Issues with Changes to the Estimated Settlement Statement after Signing

A Seller from Battleground, Washington sent me this question regarding how their closing cost contribution was treated with the Escrow Officer:

I recently sold my home and…I was to pay up to 6% of buyers costs. I was presented with good faith estimate of costs two weeks prior to closing, everything looked fine. We signed our documents at closing and carefully reviewed and signed the HUD-1 [Settlement] Statement.  The deal was recorded the next day and we were wired the money as noted on our documents minus around 3025.00.  We called escrow officer and she said that there was a problem at closing and she added a FHA-MIP charge to the hud-1 statement because we agreed to pay up to 6% of buyers costs in our sale documents. She did not notify us or even attempt to notify that she added this change to the hud-1 document and closed anyway.  Is that a legimate thing that can happen at closing?  It seems very very wrong to me…

Let me begin by saying that it does feel wrong.  The Escrow Officer should have called you immediately to let you know of the change to your Estimated HUD-1 Settlement Statement. It’s very poor service from the escrow company at the very least. 

Unfortunately, the Estimated HUD-1 Settlement Statement is just that: an estimate.  And when purchase and sale agreements are written with the Seller to pay up to a certain amount instead of a specific dollar amount, then it is the responsiblity of the lender to make sure that as much of the closing cost credit is used per the buyer’s loan guidelines.  Obviously there was a lack of communication with your transaction between the mortgage and escrow company to have this last minute change to your HUD happen.

You may want to review your escrow instructions (you would have signed them at closing too) which probably have language stating that the escrow company has the right to modify the Estimated HUD-1 Settlement Statement at any time.

You did everything correctly as far as reviewing the Good Faith Estimate and seeing what costs were being paid.  When you agree to pay "up to" a certain percentage, the Seller needs to be prepared to have that entire amount used.  When I have a closing cost credit from a Seller, we use as much as possible to pay for allowable closing costs and possibly buy down the buyer’s interest rate. 

I suggest contacting the manager of the escrow company and the real estate agents to let them know about your displeasure with your closing.