HUD Is Passing Their Closing Costs On To Buyers!!!

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149
http://actvra.in/4NS9

Realtors read your Sales Contracts on HUD owned properties very carefully.  Loan Originator's contact your Attorneys and Escrow/Settlement Officers about possible extra fees to your Buyers, because HUD Is Passing Their Closing Costs On To Buyers!!!  Just when you think government could not get sneakier, and slimier they prove you wrong.

I do not do a lot of HUD owned property Loans, but some time within the last year HUD has changed their closing procedure.  This was done without ANY notice to Lenders, or they did an excellent job of hiding the information. 

Under HUD's new procedure when a HUD Sales Contract is receive their will be a new form called "Buyer Select Escrow/Settlement Company Addendum", read it very, very  carefully, especially the first paragraph which reads:

"For properties identified for the "Buyer Select" closing agent program, the buyer will choose their own Escrow/Settlement Officer.  HUD will pay the buyer's settlement fee to the extent that closing cost assistance was requested on Line 5 at time of bid submission and there are sufficient funds remaining to pay the fee.  Please note Line 9 of the HUD-­‐9548 Sales Contract must be filled in with the closing agent listed on this form."

The "Closing Assistance" HUD  is referring to is NOT for what the Buyer customarily pays for Closing Costs.  What HUD is referring to are the HUD Closing Costs for Attorney or Escrow/Settlement Officer fees.  In essences ALL Closing Paperwork will be done by the Buyers Attorney or Escrow/Settlement Officer, and the fees passed on to the Buyer

Connecticut is an Attorney State, so I am not familiar how Closing Packets and Closings are handled in states which Closing are handled by a Escrow/Settlement Officer.  So I will speak to how this is impacting future HUD Closings in State where Closings are done by Attorneys . 

In Connecticut once a loan has been approved a Commitment Letter along with all other necessary paperwork is sent to the Attorney doing the closing paperwork.  If the same Attorney is also representing the Borrower, the Attorney does the Title Search, takes out the Title Policy, contacts the Seller's Attorney for payoff and closing figures, and puts the whole closing packet together.

With this new surprise change by HUD, the Buyers Attorney will also now perform almost all of the duties normally performed by the Seller's Attorney, and the cost for the extra work will be passed on to the Buyer.  So the Buyer ends up paying their Closing Costs as well as the HUD costs for Attorney representation.  This is new, and if you have not been involved in a recent HUD owned property transaction, you and your Buyer will most likely be in for a BIG surprise. 

Also if the property is a Condominium, the resale package which is normally paid for by the Seller here in CT, will now be paid for by the Buyer on HUD owned condominiums.  So once again the government sticks it to homebuyers, and makes an already very costly process even more costly.

My advice to Realtors, Agents, Loan Originators, & Escrow/Settlement Officer, is if you are going to be involved in a HUD owned property purchase, make sure you are protecting your Buyer/Borrower by asking for enough Seller Paid Costs to cover these extra costs. HUD Is Passing Their Closing Costs On To Buyers!!!  Make sure your Buyer/Borrower is not caught by surprise, and protect them by asking for reimbursement for these fees through a Seller credit.   

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam,# Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Re-Blogged 6 times:

Re-Blogged By Re-Blogged At
  1. Karen Fiddler, Broker/Owner 02/16/2016 07:55 AM
  2. Frank Rubi 02/16/2016 08:06 PM
  3. Beth Atalay 02/16/2016 11:16 PM
  4. David Alan Baker Laveen Realtor & South Phoenix Realtor 02/17/2016 04:44 AM
  5. Gabe Sanders 02/21/2016 02:00 PM
  6. Winston Heverly 04/19/2016 01:41 PM
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Location:
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Rainer
364,973
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear George,

Foreclosure & short sale banks seem to have been doing this for years, as have auction companies. Some charge more than 5% in "buyer premium." The client has to really want to place to go forward with some of these "deals."

Feb 18, 2016 11:45 AM #70
Rainmaker
292,265
Diana Dahlberg
1 MONTH REALTY - Kenosha, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

It never ends ... always something new coming around the corner.  I was aware that there were costs incurred by the buyer but this is a definite "\Caveat Emptor" situation -- Buyer Beware.  Thanks for sharing.

Feb 18, 2016 11:56 AM #71
Rainer
1,829
Stacy Hall
twin city realty llc - Champaign, IL

It is called buyer select and this happened over 1.5 years ago prior to that this cost was wrapped up in the overall net price HUD would accept on a property.   Remember with bank owned homes it is all about net to the bank.   It has always been there now it is just being disclosed.

 

I see it as giving the buyer the choice to pick their own title company/closing company and not force them to use the ones HUD was contract with which in some cases had very high title charges and closing costs of which parts were passed onto the buyer.  HUD allows upto 3% of the sale price towards buyers closing costs and the buyers agent can enter this amount to cover the closing costs they will incur at the time their offer is entered into HUD offer system.

 

This was a good change not a bad one.  While yes this is a buyer expense it gives buyers options and the ability to control fees they pay.

 

We are a HUD listing broker in IL and if you attend any of the listing broker training sessions that are offered(all brokers in all states are required to hold these buyer agent training sessions) you will learn how to use the 3% closing allowance to your buyers advantage.

 

PS....the VA passess all closing costs to the buyer as well.

Feb 18, 2016 12:10 PM #72
Rainer
105,917
Jerri Schick
ThirdCoastRealEstate.com - Galveston, TX

Absolutely, in any distress sale the buyer should discount their offer price based on the amount of normal 'seller paid expenses' that they will have to shoulder. This includes utilities, title expenses, short sale expediters, etc., as all other savvy buyers will do the same.

Feb 18, 2016 01:25 PM #73
Rainer
105,917
Jerri Schick
ThirdCoastRealEstate.com - Galveston, TX

Absolutely, in any distress sale the buyer should discount their offer price based on the amount of normal 'seller paid expenses' that they will have to shoulder. This includes utilities, title expenses, short sale expediters, etc., as all other savvy buyers will do the same.

Feb 18, 2016 01:26 PM #74
Rainer
296,707
Jana Holmstrup
Jana Holmstrup - VP Ops - Kings Mortgage Services, Inc. - Visalia, CA

It has been like this for quite some time.  Same as Fannie and Freddie not paying the normal Seller costs on their sales.  Sad, but hopefully the buyer is getting a decent price to make up for the added costs... hopefully.

Feb 18, 2016 02:42 PM #75
Rainer
227,030
Richard Foster
Nevada Perfect Homes - Henderson, NV
Broker, ABR/M, CREN, CRS, GRI, RRG, SFR

I hate to break it to everyone, this is NOT a new issue, Fannie Mae stated this trend and many foreclosure companies do exactly the same thing. Because of RESPA, the buyer has the right to chose title insurance, however, if they do, the costs to both buyer and seller rise. To avoid this, almost every foreclosure company, bank, FANNIE MAE, or HUD have a clause that makes the buyer pay all the costs. 

Feb 18, 2016 05:10 PM #76
Rainmaker
573,392
Bill Reddington
Re/max Southern Realty - Destin, FL
Destin Florida Real Estate

The only HUD homes I have sold have been cash buyers. Kind of depends on the pricing of the property whether a cash buyer will ask for costs.

Feb 18, 2016 11:10 PM #77
Rainmaker
239,692
Kathleen Frawley
Keller Williams 916 730-4404 Elk Grove, Wilton, Folsom, Sacramento - Wilton, CA
South County Sacramento, 916 730 4404

Yep Sneaky.  What I don't like is the short time you have to read their contract before you have to return it with a wet signature.  HUD is too big for it's britches.

Feb 18, 2016 11:21 PM #78
Rainer
228,731
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

George, great advice and thanks for keeping up with this subject

Feb 18, 2016 11:39 PM #79
Rainer
136,218
Theresa Akin
CORPUS CHRISTI REALTY GROUP - Corpus Christi, TX

I check periodically the HUD repos and such. Buyers I have worked with wanting to invest in these properties get really frustrated. I let them know to expect more in paying closing costs than they believe. I have submitted a few offers for buyers where the signatures were questionable and I keep a set of pens specifically for signing those offers. Have run into situations like Anita S. Zahn before.

Feb 19, 2016 12:38 AM #80
Rainmaker
1,427,702
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

In this county those things are always negotiable, but by tradition buyer pays Title and Escrow.  Of course you can ask for credits.

Feb 19, 2016 02:16 AM #81
Rainer
80,670
Amy Gutschow
RE/MAX - Sheboygan, WI
Professional Real Estate

Not my Favorite closings but if thats what the buiyer wants we do our best.  Thanks for the  info

Feb 19, 2016 03:34 AM #82
Rainmaker
288,238
M.C. Dwyer
Century 21 Showcase REALTORs - Felton, CA
Santa Cruz Mountains Property Specialist

Foreclosures are often fraught with red tape, contract overlays, and unusual costs.    It's important to carefully counsel the buyers!    Thanks for blogging about how HUD is handling this.

Feb 19, 2016 06:47 AM #83
Rainmaker
34,386
Craig Cooper
Chase International Real Estate - Tahoe City, CA
Creating-Preserving-Growing Wealth in Real Estate

Thanks for the informative post about the HUD costs George. It's amazing how different RE practices can be from state to state when they are not Fed related.

Feb 20, 2016 07:15 PM #84
Rainmaker
1,265,690
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Thanks for the great info. I have not done one in over a year & can't remember in detail what the contract says. I do remember that you could select their choice of title company which we would normally do here in IL.

They are definately trying to save costs.

Feb 21, 2016 08:27 AM #85
Rainmaker
2,219,076
Lisa Von Domek
Lisa Von Domek & Associates LLC Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Hello George Souto 

Why doesn't this not surprise me?  Sneaky taxes tucked in everywhere is how the government rolls. 

Feb 21, 2016 10:48 PM #86
Rainer
269,958
DEANNA EARLY - ( NMLS #268590 )
American National Bank and Trust - Smith Mountain Lake, VA
Virginia Mortgage Loan Originator

Surprise, surprise, surprise George Souto .   The government taking advantage of unknowing citizens.   What happened to "for the people" ?   It got changed to "FROM the people".   Thank you for highlighting this.

Feb 22, 2016 02:42 PM #87
Rainer
128,209
Anita S. Zahn
Advantage Realty 863-840-1420 - Sebring, FL
Highlands County Real Estate Source! I work 4 U!

So tonight I get an email.  I find out the home we are closing on Thursday HUD wants buyers to pay $1400 in back HOA fees.  Buyers already upset because HUD is dragging there feet they where suppose to close this past Monday.  Buyers think I and the closing company should be paying for there hotel,  NO!  Now guess what surpise I get to tell them tomorrow!

Funny thing, I called the HOA to make sure there where no outstanding balance on the HOA fees and was told not they are current, Hmmmmm.........

Mar 01, 2016 09:52 AM #88
Rainmaker
1,348,161
Sandy Padula and Norm Padula, JD, GRI NMLS#1483386
Realty One Group - Carlsbad, CA
Presence, Persistence & Perseverance

George Souto As we all know, or t least the ones having sold REO homes, banks have long been pulling this crap. I am not surprised that HUD did not join the ranks earlier.

Apr 19, 2016 07:50 PM #89
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