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Much Ado About Settlement Statements

Short Sale PackageMy apologies to William Shakespeare for butchering the title of his famous work. No iambic pentameter here! It’s just time to clear the air about settlement statements in short sale transactions. Last week, I wrote an exciting and stimulating post about how to make the mathematical calculations for the short sale settlement statement that goes to the bank with the short sale package.

The settlement statement (HUD-1) is a component of real estate transactions. It outlines the terms for disbursement—reviews the fees and shows who is paying for what. Essentially it is a break down of how all the funds in a real estate transaction are being disbursed (including commission). Each and every agent should review an estimated settlement statement well before the closing date. It doesn’t matter whether the transaction is a short sale or a cash deal on a home owned outright. All parties involved in the transaction should make sure that the numbers crunch correctly.

In the past, it was common for agents to have a very cavalier attitude with regard to the settlement statement. If something was amiss, it could be taken care of at the eleventh hour.

But, with regard to short sales, the generation of the settlement statement is required by the bank months in advance of the short sale closing. Agents, title officers, and escrow employees need to think long and hard about what that final settlement statement is going to look like. Sometimes you have to see six months into the future. Will there be an HOA lien? What will be the cost of the property taxes? All of the fees that are necessary to close the transaction need to be presented to the bank at the beginning of the transaction. So, if your crystal ball is a little foggy, clean it off. You must see well into the future and note all of the fees that will be required in order to close the transaction.

The bank will use that statement (yes, it could be from five months prior) in order to generate the short sale approval letter. So, it is really important that the crystal ball is clear and you get all the numbers right.

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You do not have to create the settlement statement yourself.

While I am not necessarily advocating that agents prepare their own settlement statements, it is vital that the agent understand how the statement is prepared and review it with a fine tooth comb. Agents (especially those doing the short sale negotiating themselves) need to be involved in assuring that the settlement statement has all of the correct information. The explanation of how the short sale settlement statement is prepared is a primer for those that are a little bit fearful. I’m here to tell you that you need to overcome those fears and pay careful attention to this aspect of the transaction. If not, it may cost you! It is definitely not Much Ado About Nothing!

Photo: flickr creative commons by ell_brown

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Written By

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.



  1. Fred Romano

    February 1, 2011 at 8:19 am

    Since when do agents prepare HUD’s??? That is the job of the attorney. Why would the agent be involved with this at all??? Here in CT the attorney handles the entire closing process. In fact, they even deal with the bank during a short sale.

  2. Sheila Rasak

    February 1, 2011 at 8:59 am


    Just yesterday something didn’t seem to add up in my HUD. i asked my transaction coordinator to sit with me while we plugged the numbers in and it not only unmasked the one problem we felt was wrong, but called to light that the taxes had been miscalculated as well.

    Three weeks ago I caught an error on the short sale lenders’ part. It was minor, by my standards, but if it creates a hiccup, my client is no longer protected.

    Never assume that the documents you review are correct until you’ve had the opportunity to do the calculations and make certain the dates for COE, taxes, HOAs, etc. are in line.



  3. Melissa Zavala

    February 1, 2011 at 12:23 pm

    This is obviously something that varies from state to state. In California, no attorney is used in a real estate transaction.

    • Fred Romano

      February 1, 2011 at 12:46 pm

      I find it difficult to understand why attorneys would not be used to “legally” protect buyers and sellers in what most agent’s consider “the biggest financial purchase most people will make” !!! Agents are not lawyers and should not be involved in conducting the legal aspects of a real estate transaction, like contracts, title, and closing documents. Just unbelievable!!!

  4. MH for Movoto

    February 1, 2011 at 6:01 pm

    I mean, certainly the requirements on this do vary from state to state, but it seems like a glance from an experience real estate attorney could never NOT be a good idea.

    • Melissa Zavala

      February 1, 2011 at 6:12 pm

      Absolutely. Consulting an attorney is really an important part of any real estate transaction–even in states that handle their closings without the use of an attorney.

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