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The HUD Tail That Wags The Dog

More and more, real estate attorneys are going to closings which are delayed one, two, three or even four hours.  In a typical scenario, the closing is scheduled for 11AM, everyone arrives on time and the closing almost finishes smoothly but…  The buyer’s bank attorney does not have checks and everyone starts getting anxious.  The seller has moved out, the buyer’s movers are on their way and the seller needs to bring those checks to another closing to buy another apartment.

What just happened?

Some may argue that the root of this epidemic is the intolerably-designed and overly complex HUD-1 Settlement Statement (“HUD-1”) which is to be signed by the sellers and buyers in a deal involving financing and is supposed to simply provide a detailed summary of the financial aspects of the closing but is often the cause of extensive delays and agada.  The instructions alone, for this 3 page form are a mind boggling 11 pages long.

After going through the inevitable emotions of frustration, anger, and eventually apoplectic rage, it becomes logical to ask: Why is the bank attorney always late?  Why does he never show up with checks? Why hasn’t the bank’s wire hit yet?

In order to fully understand why this occurs, it is necessary to discuss the bank’s relationship to the HUD-1 and the effect it has on the lender’s attorney.

The bank’s procedure should work something like this: (1) The lender’s attorney receives a clear to close from the bank; (2) The lender’s attorney prepares the HUD-1 and sends it to the bank for approval;  (3) The bank approves the HUD-1 and sends the wire to the lender’s attorney in the early morning;  and (4) The lender’s attorney cuts the required checks and goes to a local branch of the bank to have these “certified” in time for the 11 AM closing.

Sounds simple enough right?  It is simple until the bank’s underwriting department does not approve the HUD-1 and sends it back for revisions sometimes two or three times.  Coalesce this with the large number of HUD-1s that one bank representative is responsible for, and suddenly what should have taken an hour or less, take north of 24 hours.  To go back to the original illustration, although your closing took place as scheduled, the HUD-1 was not approved until that day, and thus the wire was not sent out in the early morning, guaranteeing delays in the closing.  Once the wire finally does hit, the bank attorney has to somehow obtain certified checks, which usually means another trip back to the office to get the checks and then a journey to the bank (and a wait on line) to get the checks certified.  Meanwhile, closing small talk has been exhausted, managing agents are talking about increasing fees and tempers are flaring.

But wait, it can get even worse.  Sometimes in the mad rush to create the HUD-1, the lender’s attorney forgets or is unable to get the seller’s attorneys comments until the closing.  Then the fun really begins because the seller’s attorney will often find a missing charge or error and insist the HUD-1 be revised, causing the lender’s attorney, the buyer’s attorney and the bank to revise the HUD-1 in a panic mode which often results in further mistakes.

Add all of this together and you are in for a long delay, an angry adversary and additional expenses to what should have been a routine and celebratory event.  If this weren’t involving the time, money and emotions of several people around a closing table it would be humerous.

While most of these delays seem inevitable, one possible way to ensure that the closing occurs in a reasonable amount of time is to schedule it late in the afternoon.  Assuming there are no other issues, this will effectively give the bank and the bank’s attorney an ample amount of time to get the HUD-1 approved and the wire sent on time.

Another and less viable solution (in this overregulated environment) is to simply eliminate the dreaded HUD-1 and make our closings go faster and smoother.

– Jerome J. Strelov and Ryan V. Stearns

Category: Closings, News Comment »


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