The Importance of the Settlement Statement
As agents, many of us haven’t spent too much time scrutinizing the estimated settlement statements. We usually leave that work to escrow officers, lenders, or attorneys. Some folks even take a quick cat nap when it comes to that aspect of the transaction. Unfortunately, when it comes to short sale transactions, you better drink a few cups of coffee, wake up, and pay careful attention to the settlement statement.
Why? Well . . . the banks request these settlement statements (also know as HUD-1s) as part of the short sale package. The short sale lien holders want to see their bottom line. How much money are they going to net? How many cents on the dollar will they be forgiving?
Preparing the HUD-1 for the seller’s first and second lien holders is truly an art form. This is primarily because mathematical calculations need to be done in order to assure that there is no shortage on the close date. And . . . since it is difficult to determine how long the bank is going to take to approve the short sale, under-calculating the fees or forgetting to put all of the fees on the HUD-1 could potentially blow the deal or, at the very minimum, cut into the agent’s commission.
Once a short sale is approved, the lien holder will generate an approval letter that has a minimum net amount. So, if something has been calculated incorrectly and the minimum net cannot be met, additional money may be needed in order to close the transaction.
There is no question that short sale deals are tricky and time consuming.
Clearly nobody wants the deal to go south at the eleventh hour and nobody wants to give away any commission. In order to protect yourself, it is absolutely necessary to prepare the HUD-1 with a closing date that is realistic. This way taxes and any penalties will be calculated to a realistic date, and not a date only a few weeks out. Also, consider this: Did you allocate money for pest control, HOA fees, and other possible liens?
While it was probably never your intention to get into this component of the deal, imagine how much more knowledgeable we will all be . . . and imagine how much more appreciative we will be of our fellow escrow officers, lenders, and attorneys once this current wave of short sales is over!