The HUD-1... An Art Form...!!!

The Settlement Statement (HUD-1 Estimate)

Preparing the HUD-1 is truly an art form. This is primarily because mathematical calculations need to be done in order to assure that there are no closing cost shortages on the closing date.  And . . . since it is difficult to determine how long the bank is going to take to approve the short sale, under calculating the fees or missing to put all of potential seller costs on the HUD-1 could possibly blow the deal or, at the very minimum, add costs to the buyer or cut into the agent’s commission.

As agents, before short sales we didn’t spend too much time scrutinizing the estimated closing statements. You usually left that work to your escrow officers. Unfortunately, now these estimated settlement statements have become significantly more important than they used to be.

Why? Well . . . the Seller/Servicer requires it as part of the short sale process. The short sale lien holder relies on the HUD to reflect the ‘Offer’ being presented to the investor as the short payoff; and they want to see their bottom line.

Often I see settlement estimates which do not include section J. (Summary Of Borrower's Transactions) completed; the explanation I usually get from the settlement agent is that the buyer’s lender costs have not been provided, or we have not been provided the purchase contract, and we have not opened a title search because we do not open the escrow until there is an official short sale approval; so we cannot complete the buyer’s closing costs.

Well, if you’re a Listing Agent, and expect to cover all the unexpected costs and maximize the costs being paid by the sellers’ lender, you need to reinforce the settlement agent just how important a short sale settlement estimate is to the bottom-line. I see 1 in 3 HUD settlement estimates that are completed correctly; it’s important to provide as much of the transaction summary as possible; after all the lender is going to determine  their ‘Offer’ based on what is represented on the settlement estimate… how much money are they going to net? How many cents on the dollar will they be forgiving?

Short sale deals are tricky and time consuming, nobody wants the deal to go south and nobody wants to give away any of their commission. In order to protect yourself, it is absolutely necessary to prepare the HUD-1 with a closing date that is realistic. This way taxes and any penalties will be calculated to a realistic date, and not a date only a few weeks out.

Another thing that I recommend is to CAREFULLY consider adding into the purchase contract that the buyer is aware of other fees or costs not accounted for; did you allocate money for pest control, home warranty, HOA fees, potential judgments and other liens, etc.?

While it was probably never your intention to get into the escrow component of the deal, imagine how much more knowledgeable you will be . . . and imagine how much more appreciative you will be of our fellow escrow officers once this current wave of short sales is over! 

“I’mjustsayin’ TEAM ShortSale”