Read Your HUD Carefully to Spot Common Errors

I finally got my final HUD about 10 minutes before I was supposed to go sign the documents. It looks a lot like your Good Faith Estimate and lists out all your costs. It said I needed to bring to closing $5000 more than the worst case scenario I expected.

I started to panic; I didn't even have that much money sitting in checking. I scanned all the fee amounts and they all looked right, so I couldn't figure out how/why I had so underestimated my obligation.

So I forced myself to calm down enough to spend time adding up the numbers myself, which is a surprisingly difficult and complicated task (especially when you're trying not to hyperventilate):

• You start at the top of page one, which is the summary page. The first section lists the total you owe, which is purchase price of the property plus all the closing costs which are listed on page 2.


• Then you subtract the items in the next section which have already been paid by you (such as escrow fees) or which will be paid on your behalf (the mortgage). These line items lower your obligation at closing.


• Then you move to the next section, which lists adjustments such as tax prorations and rent collected. This is where it gets tricky because it's hard to know whether to add or subtract the line items. Sometimes the seller will owe you for things they haven't paid but already owe (like property taxes) or sometimes you'll owe them (for instance if they've already paid taxes for the whole year).

What you have left is how much you have to bring to closing. Turns out there was a simple mathematical error in there. The lender was paying closing costs on my behalf amounting to $4K. The title company had put that number in parenthesis in section 3, meaning it was being ADDED to my total I owed, not subtracting from it. I figured my costs were off by about $4K, but actually they were inflated by $8K because not only were they not subtracting the $4K from what I owed, they were adding it!!

After a few frantic phone calls to the escrow agent and my lender, the title co apologized for the error and fixed it. OMG. Crisis #1 Averted

Another Mistake!
Then I noticed something else - the "taxes paid from 1/1/08 - 7/10/08" were supposed to be credited to me from the seller, since I'll be paying the full amount of 2008 property taxes at the end of this year. But there was only about $375 listed there. Property taxes are $535 a month, so shouldn't I be getting around $3K from the seller for that?

I called the title co again, sweetly apologizing for "bugging her." I explained my question and asked where she got those figures. She said they had to go based on last year's tax assessments, and last year that piece of property was nothing but land! Meaning it had a MUCH lower value and much lower property taxes to go with it.

But the duplex was constructed by the end of 07 and has been sitting on that land all year in 08. I'll owe around $6K in property taxes in Dec, and the seller should be paying me for half of those since he owned the property for half the year.

After a few more frantic calls - this time to my realtor - we determined that the title company only needs something that says the current tax value of the property. I proactively looked up the property value one the Dallas county Appraisal District website. Sure enough it had already been updated (tax value is $208K, by the way, $104K for each side). I forwarded it to the escrow agent, and she updated my HUD again.

So after about one hour of work, I lowered my closing costs by over $10,000!!! Can you imagine if I hadn't caught those errors? I probably would have gotten the $8K back eventually, after the title co started dispersing checks and realized they had way too much money. But I would have totally lost out on the property taxes, and I never would have even realized it. I wonder how often such errors go unnoticed...

By the way, in case you couldn't tell, my title company and the escrow agent that represented me sucked. The escrow agent was lazy and should have been able to fix these errors without me getting involved (i.e. she could have checked the updated tax assessed value herself). No one thinks of the importance of the title company, but they are the ones who prepare the HUD and figure all this out. It's vital to choose one with a good reputation and one that will be responsive. I should never have had to even talk to them.