Survey Finds R.E. Agents, Buyers Irked By Lack of Advance Closing Cost Disclosure

What’s the number one complaint that real estate agents make about the mortgage process, and one that bugs the heck out of home buyers as well? Often times, settlement or escrow officials fail to provide a copy of the final settlement sheet in advance of the actual closing, writes syndicated real estate columnist Kenneth Harney.

In a national survey of real estate agents, 50 percent cited the absence of “HUD-1″ closing documents for review a day ahead of the settlement as their biggest complaint. Realtors say that although said documents are required by government regulations, settlement sheets rarely arrive in advance. This denies buyers a chance to view an itemized list of all charges and fees.

“I have yet to see a HUD statement prior to a client’s closing,” one agent said. “It would be nice for buyers to have it in hand at least two days prior to closing, if for no other reason than to let them know what funds they need for settlement.”

Another agent complained that when buyers go to closing with no copy of the HUD-1, closing costs are different from the original quote given to the buyer. Sometimes the estimate is off by over $1,000. The study by Inside Mortgage Finance sampled 1,780 agents and has a 3 percent margin of error. Industry analysts say the findings are shocking.

Think of it this way. What other kind of major purchase can a consumer make without getting information about the final costs and fees until the last second? Can you imagine if you bought a car and were not told the final, bottom line costs ahead of time? The survey also sheds light on when (and if) closing agents must provide a copy of the HUD-1 settlement sheet.

Here’s the skinny:

Though real estate agents and consumers probably believe federal rules give them the right to see the final closing numbers a day ahead of settlement, that’s not entirely accurate. Phillip L. Schulman, an attorney with the Washington, D.C., firm Kirkpatrick & Lockhart Nicholson Graham LLP, says the law only requires a closing agent to provide a borrower the figures a day in advance “if the borrower requests” such a review.

“The fact is that some of these numbers come in very late in the process, just hours or even minutes before the scheduled settlement time,” Schulman said, adding that the closing agent is only required to provide whatever figures the agent actually “has received at that time” from other parties involved in the transaction when estimating closing costs.

Another widely misunderstood point regarding the process is that federal regulations of real estate settlement procedures cannot be enforced when closing agents fail to provide advance copies of the HUD-1 to consumers who request them. Ivy Jackson, who is leading the U.S. Department of Housing and Urban Development’s investigation on settlement complaints, said that his agency simply does not have the authority to penalize any firm that ignores consumers’ requests to review settlement data in advance.

Richard Fritz, an attorney and title agent with Paragon Title & Escrow Co. of Bethesda, Md., says one reason why HUD-1 sheets often are not finalized 24 hours in advance is that services such as his often have to wait for the borrower’s mortgage lender to come through with key information about fees and closing instructions. Other parties delay the process as well, such for as local governments (who have property tax data), homeowners associations (whose fees affect escrow numbers), and even the buyer’s real estate broker (contract details).

“We are always willing to let borrowers see whatever we have received 24 hours in advance, but what we obviously can’t show them is what we haven’t received,” Fritz said, noting that his firm will soon allow all parties to a transaction to inspect files online, 24/7, through a password-enabled, secure website.

Meanwhile, HUD has proposals on the table that would require settlement documents to closely track upfront good faith estimates given to the buyers. Under current rules, final closing numbers can be far off the mark from the upfront estimates, a loophole that allows unethical mortgage officers to lure home loan shoppers with low-ball quotes on fees. The proposals would ensure that good faith estimates on settlement charges would require more, well, good faith.

All things to keep in mind for prospective Florida home loan applicants. Be advised that the estimates you get about closing costs may be well off the mark if you don’t see the data ahead of time, or employ the right agency or agencies. Please see our home purchase guide for a full rundown of what to watch out for along the way.