Real Estate Closing Settlement Statements
When you close on the purchase or sale of real estate, the financials can be confusing. Over the years forms were developed for lenders to use in residential real estate transactions to calculate the financials and to explain them to the consumer. Up until last year, the required form for residential real estate transactions with a lender involved was the “HUD-1”. “HUD” is an abbreviation for “Housing and Urban Development.” Even though this form was developed with the intention of giving transparency to real estate lending financials by trying to make them easier for the consumer to understand, it is not a form one can understand upon first glance. I kept a color-coded “cheat sheet” tacked above my desk for my first busy season as a real estate attorney to help me put all the numbers in the right boxes. Now that I’m used to the HUD-1, I am comfortable explaining it to clients and have a good routine for completing it, so I have been using it even for transactions which do not involve a lender. I am not alone in that practice, and clients involved in transactions without a lender are likely to keep seeing the HUD-1 for quite some time.
Last year new regulations went into effect for residential real estate lenders which, among many other changes, created a change to the required form for the settlement statement at closing. The form is now called the “Closing Disclosure” or “CD.” I think the best way to describe the difference would be that the CD seems like more of an outline format than the balance sheet style format of the HUD-1. In addition, there is a separate disclosure form just for the Sellers of the real estate, to keep some of the Buyers’ financial information confidential. Being a human and not unlike many humans, I initially didn’t like the CD because it’s different. I have now used it and am up to giving it a rating of “not so bad after all,” despite being a creature of habit who still falls back on the HUD-1 when I can just because it is what I am most used to and can explain the most quickly; The HUD-1 is shorter than the CD and I know exactly where to find what numbers I am looking for from memory.
I am interested to see how consumers feel about the CD versus the prior HUD-1 format. As this season gets into full real estate swing, I would love to hear from people who have bought or sold property under both the old and new system, to see how they feel about it. The forms are, after all, supposed to be built to serve the consumer.