Real Estate Blog - WHO PAYS THE LENDER FEES WITH A VA LOAN?? LINES 808, 809 AND 810 OF THE HUD-1 IN DISPUTE.

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WHO PAYS THE LENDER FEES WITH A VA LOAN?? LINES 808, 809 AND 810 OF THE HUD-1 IN DISPUTE.

* * * * HARD CORE REAL ESTATE TALK * * * *

UPDATE: Thursday April 30th, 2009, 8:13 a.m.: As of this morning, I have received four telephone calls from agents to discuss the content of this post. There is interest out there although apparently not sufficient to get the dang thing featured.

I've sent the various HUD-1s involved to my attorney and put a budget of $1,500 on preparing a letter asking for an opinion from the Department of Veteran's Affairs. I'll post again when and if we get a response.

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I CLOSED A SALE IN LOVETTSVILLE THIS A.M. FOR A LOVELY NEWLY MARRIED COUPLE. It's their first home together and what a prize property right in my neighborhood in Lovettsville, Virginia. We found a wonderful home on 10 acres with a pond already stocked with fish. The newlyweds love the house. She loves the deck and the barn that's horse ready. He loves the 3 car detached garage. The daughter loves the horses that live next door.

AS WITH ALL CLOSINGS, I pester the loan officer for the HUD-1 until I get one. The title company cannot produce it until they get the instructions from the lender.

So, about 11:00 a.m. yesterday a.m., I received the HUD-1. THIS IS NOT RIGHT, I SAID OUT LOUD. The lender fees are on the Seller's side of page 2 of the HUD-1. No problem, right???

WRONG!!!

			PAID FROM	PAID FROM
			BORROWER'S	SELLER'S
HUD-1 Line	Charge For	Paid To	FUNDS AT	FUNDS AT
			SETTLEMENT	SETTLEMENT
808	Underwriting Fee	XYZ Mortgage Company	200
809	Document Review Fee	XYZ Mortgage Company	295
810	Tax Service Fee	XYZ Mortgage Company	76

On page 1 of the HUD-1 I see:

HUD-1 Line
207	Seller Subsidy-$11,000 total*	10,426
	*incl. Lines 808-810

The instructions from the mortgage company to the title company deducted the lender fees from the Seller Subsidy.

HOW DOES YOUR MORTGAGE COMPANY INSTRUCT THE TITLE COMPANY TO CHARGE THE LENDER'S FEES when the buyer is buying a home with VA benefits??

Actually, there is no dispute in my mind. Lender fees cannot be charged to the Buyer. To me, that means that the VA borrower cannot be charged the "Lender Fees" directly as an item PAID FROM BORROWER'S FUNDS AT SETTLEMENT. Nor can they be paid by the borrower through a circuitous route by deducting these lenders fees from the Seller's Subsidy to the Buyer.

SMOKE AND MIRRORS. If these fees (lender's fees) cannot be charged to the borrower, they cannot be charged to the borrower. By deducting these fees from the Seller's Subsidy, the buyer is paying these fees. While not a direct charge on the buyer's side of the HUD-1, but through a reduction of the Seller's Subsidy, the buyer is still paying these lender fees.

VA Addendum

I WOULD NOT PERMIT MY BUYERS TO PAY THESE LENDER FEES. So, I contacted the title company to verify that these fees were charged to the BUYER through the seller's subsidy. Indeed, "that's the way they do it". "the way they do it" doesn't mean anything to me. So, I "advised" them that the lender fees had to, not only be on the seller's side of the HUD-1, but they needed to be "charged to the seller", not to the buyer through the back door.

THIS RULE HAS NEVER BEEN AMBIGUOUS TO ME. However, I haven't sold much resale real estate in the past few years and then only in MD. I checked with several other lenders and they come down about 50/50 as to how it is handled. It appears to be a matter of company policy.

So, while I was fully prepared to pay the lender fees, the lender decided to eliminate the charges altogether. Smart move. I got a revised HUD-1 and approved it immediately.

Walk-through went smoothly. Settlement went smoothly. Now Lenn has a new challenge.

JUST HOW DOES THE DEPARTMENT OF VETERAN'S AFFAIRS INTEND FOR THESE FEES TO BE CHARGED???

I've send documents to my attorney and asked him to prepare a letter to the Veteran's Admin. I want an opinion letter so I can share the information with the brokers in my network.

WHAT DO LOAN OFFICERS, REAL ESTATE AGENTS AND BROKER MEMBERS OF ACTIVE RAIN THINK??

I respect your opinions and am very interested in the industry treatment of these fees.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-mail.

Posted by Lenn Harley, Real Estate Broker, Maryland & Virginia on 04/29/2009 04:43 PM

Comments (42)

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Originally posted at: MD, VA Foreclosures, First Time Buyers Grants, CDA Loans MD, Rehab Loans MD & VA: WHO PAYS THE LENDER FEES WITH A VA LOAN?? LINES 808, 809 AND 810 OF THE HUD-1 IN DISPUTE.

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42 Comments on WHO PAYS THE LENDER FEES WITH A VA LOAN?? LINES 808, 809 AND 810 OF THE HUD-1 IN DISPUTE.

APR

I'm certainly not an expert in this area, but my personal feeling would be that the intent of the law was that the buyer not pay, and trying to say this in different words doesn't change the fact. Smoke and mirrors don't change the facts.

Sharon. Thanks very much. That's one for my side.

I think the text box that you copied pretty clearly states that the fees will be first paid out of any seller subsidy.

I think you are a great consumer advocate for voicing your considerations, but isn't this ultimately the responsibility (and liability) of the lawyers and the escrow agent to work through? Our lives as Realtors are complicated enough without having to fully understand the fine details of the ffinancing(and in doing so possibly derail) a closing transaction. Remember, APRs are based on all of these figures. Once one gets changed, a whole lot of other paperwork needs to get changed. By simply reversing the charges (one would imagine that the lender just wanted to close the transaction and waived the fees in exasperation), did the Truth in Lending disclosures get updated? If not, the entire promissory note is at risk.

I see similar issues in the computation of real estate taxes. Each closing attorney has his own proprietary way of coming up with this number. Sometimes the differences can be several thousands of dollars. It was made very clear to me at an early stage of my real estate career (I'm a CPA by background) that this was NONE OF MY BUSINESS and to stop trying to prove that the HUD was prepared incorrectly. Today, I send the closing attorney my computations, and let him know well in advance of the preparation of the HUD-1 where I think the tax computation should stand. If he chooses to ignore it, I probably wouldn't use that attorney again for my buyers (or seller), but I don't interfere with a timely closing either.

Martin. I have a significantly different reading of the financing addendum. We do not turn things over to escrow agents and attorneys here. Agents have responsibilities from search to settlement.

At no time was the transaction at ridk. My question was only who was to pay the lender fees. Yes, the APR was amended.

I've no doubt that the lender removed the charges to close the transaction and get me out of his hair. Fine with me.

There is nothing, absolutely nothing, involved in a transaction for my buyer/clients which is NONE OF MY BUSINESS.

Lenn,

My experience is that the VA is concerned only with charges to the buyer (Veteran), but in real life, when the listing agent balks the typical result is: "while I was fully prepared to pay the lender fees, the lender decided to eliminate the charges altogether"...BALK...!!! Thanks, Fran

P.S. Where I disagree with the VA is when they disallow charges for work actually incurred on behalf of the buyer...!!!

Hi Lenn, I agree with you on 2 main points - charges paid by the seller need to be on the sellers side, I don't understand "that's the way we do it", and secondly the Title Company always works under the direction of the broker and the brokers are still responsible for all the numbers, whether they think they are or not. Just my 2 cents.

Hi Lenn

I don't see how a lender can tell the title company to charge fees to the buyer. The lender has to follow the VA guidelines.

Good luck and success

Lou Ludwig

Lenn, I've done exactly one VA transaction in all my years, and it was recent enough that I can actually remember it. There was a seller subsidy, and the lender fees were still charged to the seller on the HUD-1. It'll be interesting to read what you hear from the VA.

Lenn, TRhe buyer cannot pay VA or FHA "non-allowables". That's a fact. However whether or not it is included in the seller contribution is a point to negotiate. I always counsel my sellers to include the non-allowables in the seller contribution. They still show up on the seller side of the HUD is just the 3%-6% contribution is reduced by this amount.

Lenn- I had this EXACT thing happen to me last week ! It was my first VA loan meets Bank-Owned property. They did the same thing - trying to deduct from the seller concession. The loan officer and I argued it and after a couple of bank and forth's they fixed it.

I am with you 100%. If they buyer can't be charged in the 1st place these fees - why are they even thinking the seller concessions come into play.

Banks ! They drive me nuts!

Lenn, I am glad to see you back in the saddle. I hope you are feeling better!

Lenn This is great. I will be closing a VA loan in the next month or so (short sale). I didn't know about this and when the Hud 1 comes out I will make sure it is not on there!!!

Thanks for the heads up~

I agree we need to stand up to lenders that try to be deceptive with the fees they charge.

APR

Terry. Of course. I consider this no more or less than a "slight of hand" to collect lender fees from the buyer.

Jeannette. I've scrutinized HUD-1s since I learned to read them in great detail my first year in real estate. I've found so many mistakes it's not even funny. It's sad. This one rankled me because now I know that it's "company policy" for this mortgage company to follow this procedure.

Paul. I'm not, but I will. I'm taking today off and resting. First opportunity.

James. My thinking precisely. What is it about "buyer cannot be charged" that they don't understand?

Bryant. That's just smoke and mirrors. If the seller's subsidy is reduced by the amount of the lender fees, the buyer is paying a "non-allowable".

Patricia. The lender fees will ALWAYS show up on the seller's side. That's the law. The question is, are they then reducing the buyer's closing help by that much??? Hopefully, we'll get something from the VA.

Lou. Some would have us believe that the VA guidelines permit this slight of hand. I don't buy it.

Mary. The title company here gets their closing instructions from the lender. They send me a courtesy copy of the HUD-1 because I want it.

Fran. I'm not sure I understand your statement, but thanks anyway.

Watching your buyers HUD and also the GFE at the beginning is so crucial to representing the client properly. Especially first time buyers. I correct 90% of my HUDs and negotiate fees on 100% of my clients GFE. Bottom line I make sure they aren't paying things that aren't there obligation and not being charged too much!

Laura. GOOD FOR YOU.

Me too.

Great post Lenn. I'm interested in seeing what results from your request for an opinion from the VA?FHA. Let us know.

Thanks Gabe. I'll definately post any response.

Lenn my comment is probably not going to be much help, because the only Lender Fee that we charge on a VA Loan is a $50 Evaluation Fee that is allowable by VA. All other fees go to someone else, appraisal, attorney, home owners insurance, taxes, title insurance, recording fees, pre-paid interest, and these are all paid by the Buyer. We don't charge an application fee on VA Loan, processing fee, or escrow closing fee.

Lenn, I don't agree with that at all. If it's on the seller side of the HUD then the seller is paying it. If you want to call it "smoke and mirrors" then the reality is the buyer is paying EVERYTHING since they are the ones bringing the money. Either way the fees are being financed in the buyer's mortgage.

George. Good for you. We used to have a VA Addendum that permitted us to limit the lender fees, but that form is not in this new contract.

Bryant. Sure Bryant, unless a fee is specifically not permitted to be paid by the buyer and then it should be deducted from the seller's net. Not deducted from the Buyer's Incentive.

MAY

Lenn, I'm glad we are not doing a VA deal on differents sides of the table!!! Maybe thyat's why we look at differently.

MAY

Bryant. This isn't a matter of agency, or sides. This is a matter of law.

I'll find out. My attorney is researching and we're going to send a letter asking for an opinion from the VA.

Lenn the GAR dealt with this issue in Georgia a few years ago. When a seller pays a buyers closing costs in Georgia on a VA the VA loan exhibit covers this issue. It was deemed to be legal to be paid from the "sellers contribution" IF disclosed in the contract according to the GAR contract class I took.

I hope you don't mind me sticking the photo of this part of the page. If you send me your email address I'd be happy to send you the pdf of the entire page from our state of the VA exhibit.

4 B is the item of disclosure I am talking about.

Tammy. Thanks.

I am reading your images and it clearly states that lender fees shall be paid by the SELLER.

If I'm reading it right, this is the case unless there is an agreement between the parties stateing otherwise,

WHICH, I STILL MAINTAIN CANNOT INCLUDE LENDER FEES.

Hey Lenn I found this on the VA website and it looks like you are exactly right. The info you are looking for is page 8-12

Seller concessions do not include

•· payment of the buyer's closing costs, or

I had some time on my hands and I HATE to not know the answer so I did some digging.

Tammy. Thanks.

There was never any doubt in my mind.

I still want a clarifying opinion letter from VA.

I wonder how many VA buyers have been advised that the lender fees can be deducted from closing help????

Many agents don't know the difference. What I read from many listing agents is that they consider it some sort of contest between buyer or seller who pays these fees.

Most of what I sell is second homes, which you can't use a VA loan for, so I'm not that well versed in it. But my husband is yet to ever use his entitlement so knowing the answer is somewhat important to me. I look forward to your post when you get your letter. One of my worst real estate experiences EVER was a contract I had on VA REO and they are NOT easy to get answers from. But it seemed pretty cut and dry on that info on their site.

MAY

Lenn- OMG when you wrote this post I was getting ready to settle a VA, representing the Seller, that had already given me heartburn for 4 days straight before settlement. So I was like going just my luck, the lender would have the fees on the wrong side of the HUD1 and we would be butting heads once again. Alas we were good with no smoke and mirrors. yeah!! So... even though this lender and I had our moments he was on the up and up at the end. My take has always been that there are certain fees the Buyer can not pay and that amount can not exceed X$'s to the Seller. These fees always must be on the seller side and never on the Buyers and then deducted from Seller closing help. VA explicitely states these fees are NOT to be a Buyers expense so how in the world can they be on a Buyers side???? They are fees above and beyond the closing assistance agreed to by Seller on Buyers behalf. Thats been my take and until proven wrong I'm sticking with it. What say you??

MAY

Martha. Some of the confusion is the way you describe the lender fees by saying "on the seller's side".

The lender fees are ALWAYS on the seller's side of the HUD-1. That is part of the confusion.

It's when the fees are on the seller's side, but then the negotiated seller subsidy to the buyer is REDUCED by the amount of the lender fees where I believe the buyer is being shorted.

By reducing the seller subsidy by the amount of the lender fees, the buyer IS paying those fees which violates the VA rule.

If your seller paid the lender fees without deducting that dollar amount from the seller subsidy, then it was done correctly. If the seller subsidy was reduced by the amount of the lender fees although they were listed on the seller's side, then it was done incorrectly.

JUN

This is stupidity on the lender's part. The loan wouldn't get a VA guaranty if the veteran paid those fees and they' be stuck with a non-saleable loan. The lender should have increased the discount fee and paid those fees from that or...

the agent can pay it (I'm not suggesting they do, Lenn, just that it's allowed) or..

as Lenn demonstrated, the seller pays it.

If this helps your readers, Lenn- a link to my VA home loan webinar If not, feel free to delete the link.

Thanks Bryant.

You're right about it being stupidity on the lenders part. He's lost me a about 15 other brokers/agents as a loan resource. Once I found out that it was their "company policy" to charge these fees to the VA buyer they were history.

I'm taking this opportunity (your comment) to post an update to this article.

The saga is continuing.

Lenn--This is an interesting discussion. It has come up for me previously on the funding fee and I agree with BB from a seller's point of view when they agree to pay $XX in fees it is not $XX PLUS other fees. But I do see your point as well. In the future, I for one will be spelling out that $XX in seller concessions PLUS funding fees paid so there is no ambiquity at settlement time. I would be interested to hear what the VA has to say on this topic.

Teri. It never was $XX PLUS. The lender fees are not a matter of closing costs paid by the seller for the buyer. The lender fees cannot by law be paid by the VA buyer. Therefore the closing costs only apply to all other costs of settlement.

If a seller objects to paying the lender fees, they should say so up front and I'll pay them. Simple as that.

During the years 2003-2007, I paid a LOT of lender fees for VA borrowers.

This is interesting and I will be back to learn what you find out from the attorney. One of my pet peeves with VA is that they don't let the buyer pay any portion of the buyer agent fee.. the VA says the information is readily available to the buyer... where as in NH the fees are discounted or the co-broke fee is not split evenly... buyer's cannot get representation from Buyer Agents because the Buyer agent doesn't want to work for peanuts and the sellers don't want to pay a portion of the Buyer agent fee. HUD got rid of this prohibition a long time ago, but VA is very short sighted and doesn't under stand the importance of buyer representation and the choice of the buyer to pay something toward the buyer agent fee should they so choose. I know you are a buyer's agent, and I wonder what your thoughts are on this. I have had several VA buyers try to address this with VA and it has fallen on deaf ears.

Just read the post that was featured and jumped over to here to read the meat of it all.

Lenn, I fully agree with you. I've argued many times with sellers agents about this very thing. My point has always been:

The buyer is not allowed to pay for those things. Period. End of story. Move on.

It cannot come out of the concessions that is received to the buyers from the sellers. Apples and Oranges.

I applaud you in your fight on this one.

Lenn ... thanks for this post. Correct that on VA Loan the lender or mortgage broker fees should not be charged to Buyer, and that VA borrower should not be charged the lender fees directly as an item from borrower funds at settlement, and that lender fees should not be paid by the borrower through deducting lenders fees from the Seller side to the Buyer.

Harrison. Thanks. That's my position too.

Kris. I'm amazed that a seller's agent would argue this. But, shucks, if a mortgage company would????

Joan. We discount our fee to a VA buyer and accept the co-op. If we weren't prepared to do that, we wouldn't be working with VA buyers. VA buyers are good buyers. However, they have been working for the citizens of the United States at quite low wages for some time and don't usually have a lot of savings.

JUN

Lenn, I jumped over from the other post also. This is good timing as I'm working with Veterans right now. Our Texas contracts have a place to put that amount; we just have to find out ahead of time what that amount is from the lender. I guess I can see both sides as the seller wants to know up front what they are being charged for. It is a bit murky right now; isn't it!

Marchel. Actually, I limit the amount of lender fees in the contract to $550. That way the seller isn't going to be presented with a VA contract offer with skyhigh lender fees and decide to pass on a VA financed offer.

Our buyers usually already have a GFE by that time and we can take the number from that. However, if it's over $550, we still put $550. Some local lenders we know charge very low lender fees of $200,00-$300.00 or so.

If we get the contract, we simply tell the loan officer about the limit on lender fees. Now I'm sure a lot of lenders will say that my buyer can't dictate their fees. I'm not. I'm just including a figure for lender fees that are average in my market area. If the lender doesn't want to do the loan, someone else will. If the buyer still wants that lender, then I pay the difference.

The point is, don't lose a contract over lender fees.

Good luck.

JUN

I'm a lender that works almost exclusively with VA loans. You are right these charges fall into the non-allowable category...UNLESS...an origination fee was not charged. If it wasn't, then these fees are allowable.

Shoot me an email and I'll send you the document from the VA handbook.

Nigel

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