{"id":38138,"date":"2013-02-20T12:37:31","date_gmt":"2013-02-20T19:37:31","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=38138"},"modified":"2024-05-29T06:41:21","modified_gmt":"2024-05-29T12:41:21","slug":"2013-02-20-hud-1-settlement-statement","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2013-02-20-hud-1-settlement-statement","title":{"rendered":"15 Important Things to Watch For on Your HUD-1 Settlement Statement"},"content":{"rendered":"

I remember how daunting the HUD 1 settlement statement seemed when I was first getting started in real estate<\/a>.\u00a0 Trying to figure out what boxes to add together… it just didn\u2019t seem as intuitive as you might think. I also remember blindly trusting lenders, attorneys and agents to make sure all of the numbers pertaining to a transaction were accurate. \u00a0Nowadays, I\u2019m much more careful about reviewing HUDs line by line to make sure everything is listed correctly.<\/p>\n

I\u2019ve found that a very high percentage of HUD statements have mistakes on them.\u00a0 It is not uncommon to coordinate with closing attorney\u2019s up until the 11th<\/sup> hour to make sure everything is correct.\u00a0 While many investors probably leave this up to agents or lenders, I think it is crucial to know and understand the nuts and bolts of a transaction so that you can ensure you\u2019re not leaving money on the table.<\/p>\n

15 Items on a HUD-1 Settlement Statement That Should be Double-Checked for Accuracy:<\/h2>\n

Price:<\/b>\u00a0 This is by-far the most obvious box to check on the HUD 1 settlement statement, but believe it or not, I see wrong numbers in here more often than you would think. In fact just last week I was closing on a new purchase and noticed the price was almost $5,000 above my agreed upon purchase price. It\u2019s not uncommon for an attorney to work off of an original purchase and sale contract. However, if you\u2019ve had subsequent negotiations with amendments to the contract changing the purchase price, it\u2019s important to know whether or not the closing attorney (or title company) has this information before generating the closing docs.<\/p>\n

Address:<\/b> At the top of the HUD-1, you have a box for the buyer\u2019s address as well as a box for the property address. It\u2019s very important that both of these are accurate.\u00a0 I\u2019ve seen where an investor had an incorrect personal address and the subsequent closing documents that were supposed to get mailed to him never made it.<\/p>\n

Down Payment:<\/b>\u00a0 You want to assume that your lender and you were speaking the same language during the loan process, but it\u2019s important to double-check this. If your lender told you you were getting a loan with 20% down, you want to make sure nothing has changed. The last thing an investor wants to find out at the closing table is that he or she needs to cough up a few more thousand dollars for additional down payment.<\/p>\n

Tax Proration:<\/b> \u00a0Typically, when buying or selling a property, both parties are responsible for the pro-rated tax bill. It\u2019s important to make sure the total tax bill looks accurate and that each party is paying for the correct pro-rated portion of the year. (Because tax bills are usually paid once during the year, this is typically accounted for on the HUD-1 using a credit to one party or the other, depending upon who ends up paying the actual bill)<\/p>\n

Title Insurance:<\/b>\u00a0 It\u2019s important as a buyer to make sure you always have title insurance on a property. I\u2019ve actually had closing attorney\u2019s that simply assumed that since I was paying cash, I didn\u2019t want title insurance.\u00a0 Luckily, I ALWAYS check to make sure I\u2019ve got title insurance and that I am not overpaying for it.<\/p>\n

Title Insurance Coverage Amount:<\/b> In addition to making sure you have title insurance, it\u2019s important to examine just how much coverage you have. \u00a0Some title policies only cover you up to your loan amount, rather than the full purchase price.\u00a0 Also, if you are doing a significant amount of rehab to a property, you may want to consider getting coverage up to your total expenditures on the property (i.e. acquisition and rehab)<\/p>\n

Homeowners Insurance:<\/b>\u00a0 I don\u2019t think many investors would argue with the need for homeowners insurance.\u00a0 However, it\u2019s important that all parties know how coverage is being paid for. \u00a0It\u2019s very common for buyers to pay for coverage outside of the closing (perhaps on a credit card), but have the HUD-1 reflect the premium being collected at the closing table as well. I\u2019ve seen many instances where \u00a0wires get crossed and the buyer ends up paying the full premium twice.<\/p>\n

Appraisal Fee:<\/b>\u00a0 Similar to homeowners insurance, an appraisal fee often gets collected via credit card during the loan process. I actually just saw it happen last week where a lender accidentally had the appraisal fee on the HUD-1 as well. Again, if you\u2019re not watching for this, it\u2019s very easy to accidentally pay this fee twice.<\/p>\n

Intangible Taxes:<\/b> In some states, an intangible tax is collected for any long term security or note.\u00a0 As is the case in Georgia, any note over 3 years falls under this tax. I\u2019ve found that many closing attorneys are so used to collecting this tax, it automatically finds its way onto the HUD 1. However, most hard money and private loans are for 12 months or less and don\u2019t fall under the intangible tax guideline. As such, I\u2019ve had to make this correction on many closings over the years \u2013 it\u2019s probably one of the most common mistakes I\u2019ve found.<\/p>\n

Payoff:<\/b>\u00a0 For a seller, making sure your payoff is accurate is crucial in ensuring that you don\u2019t leave money on the table. I\u2019ve found that the most common problem is identifying what interest has already been paid on a given loan versus how much interest the lender rolls into the payoff.\u00a0 If a payment was recently sent to a lender, but that lender hasn\u2019t received it or input into their system, it\u2019s very easy for this payment not to be reflected in the payoff amount. I always communicate with my lenders when it comes time to calculate a payoff to make sure we are on the same page with the calculation.<\/p>\n

Prepaid Interest:<\/b>\u00a0 Again, when dealing with a lender it\u2019s important to keep track of any interest that has been paid. When borrowing funds to purchase a property, many lenders<\/a> will include prepaid interest through the end of the month on the HUD-1. It\u2019s important to account for this interest and make sure you do not accidentally get invoiced later for this period of time that was already paid through closing.<\/p>\n

Commission:<\/b> It\u2019s always important to make sure any amounts that were agreed upon by both selling and listing agents are accurately reflected. Also, it\u2019s common for earnest money to be held by either brokerage and for the commission to be net of earnest money already held in escrow. I just saw a HUD this month where the HUD identified the wrong brokerage as holding the earnest money and thus shorted the commission due to that brokerage.<\/p>\n

Earnest Money: <\/b>As mentioned above, you want to make sure the entity holding the earnest money is accurately reflected on the HUD, but you also want to make sure for the correct amount.<\/p>\n

HOA:<\/b> Similar to Tax pro-rations, Homeowners Association Dues are typically pro-rated between buyer and seller. I always double-check this box to make sure the overall yearly fee is what I expected and that it\u2019s accurately divided between buyer and seller.<\/p>\n

Cash From\/To Borrower or Seller:<\/b> The cash to borrower and seller is typically displayed on the bottom of the first page of the Settlement Statement. Most software programs used by attorneys and title companies use all of the other data entered to calculate these two fields. When I look at a HUD, this is the first place I look. Usually as a buyer or seller, you have a general idea of what you are bringing to the table or walking away with. If the number isn\u2019t quite what you expected, it usually means there is a mistake somewhere on the statement \u2026 at which point you begin your hunt through both pages to find the possible error.<\/p>\n

Have you ever had an incorrect HUD-1? Share your story below in the comments.<\/p>\n","protected":false},"excerpt":{"rendered":"

I remember how daunting the HUD 1 settlement statement seemed when I was first getting started in real estate.\u00a0 Trying to figure out what boxes to add together… it just […]<\/p>\n","protected":false},"author":629,"featured_media":169820,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4241],"tags":[],"class_list":["post-38138","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-business-management"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/38138","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/629"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=38138"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/38138\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/169820"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=38138"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=38138"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=38138"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}