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Real Estate Settlement Resources

for people who do closings
 


Real Estate Closing Procedure

Streamlining your closing practice

J. Mark Murphy's article "Streamlining Your Closing Practice" was written for his Continuing Legal Education seminar of that name. This article sets out in some depth how to organize a law firm's real estate settlement practice. It provides a clear, step by step survey of the closing process, with a wealth of practical suggestions. It might serve double duty as an excellent job orientation for the closing secretary or paralegal assistant. Presented here by permission of the author. 

Note: The above article and documents can be read using the free Acrobat® .PDF reader.

1099-S reporting and exceptions

  • 1997 Taxpayer Relief Act reduces 1099S reporting

Effective August 5, 1997, real estate settlement agents are generally not required to file form 1099-S to report gross proceeds on home sales of $250,000 or less ($500,000 for qualified joint filers).

  • Rules for exception from 1099-S reporting

IRS Revenue Procedure 2007-12 specifies the acceptable format for certifying the sale or exchange of a principal residence is excepted from the 1099-S reporting requirement. Rev. Proc. 2007-12 supersedes Rev. Proc. 98-20 and is effective for sales or exchanges of a principal residence occurring after January 22, 2007. 

See also Seller Certificate for No 1099 Information Reporting.

Like Kind Exchanges

Generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031. This is a highly technical and specialized subject. The general practitioner may be well advised to associate a specialist.

Haven Exchange Inc. claims expertise in this area, and provides a wealth of information at their website, www.havenexchange.com.

RESPA and Regulation X

The Real Estate Settlement Procedures Act, known as RESPA,  is a federal law enacted in 1974 and codified as 12 U.S. Code § 2601–2617. The Act is intended to prevent increased closing costs and anti-competitive trade practices associated with undisclosed kickbacks between lenders and providers of real estate settlement services, and it applies to federally related residential mortgage loans.

The Act requires a good faith estimate of closing costs be given to borrowers. The related regulations, known as Regulation X and codified as Title 24 CFR Part 3500, are administered by HUD

This law prescribes the form of the HUD Settlement Statement to be used at closings, and provides the optional alternative shorter HUD-1A Settlement Statement for loans that do not involve a sale.

RESPA Final Rule of November 2008

On November 17, 2008, HUD published its Final Rule which revises the Real Estate Settlement Procedures Act ("RESPA"). The 2010 Final Rule specifies a three-page Good Faith Estimate, and turns the HUD-1 Settlement Statement form into a three-page form.

A few provisions of the rule were effective January 16, 2009, including:

  • New optional average cost pricing of settlement charges.

  • A required loan servicing disclosure statement.

  • A technical change to aggregate adjustment of escrows.

  • The one percent cap on FHA origination fees is eliminated.

The 2010 rule originally revised the definition of "required use" affecting limitations on affiliated business relationships, but HUD withdrew the revision of "required use" on May 15, 2009, leaving in place the definition codified at 24 CFR 3500.2. This change is related to the lawsuit filed against HUD on December 23, 2008, by National Association of Home Builders (NAHB).

The 2010 RESPA rule provides for forms for Good Faith Estimate, HUD-1 and HUD-1A that are optional until January 1, 2010. The new forms involve new tolerance provisions which provide that certain charges cannot increase, and certain other charges cannot increase more than ten percent above what was shown on the Good Faith Estimate. If a lender and a title agent choose to use the new Good Faith Estimate and Settlement Statement prior to 2010, the tolerances and other requirements that go with the new forms must be adhered to.

HUD has promised to give guidance on compliance with the rule’s provisions during the implementation period. HUD has published several revisions of its New RESPA Rule FAQs. For current information from HUD, visit HUD's  RESPA Home Page.

The 2010 rule is greatly influenced by variations in local practice. Because of this, a local representative of a nationally known title company is likely to be a good place to start when seeking reliable information about the 2010 rule.

See also ALTA's RESPA Reform Resource Center, which provides Instructions for filling out the forms, together with an informative Webinar under the topic "Special Event", at which HUD representatives answered questions posed by settlement agents on December 3, 2008.
 

HUD-1 Form before the RESPA Final Rule

The Form HUD-1 Settlement Statement is a real estate closing form introduced in 1974 that shows charges incurred by persons who are borrowers, buyers, and sellers involved in residential real estate closings in the United States. The HUD Settlement Statement is required in the case of most institutional loans secured by the borrower's residence. Because of its familiarity, the HUD-1 is often used in real estate transactions where it may not be required by law, such as home equity loans, transactions that do not involve an institutional mortgage (e.g. cash sales and seller-financed sales) and transactions not involving a residence (commercial real estate closings).

Form HUD-1A is an alternative short form that appeared in 1994. It is never required, but may be used as a substitute for the HUD-1 form in suitable real estate closings that do not involve a sale of land. It has extra room for itemizing payments of borrower's items as may happen in the case of a consolidation of debts. Some find it confusing or problematic in cases involving open end loans involving future advances, such as home equity loans or construction loans.

HUD's website provides an example of Form HUD-1 together with the form's Instructions, and also Form HUD-1A and its instructions. HUD also provides some information about RESPA, Regulation X, and some Proposed Rules that may become changes to RESPA.

See also: HUD-1 Program
 

Regulation Z and the Truth in Lending Act

The Truth in Lending Act can be found at the online law library of Cornell Law School's Legal Information Institute.

Regulation Z can be accessed online at the United States Government Printing Office in either text or the free Acrobat (pdf) format.

It can also be found here in the Electronic Code of Federal Regulations (eCFR).
 

  • Senate Hearings on RESPA and Truth In Lending

On July 9, 1997, the U.S. Senate held hearings on problems surrounding the mortgage origination process. The hearings brought forth a variety of viewpoints on mortgage brokering, yield spread premiums, truth in lending and RESPA. Lenders, realtors, title insurers, and consumer advocates were all represented in the hearings. You can read transcripts of what they had to say here:
RESPA / TILA hearings
 

Reference

Real Property Law

State real property laws can be accessed at Cornell Law School's Legal Information Institute's Topical Index of State Statutes on the Internet.

Surveyor's Resources

The Land Surveyors Reference Page provides reference materials that are useful in the practice of Land Surveying. LSRP also promotes communication within the surveying community globally.

 

Discussion

Real Property Lawyers Discussion Group (DIRT)

Hosted by Patrick Randolph, a professor at University of Missouri Law School. This is the popular DIRT law mailing list. For details and to subscribe, visit the Dirt web page.

 

Professional Services

Clearing and tracking releases and satisfactions

Final Trac, LLC, provides a release tracking service that includes acquiring releases and discharges and ensuring that they are recorded timely and correctly. If you need a particular old release that has been driving you crazy, you might try them out for free. Just tell them you are a Power Closer user, and ask for their free introductory curative tracking valued at up to $250.00.

ABA's list of attorneys who prepare deeds

ABA Real Property Probate and Trust Law Section maintains a list of attorneys who assist out of state counsel prepare deeds for no more than $200.

National Directory of Abstractors, Surveyors and other Industry Professionals

Source Of Title is a free directory of title examiners, abstractors, signing agents, surveyors, appraisers, and other industry professionals.

 


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