents a set of legislative statutes relating to real estate transactions put in place by the government to enforce disclosure of charges and fees to the consumer.

According to the RESPA act, the HUD form is to be used by all lenders of loans providing funds for real estate purchases and refinances of real estate loans and must be given to the borrow at least one day prior to the date of settlement.

A settlement agent, or closing agent, will prepare a HUD-1 settlement statement at the closing of a real estate loan. The final version will explicitly state all costs involved with the real estate loan and to whom the individual charges and fees will be paid to. This provides the borrow and the seller with a concise breakdown of all costs involved. Good Faith Estimate figures will typically be sent from the lender to the settlement agent within three days of application of the loan.

The settlement agent can take the form of a title agency, mortgage broker, even the bank could act as a settlement agent however it is recommended hiring an experienced real estate law firm experienced in real estate closings to take care of the closing.

What information is provided on a HUD-1 Settlement Statement?

Aside from the basic details of the involved parties, consisting of the buyer and seller, the lender, property details and settlement agent details, unsurprisingly the majority of the settlement statement consists of figures. Lots of figures.

Page One

The first page lists figures in a dual column format listing buyer details on the left and where applicable, the seller details on the right. Details you will find on page one include;

The gross amount due from the buyer and to the seller.This includes the contract sales price, value of any personal property and the total amount of the settlement charges and fees extracted from the final total on page 2 (line 1400).
Adjustments for items paid in advance by the seller primarily calculated from taxes paid.
Amounts paid for by or in behalf of the borrow, and reductions in the amount due to the seller.
Adjustments for items unpaid by the seller
Cash at settlement due from or to the buyer and seller

Page Two

Page two details the associated fees and charges involved with the settlement, although the various figures and details are listed down the page, there again features two columns representing the charges paid by buyer and the charges paid by the seller.

The settlement charges listed feature the following;

Broker fees
Fees related to the loan
Items required to be paid in advance by the lender
Deposits reserved with the lender
Title charges
Government recording and transfer charges
Any additional settlement charges

Page 3

Page three features figures relating to the Good Faith Estimate (GFE) and the details of the loan terms. The GFE estimate figures will have been supplied to the settlement agent by the bank upon application of the loan, the HUD figures will be listed side by side by the GFE figures in order to easily spot any discrepancies or wide variations in amounts. The loan terms include the originating loan amount, interest rate, interest rate details, and other payment details.

Are there problems with the HUD-1 Settlement Statement?

Despite best efforts by the Housing and Urban Development department and the RESPA, mistakes can and do happen when preparing the settlement statements. It is extremely important to understand each and every entry on the HUD form. As previously mentioned it is highly recommended hiring an experienced real estate attorney to take care of the closing as in addition to resolving any legal disputes, they are likely to make use of specialist real estate closing software which will reduce the chances of human error when preparing the settlement statement by means of validating input, ensuring figures are within allowed ranges and automatically calculating figures used throughout the HUD form.

HUD-1 RESPA & GFE FAQs

Below is a set of very frequently asked questions as presented to real estate attorneys when acting as closing agents.

What are the bank charges/escrows?

Bank Charges are fees paid to the bank for processing the loan. These fees are typically an origination fee or a processing fee which may be a fixed rate or based upon a % of the loan, (ie 1%) range from Credit reports, or fees that the bank expends while trying to get the loan approved. Examples are Appraisal fees, credit report fees, flood certification fees, etc.Bank Escrows are different from fees. Bank escrows are money that the bank wants on reserves that will be used to pay your upcoming bills for the home. These escrows are usually for property taxes, school taxes, county taxes and home owners insurance. They can range from one month to 4 months depending upon the date of the closing.

What is title insurance?

A title insurance policy is a mandatory insurance policy taken out when you are taking out a mortgage. The philosophy behind it is that there are issues that can arise relating to the title ownership of the land. Be it, problems with the past deeds, i.e. missing signatures or invalid information or more extreme issues like the detection of fraud relating to the title ownership of land. The title insurance is there to protect you up to the value of the policy when something does go wrong. And bear in mind, since humans are involved – things do go wrong.

What are and why do I have to pay ‘reporting fee’s?

The recording fees are the fees associated with the Deed and the Mortgage being sent for recording. Many states have a prefix charge for the first page and each additional page thereafter. These charges are paid directly to the Registrar’s office so the proper recordings can be filed to get the documents recorded.

When will be my first mortgage payment?

Depending upon when you close, your payment is usually the second month after the closing date. An example is if the closing is September 15, the first mortgage payment will not be until November 1. The November 1st payment will represent the principal and interest for October. The interest from Sept 15-Sept 30 will be prepaid on the closing date.

Where is my closing credit?

A closing credit may be as a result of a bank providing a refund or a credit of some fees, or it could be a credit being given from the Seller to the Buyer for an open item. Usually this credit will be given on the first page of the respa, buyers side, indicating that the amount being credited is being added to the amount the Buyer has to use, therefore, a check will not be given to the Buyer at the time of the closing.

Why are the values between the GFE and final HUD figures different?

Many times the GFE and the final HUD figures do indeed differ from each other. The GFE figures are presented by a lender within 3 days of applying for ta loan. In many instances, these figures may increase or decrease. Many of these GFE disclosures cannot exceed a 10% tolerance given by the bank. Unless they are figures that can be shopped for, any tolerance of over 10% must be reduced by the Lender to adhere to the 10% tolerance level.

In every case any questions you may have on any element on the HUD form should be asked preferably to an attorney, and not disregarded. We recommend the services of Sammarro & Zalarick, P.A. a law firm with experience in all real estate matters.

Are you an attorney or paralegal working in real estate law? If the answer is Yes, then you must take a look at The Real Estate Assistant. The Real Estate Assistant, or T.R.E.A helps you handle the closing process from intake through to closing, boosting your productivity, lowering your overheads, and letting your firm scale.

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Digital Case Management for the Real Estate Lawyer/Attorney

David J. Brown — Sun, 05 Jun 2011 18:52:54 +0000

The task of a real estate lawyer is not an easy feat. It entails excellent management skills in order for him or her to efficiently perform their key functions. A few of which include the following tasks:

Preparing for the financial summaries of transactions
Preparing for the necessary arrangements for closings
Preparing for the preliminary negotiation documents
Preparing for legal documents like purchase contracts, and listing agreements
Gathering information associated with taxes
Analyzing mortgage and financing commitments
Eliminating possible title problems
Determining the status of the title
Conducting property surveys
Determining scope of inspections
Drafting of instruments of conveyance
And so on…

It is fortunate they have highly skilled paralegals at hand who know how to handle these tasks competently but undoubtedly, the problem of human error can and will happen, leading to situations where office conflicts and attorney-client disputes may arise.

Aside from these concerns, another problem that real estate lawyers have to face today, is simply remaining in business. Lawyers are not exempt from the recent recession and many law firms are trying their best just to stay in business. Many have resorted to different methods in which they can save expense and one of the first things that is often considered is reducing the headcount which includes associates, paralegals, staff and non-productive partners in the firm.

This is a great cost-cutting strategy but who will then manage all of your files, schedules, as well as document and correspondence preparations? Do you think you will solely be able to handle all the above tasks? You definitely need an aid which will not bring you any additional worries.

LPO(Legal Practice Optimization) compliant case management software is the perfect solution to all of these problems. It helps lawyers with their case management worries and assists them with their cost-cutting issues and it massively reduces risks of human error. It will not require you to hire additional staff members just for him or her to operate the system for you. It is very simple and convenient to use. It has a friendly interface that allows users, even non-technical types, to navigate through it without any hassles.

Let’s take for example your task to remember important dates related to particular cases that your firm is handling. Traditional real estate lawyers will most likely have a big white board inside their office. This serves as his reminder of the things that needs to be accomplished for the month. He or she may not be the one who updates this gigantic work calendar but this is enough for him to be reminded of his or her tasks for the month.

The problem with this office management approach is convenience. There is no way you can bring this giant white board everywhere yet Case management software provides you the luxury to always have all of this vital information at the comfort of your laptop or mobile device. Now you can have access to a colossal weight of information wherever and whenever. Once a system is installed in your laptop or desktop, you can conveniently click on its designated button and the information you sought for will instantly be presented before your eyes. There is no need for you to call your paralegal and search for files. You simply need to familiarize yourself with the case management software and you can handle it on your own.

Aside from this, it allows you to automatically generate and send letters. Legal Case Management tools typically come with tons of templates for all your letter needs. It can even install your letterhead into the system as well as your virtual signature so you can send and print letters conveniently. They also contain trackers for different kinds of correspondences that you have traditionally mailed or electronically mailed to your clients. Just signal the system to proceed with mail delivery and it will be done within a few seconds.

A reliable case management application is the ultimate paralegal you may ever need. It is not susceptible to human error and performs its duties 100% efficiently. Any calculations that must be done can be done in an instant. Any client, broker, lawyer, or any other contact type can be instantly retrieved. In this manner, you can reduce your headcount, benefit, compensation, and even office expense without worrying about the quality of work it will deliver.

Real Estate Legal Software such as The Real Estate Assistant module, part of The Legal Assistant software suite, provides your firm with custom databases that will include the following:

Lawyer Database
Clients Database
Bank Database
Real Estate Broker Database
Real Estate Agency Database
County Clerk Database
House and Pest Inspector Database
Surveyor Database
Municipality Database
Title Agency Database
Letter Database which contains more than 150 letter templates
HUD-1/RESPA

It will assist you with time and billing management, inter-office communication, scheduling and calendar management, notification and reminder management, generate the HUD-1 RESPA form at the click on a mouse, and additionally document management and letter generation features.

One major advantage offered by The Real Estate Assisant is the nature of combining multiple features into a single product, unlike many offerings out there which require one package for handling billing, another to let you create the HUD-1 or GFE settlement statement, The Real Estate Assistant has in-built HUD-1 Software right out of the box.

There is no other legal practice management software developed which can so much cater to the needs of real estate lawyer than The Legal Assistant.

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