You’d Better Pay Attention to the Short Sale Settlement Statement

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In the past, the average real estate agent didn’t spend too much time scrutinizing the estimated closing statements. Usually, that task would be left to escrow officers, title officers or lawyers. With short sales being the new normal, scrutiny of these statements in the early stages of a short sale transaction is vital.

Why? Well . . . the banks request the settlement statement as part of the short sale package. The short sale lien holders want to see their bottom line. How much money are they going to net? How many cents on the dollar will they be forgiving?

Preparing the HUD-1 for the seller’s first and second lien holders is truly an art form. This is primarily because mathematical calculations need to be done in order to assure that there is no shortage of funds on the close 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 forgetting to put all of the fees on the HUD-1 could potentially blow the deal or, at the very minimum, cut into the agent’s commission or the buyer’s bottom line.

Since 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 or pay more for the property than anticipated. Because of this, 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. An extremely careful review of the purchase contract is vital to generating a high-quality settlement statement. Was money allocated for pest control, HOA fees, and potential liens, etc.?

While it was probably nobody’s intention to get involved in this aspect of the real estate transaction, imagine how much more knowledgeable we will all be . . . and imagine how much more appreciative we will be of our fellow escrow officers, title officers, and lawyers once this current wave of short sales is over!

Photo: flickr creative commons by cogdogblog

About Author

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®. Before landing real estate, she had careers in education and publishing. Many folks say that Melissa is genetically pre-disposed to success with short sales. In fact, last year she and her staff obtained over 500 short sale approval letters! When she isn’t speaking with lien holders, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.


  1. I have made it a practice to have the buyers or sellers (whichever I represent) get the estimated closing statement reviewed by an attorney before they actually close. Not all of them will do it but if not I have them sign a statement stating they declined to get an attorneys opinion. It may be meaningless but at least all parties are aware of the pifalls if they don’t

  2. I think that maybe over calculating costs is the better way to go. Then when the fee is less, you look like a ‘hero’. But i think that Realtors should do their part and attempt to learn the procedures (or have an idea) in preparing the HUD-1 if it means it’ll benefit their transaction and satisfy their clients. Of course, having the escrow and title officers as well as the lawyers fully informed is what we expect. But why not go above and beyond your typical Realtor and really know what is in store with a short sale. I bet you’ll get great referrals and reviews from your happy clients who did not get an unexpected fee or have the deal go south because of this.

  3. Robert Bencheck on

    I have a question about closing costs in short sales. I completed a short sale of my home in 2009, selling it for $189K against a loan balance of $307K. The bank’s bottom line for the settlement was $176K, which I met with an extra $2K from the net proceeds after I paid $13K in closing costs. Can it be viewed somehow that the fact that I elected to have my closing costs paid from the gross sale proceeds versus writing a check for $13K out-of pocket (because I couldn’t afford it) mean that the lender, in essence, absorbed my closing costs into the remaining unpaid balance that was eventually forgiven and cancelled? This might seem like a pointless question but I’m in a legal debate with someone who contends that I really didn’t pay closing costs and the bank actually forgave these costs, as a concession, in addition to the outstanding loan balance of $131K. The bank never mentioned such a concession in their written approval of the short sale. My realtor actually warned me during his negotiation with my lender that the method I chose for paying the costs might prejudice their decision against the approval. Fortunately it did not, howevr. If the bank got their bottom line despite the costs for closing, and since I was contractually obligated to pay my closing (however the method); can it really be viewed that the $13K was lumped into the forgiven debt because it reduced the net payoff to the bank?

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