The Nation's Housing

Upset Before Settlement

By Kenneth R. Harney
Saturday, April 22, 2006

It's the No. 1 complaint that real estate agents make about the home mortgage lending process. And it bugs their home buyer clients as well: The failure of settlement or escrow officials to provide a copy of the final settlement sheet before the closing.

In a new nationwide survey of real estate agents, 50 percent said their biggest gripe was the absence of HUD-1 closing documents for review a day ahead of the settlement. The HUD-1 is the form that lists settlement charges. Real estate agents told pollsters that although "required by government regulations," settlement sheets rarely arrive in advance, thereby denying home buyers an opportunity to see an itemized list of all their charges and fees.

"I have yet to see a HUD statement prior to a client's closing," one agent said, according to the survey. "It would be nice for [home 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 complained that when buyers go to closing with no advance copy of the HUD-1, even if requested, "closing costs are different from the original quote given to the buyer -- sometimes by over $1,000."

The study was sponsored by a lending industry newsletter, Inside Mortgage Finance, and conducted by market researchers Campbell Communications and Geosegment Systems Inc. A statistically representative sample of 1,780 real estate agents participated in the polling; the survey has a 3 percent margin of error.

Tom Popik, a principal of Geosegment Systems, said the findings are "really rather shocking."

He said, "In what other major consumer purchase do you [not] get information about the final costs and fees until the last minute? How often do people buy a car and not be told the final, bottom-line costs ahead of time?"

The survey also focuses attention on when closing agents must provide a copy of the HUD-1 settlement sheet -- if indeed ever, under current federal rules. Here are the facts:

Although real estate agents and consumers may believe that federal rules guarantee them the right to see the final closing numbers a day ahead of settlement, that's not completely accurate. Washington lawyer Phillip L. Schulman of Kirkpatrick & Lockhart Nicholson Graham LLP, an expert on federal real estate regulations, said in an interview that the law requires a closing agent to provide a borrower the HUD-1 figures one business day in advance only "if the borrower requests" such a review. Equally important, said Schulman, the closing agent is only required to "provide whatever figures [the agent] actually has received up until that time" from other parties involved in the transaction.

"The fact is that some of these numbers come in very late in the process," just hours or even minutes before the scheduled settlement, Schulman said.

Another widely misunderstood point: The federal agency that regulates real estate settlement procedures has no enforcement powers when closing agents fail to provide advance copies of the HUD-1 to consumers who request them.

Ivy Jackson, who heads the Department of Housing and Urban Development's investigation unit on settlement complaints, said that "we simply do not have the authority" under current federal law to penalize any firm that ignores consumers' requests to review settlement information in advance.

Richard Fritz, a lawyer and title agent with Paragon Title & Escrow Co. of Bethesda, said one reason HUD-1 sheets often are not completed 24 hours in advance is that "we often have to wait for the borrower's lender to come through" with key information about fees and detailed closing instructions.

Sometimes other parties delay sending information needed for the HUD-1, such as local government agencies (property tax information), condominium or home owner associations (annual fees that affect escrow numbers), and even the home buyer's real estate agent (sales contract details).

"We are always willing to let borrowers see whatever we have received" 24 hours in advance, Fritz said. "But what we obviously can't show them is what we haven't received" -- which may be substantial.

Fritz said his firm soon will allow all parties to a transaction to inspect files online through a password-enabled, secure Web site. Meanwhile, HUD is expected to unveil regulatory proposals soon that would require settlement documents to closely track upfront "good faith estimates." Under current rules, final closing numbers can be far off the mark from the upfront estimates, a loophole that sometimes allows unethical loan officers to pull in mortgage shoppers with lowballed quotes on fees.

Under HUD's forthcoming proposals, good faith estimates on settlement charges would be required to come with a lot more good faith -- if not ironclad guarantees.

Kenneth R. Harney's e-mail address is

© 2006 The Washington Post Company