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"Settlement Charges to Borrower" on HUD1

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Workbox

Thread Starter
Elite Member
Joined
Mar 2, 2005
Professional Status
Certified Residential Appraiser
State
Colorado
Got the HUD for some new construction homes. I asked the sales person if the "Settlement Charges to the Borrower" were some type of closing cost? They said that it was a contribution to help the buyer. I asked 3 times because I am going to adjust as concessions, which I am sure I am going to get some calls.

But How do you guys interpret the "Settlement Charges to Borrower"?
 

Mike Boyd

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Jan 18, 2002
Professional Status
Retired Appraiser
State
California
The HUD 1 is an estimate of buyer's closing costs. It is generally provided prior to closing and is not a binding contract.
 

CSP 49

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Joined
Dec 2, 2008
Professional Status
Certified Residential Appraiser
State
Florida
Got the HUD for some new construction homes. I asked the sales person if the "Settlement Charges to the Borrower" were some type of closing cost? They said that it was a contribution to help the buyer. I asked 3 times because I am going to adjust as concessions, which I am sure I am going to get some calls.

But How do you guys interpret the "Settlement Charges to Borrower"?

The HUD 1 is a 2 page form with settlement charges to borrower broken down on page 2. They should list things such as appraisal fee, termite inspection, survey, lender junk fees such processing an admin fees, courier fees, etc. Here in FL we have several state taxes (doc. stamps).

These settlement are the legitimate closing costs and do not necessarily "help the buyer" at the sellers expense. Any of the these costs that are typically paid by the buyer but are being paid by the seller would be shifted to the sellers column.

The trick is to know which are typically buyer and seller costs and are the charges reasonable. Many developers own their own title/settlement companies and the numbers can be manipulated to some extent.

Reading a HUD 1 does take some practice and experience. After 20 years selling real estate as a sideline I still can't properly explain how they derive the aggregate adjustment.

Without seeing what you have my gut tells me you do not want to adjust the sales for the full amount (probably not at all) for settlement charges since most if not all would be typical buyer costs. Again the only way to really know this is if typical buyer costs appear on the seller side of the ledger. Most times you will not find builder concessions in the HUD 1, they'll only show up in the contract, "free" lot premium, price reduction, "free upgrades", etc.
 

Workbox

Thread Starter
Elite Member
Joined
Mar 2, 2005
Professional Status
Certified Residential Appraiser
State
Colorado
I did try to get the rest, but they said that is all that most appraisers request and was amazed that I asked for so stuff that is usual. :shrug: Oh, well I'll just report what happened since it is a rush and I will let them handle it.
 

Joyce Potts

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Supporting Member
Joined
Feb 6, 2005
Professional Status
Certified Residential Appraiser
State
Florida
The HUD 1 is an estimate of buyer's closing costs. It is generally provided prior to closing and is not a binding contract.
I think you're confusing a Good Faith Estimate.

In my ever so humble opinion any appraiser who relies on a HUD-1 needs to make sure it is signed by both parties. The next step is to learn to read and understand what those clever little credits really mean.

Like 'electrical credit'. Are you hearing me Workbox?

Or fax it to me and I'll help you discern it.
 

Workbox

Thread Starter
Elite Member
Joined
Mar 2, 2005
Professional Status
Certified Residential Appraiser
State
Colorado
I think you're confusing a Good Faith Estimate.

In my ever so humble opinion any appraiser who relies on a HUD-1 needs to make sure it is signed by both parties. The next step is to learn to read and understand what those clever little credits really mean.

Like 'electrical credit'. Are you hearing me Workbox?

Or fax it to me and I'll help you discern it.
Thanks Joyce, I hope you recall when you helped me on this same issue about 2 years ago on some waterfront deals in my part of Texas that were part of an investment club. I remember what you told me and that is why I drilled the sales person and also noted it on the report what had transpired when I was requestiong comprabales. The sales person limited themselves on how much they wanted to give me and help me out. I even added to the report that I did not get all of the HUDs. I knew that this person was only going to give me what they wanted, but I made sure that the client knew what was happing from day one. So the burden is on them now.
 

timd354

Elite Member
Gold Supporting Member
Joined
Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
I think you're confusing a Good Faith Estimate.

In my ever so humble opinion any appraiser who relies on a HUD-1 needs to make sure it is signed by both parties. The next step is to learn to read and understand what those clever little credits really mean.

Like 'electrical credit'. Are you hearing me Workbox?

Or fax it to me and I'll help you discern it.
Exactly correct, if you do not have a HUD-1 that is executed by all parties, then do not have anything that can be considered to be a reliable source of data.
 

Joyce Potts

Elite Member
Supporting Member
Joined
Feb 6, 2005
Professional Status
Certified Residential Appraiser
State
Florida
Thanks Joyce, I hope you recall when you helped me on this same issue about 2 years ago on some waterfront deals in my part of Texas that were part of an investment club. I remember what you told me and that is why I drilled the sales person and also noted it on the report what had transpired when I was requestiong comprabales. The sales person limited themselves on how much they wanted to give me and help me out. I even added to the report that I did not get all of the HUDs. I knew that this person was only going to give me what they wanted, but I made sure that the client knew what was happing from day one. So the burden is on them now.
Yes Darlin, I do remember. That's was the one with one of those clever 'electrical credits', remember?
 

timd354

Elite Member
Gold Supporting Member
Joined
Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
Got the HUD for some new construction homes. I asked the sales person if the "Settlement Charges to the Borrower" were some type of closing cost? They said that it was a contribution to help the buyer. I asked 3 times because I am going to adjust as concessions, which I am sure I am going to get some calls.

But How do you guys interpret the "Settlement Charges to Borrower"?
The sales person has no clue. The line on the HUD-1 that states "settlement Charges to the Buyer" (Line 1400) is exactly what it sounds like.....settlement charges that are being charged to the buyer. A listing of what constitutes these charges can be found in the column labelled
Paid From
Borrowers
Funds at
Settlement
which is the first column on page 2 of the HUD-1. These charges are not a contribution to the buyer, although these charges can and often are offset by a seller's, lender's or other contribution to the buyer. When there is a seller/lender/other conrtibution to the buyer, it will often be listed on lines 204 - 209 of the HUD-1 and there will be a corresponding entry in the seller's column on lines 506-509.

Alternatively, Seller contributions can also sometimes be found on page 2 in the Seller's Column from lines 801-1305. However, these amounts would not be reflected in the "settlement charges to the buyer". Additionally, many amounts listed under lines 801-1305 in the seller's column on page 2 are not properly to be considered to be seller's contributions. You really need to be familiar with what the charges are for, whether the seller or buyer traditionally pays such charges in your market area, whether any laws or regulations require the seller to pay some of these items (i.e. some lenders fees on VA and FHA loans cannot be paid by the buyer, and the seller paying such fees would not be considered a seller concession; example #2: In Maryland, unless the contract states otherwise, the transfer taxes and stamps, and recording fees are split equally between the buyer and seller by statute and unless the seller pays more than 1/2 of the transfer taxes/recording fees, etc., it is not considered a seller concession ).

Any appraiser who is not familiar with how to read a HUD-1 and what the typical closing costs are in your market areas, should take the time to become educated about these issues. A good source of knowlege for these issues would be a title company or settlement attorney.
 

timd354

Elite Member
Gold Supporting Member
Joined
Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
Yes Darlin, I do remember. That's was the one with one of those clever 'electrical credits', remember?
It is definitely not uncommon for HUD-1's from fraudulent transactions to hide undisclosed contributions made to the buyer by labeling them as something else. Typically, these items show up on the seller's side of the HUD-1 as a charge for work which was never actually done to the property and/or grossly inflated real estate commissions or some other bogus charge to the seller. Since fraudulent transactions often involve monies refunded to the buyer "under the table", no corresponding credit will be found in the buyer's column on the HUD-1, which often makes these types of contributions made to the buyer very difficult for appraisers to uncover.
 
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