Real estate closings: HUD-1 Statement replaced by Closing Disclosure Statement
By Barbara Craig, Real Estate Attorney
Prior to October 3, 2015, the Real Estate Settlement Procedures Act (RESPA) dictated that the HUD-1 Settlement Statement was to be used in all real estate closings in which a person financed the transaction with a federally backed mortgage. Since many mortgages are federally backed loans, the HUD-1 became the standard form for nearly all real estate transactions.
New Closing Disclosure Statement introduced
But this changed as of October 3, 2015. From that date forward, the form used is the Closing Disclosure Statement. As with the HUD-1, the closing disclosure statement is prepared by a settlement agent or closing agent, through a title or escrow company. The form lists all costs involved in the transaction, and to whom the charges and fees will be paid. The closing disclosure statement includes the loan details and the payment schedule for the borrower. Also included is the name and contact information for all the parties involved.
RESPA rules state that the mortgage lender must charge the same fees at real estate closings that were offered when the lender issued the good-faith estimate and approved the loan. The closing disclosure statement lists the fees from the good-faith estimate to make it easier to compare. If there is any significant fee discrepancy on the closing disclosure statement which is beyond the allowable amount, the lender must cover the cost of that difference.
Reviewing important documents prior to a real estate closing
The parties to a real estate transaction should receive the closing disclosure statement several days before closing to make any corrections. It is essential that the parties involved review this form in detail to ensure its accuracy. If a credit agreed to in the real estate contract is missing from the statement, it will be forfeit. The final version of the closing disclosure statement must be available to all the parties three days prior to the closing. If there are any changes, the three-day countdown resets. Once the closing disclosure statement is approved by the lender and signed by all the parties involved, the loan is ready for funding.
Despite best efforts by the parties involved, mistakes can and do happen when preparing the closing disclosure statement. It is a lengthy form and is extremely detailed, so it is important to review and understand each and every entry on it. If you have questions you should seek the advice of an experienced real estate attorney to help you navigate real estate closings. Unlike the real estate agent(s) and the escrow company, an attorney does not stand to gain a commission payment as a result of your transaction, so you can be sure that the legal advice offered by your attorney always reflects your best interests.