You have a closing scheduled for a real estate deal all lined up and the Title Company sends you (usually 24 – 48 hours ahead a time), a copy of your HUD-1 Settlement. If you are buying - it will let you know how much money you need to bring to the table and if your selling - it will show anticipated net proceeds or profits on your real estate investment. Hold the Phone. Wait right there!
This is the one and only time you have to make sure you are getting PAID or PAYING the correct amount of money on a real estate deal. It boils down to this document and this document only.
7 HUD-1 Statement Lines To Check For Accuracy
Address: Make sure the the property address is correct. A few years back I purchased a property that was on the county line. The property address was correct by the legal description was incorrect and the title company filed the deed and transaction in the wrong county. I did not find out until two years later when it was time to refinance for better rental cash flow profits.
Price: Agents, Loan Officers and Escrow agents are known to make the mistake of working off of an original purchase and sale contract. However, negotiations with amendments to the contract changing the purchase price can often get overlooked. It's vital that the closing agent have this information before generating the closing docs.
Payoff: For a seller with an existing loan, making sure your payoff is accurate is essential in ensuring that you don’t leave money in the banks hands. When a payoff quote is requested and more than 15 days has passed or a payment had been made, it’s imperative that a new payoff quote be requested.
Tax Proration: Typically, when buying or selling a property, both parties are responsible for the pro-rated tax bill. This is your one shot at making sure you are credited (if buying) for the sellers portion of the tax year.
HOA: Homeowners Association Dues are typically pro-rated between buyer and seller. Foreclosures and Bank REO buyers beware. I closed on a property in October from Citibank whose HOA yearly dues are billed every November. My HUD-1 statement showed a credit for the previous year but not the current year nor did it provide a prorated credit. Get this – I received a HOA lien notice March of the following year threatening foreclosure late fees, attorney fees and interest fees accrued daily. Yikes!
Commission: Earnest money paid is often held with the brokerage and credited towards their agent’s commission. Also if you are dealing with a third party like a wholesaler or short-sale investor, their agreed upon fee or percentage payout needs to be checked for accuracy and inclusion on this HUD-1 line.
Cash From/To Borrower or Seller: I saved the best for last- this should be the first place you look. Buyer or seller – going into the deal you have a general idea of what you are bringing to the table or walking away with. If the number is off – start line by line – reviewing the entire HUD-1 Settlement Statement.
Find an error – get on the horn and bring it to the closing agent attention immediately. It might me a simple clerical error or missing document that can easily be accounted for.
Real Estate Investing can be very profitable. Real Estate closing transactions is where buyers secure a great profit potential for the future and investors collect on their profits when they sell their investment property. So in my view, the HUD-1 Settlement statement should be reviewed with a detective's eye for errors.