HUD-1 CLOSING TABLE CHANGES

In the past, closers and settlement agents were able to make changes to the HUD-1 settlement statement (HUD-1) at the closing table without any major ramifications. Well, not anymore. According to new regulations, any changes to the HUD-1 that affect the loan’s “finance charge” as defined in 12 CFR 226.4 must be shown on the lender’s truth-in-lending statement (TIL), the statement the lender delivers to the borrower at the time of closing. If the closer makes any changes to the HUD-1 that affect the finance charge, the lender’s TIL must reflect those changes as well. Such changes render the original TIL inaccurate and a new TIL will have to be prepared by the lender and delivered to the borrower. If a new TIL is not prepared, the closing may not proceed. The borrower may be able to rescind the loan within three (3) years of its disbursement if the TIL is deemed inaccurate. (See 12 CFR 226.23). Therefore, closers should be very cautious before making changes on the HUD-1 at the closing table, as such changes could subject the lender, the title insurance company and even themselves to liability. Unfortunately, changes to the HUD-1 requiring a new TIL may suspend the closing until the new TIL is prepared by the lender; this may not only delay the initial closing but also any other closings which rely on funds generated by the initial closing.

Closers should try to avoid any last-minute changes to the HUD-1 that fall within the definition of “Finance charge” as defined by 12 CFR 226.4 because such changes will likely require a new TIL from the lender. For example, agents must notify the lender of any changes made to the HUD-1 that relate to the following: interest, time price differentials, service, activity and carrying charges, points, loan fees, assumption fees, finder’s fees, appraisal, investigation, and credit report fees, premiums for any guarantee or insurance, debt payment fees and any discounts for the purpose of inducing payment by means other than the use of credit. However, the following are not considered “finance charges” and, as such, a new TIL will not need to be prepared: application fees charged to all applicants for credit, fees charged for participation in a credit plan, seller’s points, interest forfeited as a result of an interest reduction by law on a time deposit used as security for an extension of credit, certain real-estate related fees, discounts offered to induce payment for a purchase by cash, check, or other means, as provided in section 167(b) of the act, and any charges for unanticipated late payments, for exceeding a credit limit, or for delinquency, default or similar occurrence. These changes do not need to be recorded because they do not affect the cost of the funds. Consequently, such changes will not trigger the provisions of 12 CFR 226.4 and a new TIL will not need to be delivered to the borrower. In short, the TIL and the HUD-1 must be consistent with each other and the respective forms should only reflect costs that affect the borrowed funds. The full list of examples of closing table changes that may or may not fall within the definition of “Finance charge” are contained in 12 CFR 226.4.

Lenders and title insurance companies should also be aware that they are not only liable for the agent’s closing table changes affecting the finance charge that are disclosed but also for those that are undisclosed. As such, lenders would be prudent to include a notice in their closing instructions instructing closing agents not to make any changes to the HUD-1 or other important closing documents without the consent of the lender.

Accordingly, closing agents should not make closing table changes to the HUD-1 that may affect the finance charge unless they are absolutely necessary because such changes could create innumerable closing delays and subject the various parties to the transaction to increased liability. If changes are necessary then the closing agent should disclose those changes to the lender and other appropriate parties, obtain consent, and wait for the lender to prepare a new TIL which reflects the agent’s closing table changes made to the HUD-1. In short, the TIL and the HUD-1 must be consistent with each other and the respective forms should only reflect costs that affect the borrowed funds. Once the TIL and the HUD-1 contain consistent information, the closing process may continue.