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