Thursday, July 8, 2010

HUD-1 Availability

At our real estate school last evening a student asked about access to the HUD-1. The question was how long before the closing must it be made available and to whom?

First, the HUD-1 is a statement that summarizes all of the charges in a real estate transaction.

The answer is that the borrower has the right to inspect the HUD-1 one business day before the settlement (closing). Yet, the fully completed HUD-1 must only be delivered at the settlement (closing).

So what is the difference between inspection and delivery?

Under Regulation X, which promulgates the inspection rule for a HUD-1, § 3500.10 provides:

One-day advance inspection of HUD-1 or HUD-1A settlement statement; delivery; recordkeeping

(a) Inspection one day prior to settlement upon request by the borrower. The settlement agent shall permit the borrower to inspect the HUD-1 or HUD-1A settlement statement, completed to set forth those items that are known to the settlement agent at the time of inspection, during the business day immediately preceding settlement. Items related only to the seller's transaction may be omitted from the HUD-1.

(b) Delivery. The settlement agent shall provide a completed HUD-1 or HUD-1A to the borrower, the seller (if there is one), the lender (if the lender is not the settlement agent), and/or their agents. When the borrower's and seller's copies of the HUD-1 or HUD-1A differ as permitted by the instructions in Appendix A to this part, both copies shall be provided to the lender (if the lender is not the settlement agent). The settlement agent shall deliver the completed HUD-1 or HUD-1A at or before the settlement, except as provided in paragraphs (c) and (d) of this section.

(c) Waiver. The borrower may waive the right to delivery of the completed HUD-1 or HUD-1A no later than at settlement by executing a written waiver at or before settlement. In such case, the completed HUD-1 or HUD-1A shall be mailed or delivered to the borrower, seller, and lender (if the lender is not the settlement agent) as soon as practicable after settlement.

(d) Exempt transactions. When the borrower or the borrower's agent does not attend the settlement, or when the settlement agent does not conduct a meeting of the parties for that purpose, the transaction shall be exempt from the requirements of paragraphs (a) and (b) of this section, except that the HUD-1 or HUD-1A shall be mailed or delivered as soon as practicable after settlement.

(e) Recordkeeping. The lender shall retain each completed HUD-1 or HUD-1A and related documents for five years after settlement, unless the lender disposes of its interest in the mortgage and does not service the mortgage. In that case, the lender shall provide its copy of the HUD-1 or HUD-1A to the owner or servicer of the mortgage as a part of the transfer of the loan file. Such owner or servicer shall retain the HUD-1 or HUD-1A for the remainder of the five-year period. The Secretary shall have the right to inspect or require copies of records covered by this paragraph (e).

There appears to be a clear difference between an inspection and delivery, but not one that is actually articulated. In such, a good lawyer will look to case law. Nonetheless, a search of the case law only revealed one case and in that case the Court stated: "In any event, it appears that a violation of § 2603 would not give rise to a private right of action. See, e.g., Bloom v. Martin, 865 F. Supp. 1377, 1384 (N.D. Cal. 1994) ("The structure of RESPA's various statutory provisions indicates that Congress did not intend to create a private right of action for disclosure violations under 12 U.S.C. § 2603.")."

Therefore, I ask, what is the difference in what it means, since the buyer probably won't enforce a violation anyway.

As to the question of who can inspect, its likely that the buyer or his representative can inspect. Yet, the regulation only states buyer, which would mean the buyer or someone holding a valid power of attorney.

To the great real estate agent who brought up this question, my answer to you is that you cannot force the bank attorney to show you a proposed HUD-1 in advance. Sorry.