We are now in our third installment, Real Estate School 103, the Settlement Sheet HUD-1. In the first installment, I started with how you get from a ratified sales contract to an attorney's office. In my second installment, I described three very important documents related to real estate transactions: the deed, the mortgage and the note.
In this installment, I thought I would explain the "accounting" of a real estate settlement. It is called the settlement sheet or the HUD-1. This form lists all of the accounting details of a real estate settlement for both the buyer and the seller. The HUD-1 is broken down into sections so that everyone is aware of what all the closing costs are. It has sections such as real estate broker fees, items in connection with the loan, items required in advance, title charges and attorney fees, taxes and recording fees.
Buyers can shop prices from different lenders and attorneys. Lenders are required to provide a form called a good faith estimate that discloses all the fees and costs. The good faith estimate and the final settlement sheet should match – but until 2011 they rarely did. In 2011, new regulations were added that requires a comparison of the good faith estimate to the HUD-1 on page 3 of the document. Amazingly, when this new regulation passed the Good Faith Estimates started becoming more accurate and the "surprise factor" at the final settlement sheet dropped off.
The HUD-1 settlement sheet has one other very important purpose: tax deductions. There are certain allowable deductions that are detailed on the HUD-1. So if you were a party to a real estate settlement, either as a buyer or a seller, SAVE THE SETTLEMENT SHEET!
In our next installment, I will explain the title search. In the meantime, if you have any question please feel free to call my office at (302) 855-9300. We are just off the circle in Georgetown, Delaware at 215 E. Market Street.