When you’re buying a house, don’t you want an experienced set of eyes checking out the closing papers for errors and potential overcharges?
Of course. But under the new federal real estate settlement procedures that took effect late last year, an unexpected problem is taking shape: Many lenders and title companies are refusing to provide copies of the final closing documents to real estate agents representing homebuyers. That, in turn, is threatening to jeopardize one of the traditional services agents perform for their clients – scrutinizing closing statements for inaccuracies that could cost them money or delay the settlement unnecessarily.
Yet in a recent internal survey of members across the country, the National Association of Realtors found that 54.5 percent of agents reported they had experienced difficulties obtaining the Closing Disclosure form used under the new federal rules, and that half of these agents detected errors when they finally reviewed them. The errors included incorrect fee charges, commission splits, taxes and failure to include seller concessions to the purchasers, among others.
In some cases, when Closing Disclosures had to be changed and re-issued – triggering a mandatory three-day waiting period for the purchasers and delaying the settlement – sellers have balked and even canceled sales. Eric Post, principal broker at BHGRE Realty Partners in Portland, Oregon, told me “we’ve had some situations where this caused the termination” of entire deals because the delay “wasn’t acceptable” to the sellers.
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Dan Galloway, an agent with Redfin in the Washington, D.C., area, said under the previous system, agents routinely received a copy of the HUD-1 closing form, which summarized the costs and credits for both the sellers and buyers in one document. Typically the HUD-1 was prepared and delivered by the settlement or title agent or attorney closing the transaction. Now lenders are solely responsible for preparing and delivering the Closing Disclosure, the replacement for the HUD-1, directly to the buyers. Lenders are often reluctant to deliver it to any party not expressly designated in the government’s rules. The rules are silent about sharing a copy with the buyers’ realty agent. Lenders also cite federal consumer privacy regulations that they feel constrain them from providing a Closing Disclosure to a realty agent because the document contains “non-public” personal information. Though title, escrow and settlement agencies typically are local, frequently the lender is located hundreds or thousands of miles away and may not be adequately informed about local real estate tax practices, transfer fees and other charges.
As a result, lenders’ Closing Disclosures now commonly contain errors – Galloway says “the lion’s share” of them have one or more mistakes. Emily Vaile, regional manager for BHGRE David Winans & Associates in Dallas, agrees. “Errors are happening all the time,” she said in an interview. “Maybe half” of Closing Disclosures contain them, she estimates – some minor and clerical, some consequential. If there’s something that’s inconsistent with the sales contract in the Closing Disclosure, “it may be obvious to the agent,” she said, but be totally missed by the buyers, whose heads are spinning with all the last-minute details of getting ready to move.
When realty agents can’t obtain their clients’ Closing Disclosure from the lender, they often turn to the title or settlement agent. But title agents may not be willing to share it with them either because of their own federal privacy concerns. Some lenders also prohibit title and settlement agents from sharing the Closing Disclosure with realty agents.
So where’s this all headed? Some title agents have begun using workaround solutions that provide realty agents the information they need, including a customizable “settlement statement” from the American Land Title Association that itemizes all the fees and charges that the buyers and sellers must pay during the settlement process. It includes no personal information that violates privacy rules but allows agents to counsel their clients and report transactional data to the local multiple listing service.
Bottom line for you: Be aware of this issue and discuss it with your agent and the title company you choose. Alternatively, short circuit the whole controversy by handing over a copy of the final settlement disclosure to your agent immediately after you receive it from the lender. Ask for a thorough walk-through of the closing items and their accuracy.
Get the most out of that extra pair of eyes.