Goodbye HUD-1, Hello Closing Disclosure
HUD-1 Settlement Form replaced by Closing Disclosure in 2015
Goodbye HUD-1, Hello Closing Disclosure
The HUD-1 Form, its official title, is known by many as the “closing statement” in real estate transactions. It is the spreadsheet for buyers and sellers that accounts for closing expenses and proceeds for everything from the sales price down to the prorations for taxes. I can hear Auld Lang Syne playing in the background, as we enter into 2015 and the HUD-1 disappears from the closing table.
For decades, the HUD-1 remained unchanged– a two page form required in governmental insured loans. The insured loan requirement has made the form all but ubiquitous in residential real estate closings. It is lauded and hated at the same time. Real estate professionals love the familiarity of the form while consumers find its criss-cross number formatting, as well as its terminology, terribly confusing. The HUD-1’s defining characteristic is a two-column report representing the closing transaction from the perspective of each the buyer and seller. The form had a last major revision in 2010 when a third page was added to disclose, for the first time, specifics of the buyer’s loan transaction, if financing was being obtained. New changes attempt to make the closing forms more transparent, simpler and easier to understand.
On August 15, 2015 the HUD-1 closing statement form will be replaced by a form called the “Closing Disclosure” (the “CD”) which comes from a relatively new federal agency called the Consumer Financial Protection Bureau. The CD essentially repurposes the HUD-1 as a loan disclosure tool for the buyer. Emphasis here is on the words “loan disclosure” since our classic closing statement will now be embedded in an all new and improved configuration inside the CD. Page one of the old HUD will be in a recognizable format, but page two has blossomed from two columns to five. That’s two columns each for the buyer and seller (columns differentiate items paid before closing or at closing) and one for items “paid by others.”
The new CD is longer and more complex than a standard closing statement, but there are some real gems in the new rules, and here are a few of them—
- These rules do not apply to all cash or commercial transactions. For these transactions, the existing closing statement formats will continue to be used.
- Say goodbye to the Truth in Lending Disclosure (the “TIL”). The CFPB has incorporated the substance of the TIL into the new CD. That means the TIL is gone and since the CD acts as its replacement, it will not be substituted with an additional form.
- Say hello to another new form called the “Loan Estimate.” The wisdom behind this form is that the data aligns with the new CD format, allowing for easy comparison between initial preliminary figures and the actual final closing costs. This form will replace both the Good Faith Estimate and the preliminary TIL.
- A final CD must be delivered to the homebuyer three days before the closing. This means that homebuyers and sellers are guaranteed to get to see the finalized closing figures before they come to closing. However, once a final CD is issued, the numbers will not be able to change without a new CD and three day waiting period. This rule should facilitate on-time, no-surprise closings.
My company (GeorgiaTitle.com) is actively preparing for the rollout of the new closing disclosure and related forms. We continue to offer one of the best values in settlement costs in the State of Georgia. Our flat fee service not only puts clients first but follows in the spirit of CFPB’s closing guidelines. This means no hidden, extra or inflated charges for standard services nor are fees shifted to the other side of the closing statement. In addition, we are the only title company in Georgia to offer a proprietary smartphone app (available for both Android and Apple iOS) that will calculate closing costs to the penny!
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