Wednesday, February 10, 2010
Credits When Dealing With the New GFE and Settlement Statement
With the passage of new amendments to both RESPA (Real Estate Settlement Procedures Act) and HUD rules and regulations, short sale lenders and negotiators may get confused as to why we reflect credits on page 1 of the settlement statement.
Pursuant to §3500.7(d) “The loan originator must prepare the GFE in accordance with the requirements of this section and the Instructions in Appendix C to this part.” (emphasis added). Click here to see page R-4.
Appendix C requires that the loan originator include a charge on the GFE for “Owner’s Title Insurance” in Block 5 of the GFE, and “Government Recording Charges” in Block 7 of the GFE. Click here to see page R-18 and R-21.
In some parts of Florida, including the Tampa Bay Area (Pasco, Hillsborough, Pinellas and Polk Counties) both Owner’s Title Insurance and Government Recording Charges related to the deed are paid by the Seller of property. However, the GFE requires these costs be shown as Buyer costs.
To remedy this, see Appendix A to Part 3500 which states as follows:
As a general rule, charges that are paid for by the seller must be shown in the seller’s column on page 2 of the HUD-1 (unless paid outside closing), and charges that are paid for by the borrower must be shown in the borrower’s column (unless paid outside closing). However, in order to promote comparability between the charges on the GFE and the charges on the HUD-1, if a seller pays for a charge that was included on the GFE, the charge should be listed in the borrower’s column of page 2 of the HUD-1. That charge should also be offset by listing a credit in that amount to the borrower on lines 204-209 on page 1 of the HUD-1, and by a charge to the seller in lines 504-509 on page 1 of the HUD-1. (emphasis added). Click here to see page R-7.
Therefore, in those areas of Florida, including Tampa Bay, where the seller pays certain closing costs pursuant to the contract, which are listed as buyer costs on the GFE, those costs must be shown as a credit to buyer and seller on page 1 of the settlement statement. To do otherwise would violate Federal Law related to real estate closing procedures.