How to Create a Comprehensive HUD-1
One of the most unique and challenging components of the short sale transaction is the creation of the estimated settlement statement. The short sale lien holders request an estimated settlement statement when you submit the short sale offer. They do this because they want to know their bottom line—how much they are going to net at the end of the day.
The truth is that before we got into this wave of short sales, I didn’t spend too much time focusing on the settlement statement. I would eyeball my clients’ estimated statements shortly before closing, and if everything looked good, we would be good to go.
Now, however, the estimated settlement statement for the short sale requires time, focus, and attention to detail. It needs to be generated at the beginning of the transaction, and not at the end. Calculations and fees need to be carefully considered with respect to the anticipated closing date (which is often hard to calculate because the lien holders can be unpredictable).
Here are some of the fees that you need to consider when generating an estimated settlement statement:
- Property Taxes – Current property taxes through the date of the closing as well as any defaulted property taxes and tax liens.
- HOA – This includes any unpaid HOA balance, HOA liens, HOA transfer and document fees.
- Settlement Fees – If you live in an escrow state, these would be your escrow fees.
- Title Fees, Transfer Tax, Recording Fees – These would be fees for title insurance and county recorder fees, for example.
- Additional Liens – If there are second and third lien holders (or any other additional liens), the amount paid to these lien holders needs to appear on the HUD.
- Termite, Septic, Repairs, etc. – Any fees requested by the buyer as part of the purchase such as pest control, septic certification would need to appear. Often times, this requires collecting estimates and meeting contractors at the beginning of the transaction.
- Closing Costs – If the buyer is asking for a closing cost credit, don’t forget to show it on the HUD.
- Commission – This one goes without saying, but the bank needs to approve the commission as it appears on the HUD.
One important thing to remember is that just because you have created a laundry list of fees on your estimated settlement statement does not always mean that the bank is going to approve all of those fees on the short sale approval letter. For this very reason, it’s always good to have a backup plan in place from the very beginning of the short sale transaction. (And, if you are wondering about short sale backup plans, I’ll have more on that next week.)
