On January 1, 2010, new Federal Rules took effect, requiring lenders and home buyers and sellers to use new forms. Specifically, lenders must use a new, standardized Good Faith Estimate (called the GFE) when taking loan applications. And, at closing, title companies must use a new HUD-1 Settlement Statement (usually called the HUD).
The HUD has always been the document that discloses all closing costs. The new HUD must disclose closing costs and must show how those closing costs compare to the lender’s original estimates on the GFE. Thus, lenders cannot quote one thing and then charge a much higher price. Indeed, the new HUD contains a 3rd page that shows exactly what was quoted on the GFE and compares those quotes to the actual closing costs. Certain of these charges are allowed to change and some cannot. The amount of price difference that is allowed under Federal law is called the “tolerance” limits.
These “tolerances” for differing prices have caused confusion and problems for some lenders and title companies. One of the most confusing aspects of the “tolerance” limits relates to the Owner’s Title Policy and the State Transfer Tax. In many states, those charges are paid by buyers. In Wisconsin those charges are virtually always paid by the seller (indeed, Wisconsin is one of four states that statutorily requires the seller to pay the Transfer Tax). Nevertheless, the lender is required to disclose these seller fees to the buyer on the GFE.
Herein lies the problem. When taking the loan application, lenders are required to disclose to their buyers fees that the buyer will not have to pay at closing. If lenders fail to disclose these fees, there could be penalties or, worse yet, delays in closing. And, more problematic yet, the transfer tax is one of the few fees that has a zero tolerance. This means that the quote on the GFE must match exactly to the final amount charged at closing (even though it won’t even be charged to the buyer at closing). The Transfer Tax, in Wisconsin, is based upon the purchase price, which lenders may not know at the time of the loan application. Even the smallest inaccuracy in the purchase price and transfer tax can lead to problems.
So what is a lender to do? Lenders should disclose the owners policy of title insurance on the GFE. Then, on the HUD, there will be a seller credit to the buyer for that same amount. This is confusing, bur required under the new rules. The American Land Title Association has taken the position that lenders in Wisconsin need not disclose transfer taxes as a buyers fee on the GFE. And, as a practical matter, most lenders in Wisconsin have not been disclosing the Transfer Tax on the GFE.
Homestead Title has a spotless record on preparing the new HUDs and complying with the new GFE rules. While we’ve heard many lenders complain of difficulties and confusion relating to the forms, we have not experienced any problems on our end. If you have any questions on the title or closing implications and rules of the new GFE (in Wisconsin), just call or email and we’re here to help.
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