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.      

I had an amazing experience which I just have to share…the positive point is that  the buyer did wind up with her home but it was under the brunt of stress that was unnecessary.   You see, sometimes when things begin to go wrong in a transaction, fingers will waive and point vigorously undeservedly.   People will want to remain shiny, positive and virtuous to their referral provider and will therefor, throw someone "under a bus" or "into a train".  I was recently almost thrown and I spared myself fighting all the way.

We had loan documents to the escrow company just over a week prior to closing (still pretty darn good)…no HUD-1 from the escrow company until a day before the buyer was signing (after many request for an estimated HUD-1.  I want to review them to make sure my closing costs from the Good Faith Estimate are in line with the Estimated HUD-1 Settlement Statement).   

The client signs two days before closing and I assume all is well until I receive a panicked call from the home buyer on closing day stating that we are not closing.  She’s very upset because she has learned from the Listing Agent and the Escrow Company that her purchase is not funding because my company released it too late.  This is a total surprise to me since our office did fund on the transaction.

My first step, after calling my client to let her know that I’m "on it" and that this is news to me (because escrow NEVER called me) is to call escrow and find out "what’s up".  At this point, it’s 4ish in the afternoon and there are no more new recordings taking place at the county. 

The Escrow Officer is schmoozy and tells me that we (the mortgage company) released the recording a little late which made it difficult for the title company to get documents to the county.  I let the EO know that previous to lending, I was in the title industry where my career began with recording documents and ended with managing an escrow branch.  The EO had days (a week) to sign the client and provide documents to the title company for recording…yet she’s still trying to pin the blame on the mortgage company.  We, in fact, have emails to the escrow officer confirming she has our wire and she’s okay at proceed with recording. 

Although this EO returns our funding package two days before closing (thanks to how many days in advance we provided the loan package to her) yet waits until the day of closing to send the loan documents to the title company.   She tried to tell me that we released too late at 2pm when I know that the county courthouse will take recordings until 3:30.  I’ve done many "walk on’s" myself way back "in the day".  Regardless, she and/or the title company could have had the documents to the court house MUCH earlier.

I only learned about the recording mishap only because my client called me ready to rip my face off since she was told this was the fault of lender when it was anything but the case. 

The escrow officer and title company are lucky that I’m not naming them.  I’m not one to bash (although check back if this happens again)!   As someone who was in the title and escrow industry for so many years, there is no way that I would have unjustly thrown someone "under the train" and I find it extremely concerning that the only way we learned about recording/closing issues was from the buyer.  If the buyer had not called us late in the day, we would have had NO idea that the loan we funded on did not record.  Why didn’t the Escrow Officer contact us?  A short staff is no excuse for not contacting the mortgage company (when the EO did communicate with the buyer and agents).  In fact, there is no excuse.

How did this wind up?  The title and escrow company have both since admitted fault.  The title company is going to indemnify the transaction as if it had closed on the day it should have.  And the buyer did get her keys to her new home.

What happened to working together?  I don’t remember throwing Mortgage Professionals under the train or bus like I’ve witnessed recently–are EO’s so afraid of losing business they’ll make a sacrifice play to impress their agents?

NOTE: My preferred title and escrow company contacted me concerned this could appear as if it where one of their Escrow Officers that "threw me off the train".  Without naming names, this was a different company. 

EDITORS NOTE:  This post has been updated here.   With all the changes HUD created with the 2010 Good Faith Estimate, they are no longer a practical tool for mortgage originators and actually, no where on the GFE is there a place showing "funds for closing".   Please skip this post and read the one linked above.

Your closing date on your new home is a couple of days away, your feeling a little case of the jitters…the last thing you want to deal with is to be surprised with what funds are due at your signing appointment with the escrow company.   

Here's how you can clear up the funds to close issue:

1. Your Mortgage Professional should provide you with a "fine tuned" Good Faith Estimate 5 or more business days before closing for review.   Check out the amount due for closing and if you are being credited for the earnest money deposit and any funds you have provided to the lender.   Also verify if any credits to you are reflected by the seller.   If you are unsure at all, ask–don't assume.   This is the best time to make any adjustments, if needed.
2. Verify with your Mortgage Professional if the GFE is factoring in your earnest money deposit.
3. Your Mortgage Professional should obtain an estimated HUD-1 Settlement Statement from the escrow company 2 days before closing to review it for any corrections or modifications.   
4. You may want to request seeing a copy of your estimated HUD-1 Settlement Statement prior to your signing appointment.   Currently this is not standard practice.   
5. Bring a copy of your Good Faith Estimate with you to your signing appointment.   The lender fees shown in Section 800 of the HUD should be close to those shown on your Good Faith Estimate.

What if there are errors?  Try not to panic. Depending on how much time there is prior to the scheduled funding, the lender may be able to redraft loan documents if needed.   80% of our loans our funded within our own credit line so unless it involves someone having to be re-approved for a higher loan amount, loan documents can be emailed fairly easily to the escrow company.   Often times, it could just be correcting a few documents and not the entire loan package.

The closing table can be an emotional time.   It's in your best interest to have as many of the details worked as far in advance as possible.   If you have questions or concerns, speak up.  This is not the time to be bashful.   This is your mortgage and one of the largest financial transactions you will make in your lifetime…be responsible and take action.