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New RESPA Rule FAQs – HUD-1 Forms

August 20, 2009 Leave a comment

1) Q: How are courier and overnight delivery fees shown on the HUD-1 Settlement Statement?

A: Courier and overnight delivery fees are considered to be fees for administrative or processing services. They are part of a primary service, such as the origination service or title service, and may not be separately itemized.

2) Q: Does voluntarily using the HUD-1 in a transaction that otherwise is not subject to RESPA result in RESPA applying to the transaction?

A: No, using the HUD-1 form does not subject a transaction to coverage under RESPA.

3) Q: Does “conducting a settlement” (from the definition of “title service”) have the same meaning as “conducting the closing”?

A: Yes. The terms “conducting a settlement” and “conducting the closing” have the same meaning under HUD’s RESPA regulations and are subject to identical requirements under the regulations.

4) Q: What if at closing the seller is paying for a settlement service that was listed on the GFE, such as the Owner‘s title insurance policy? How is this shown on the HUD-1?

A: If the seller is paying for a service that was on the GFE, such as Owner‘s title insurance, the charge remains in the borrower‘s column on the HUD-1. A credit from the seller to the borrower to offset the charge should be listed on the first page of the HUD-1 in Lines 204-209 and Lines 506-509 respectively.

5) Q: If there are additional government recording fees, such as to record a power of attorney or road maintenance agreement, are they included in Line 1201 of the HUD-1 or can they be charged separately?

A: Line 1201 is used to record the total government recording charges. Additional items the lender requires to be recorded, other than those already enumerated in Line 1202, must be itemized on Line 1206. The charges for these additional items must be stated outside the column.

6) Q: How do settlement agents get the information to prepare page 3 of the HUD-1? Do they have to search through all of the loan documents to get this information?

A: The lender is required to transmit the information necessary to complete the HUD-1. The instructions for completing the HUD-1 state that the lender must provide information to the settlement agent in a format that permits the settlement agent to simply enter the necessary information to complete the loan terms section on page 3 of the HUD-1 without having to refer to the loan documents.

7) Q: Is it a violation of the tolerance if some of the items in the 10% category in the Comparison Chart exceed 10%, but other items in the category do not exceed 10%?

A: The tolerance applies to the total of all charges shown in the category ―Charges That in Total Cannot Increase More Than 10%.‖ A tolerance violation of this category means that the total of all actual charges in this category exceed the total of all estimated charges in this category by more than 10%.

*The preceding Q&A was originally published on the HUD website.

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How Well Do YOU Understand RESPA?

August 18, 2009 Leave a comment

At its core, the Real Estate Settlement Procedures Act, better known as RESPA, is a consumer disclosure and anti-kickback statute intended to alert consumers about their settlement costs and to prohibit kickbacks that could increase the cost of getting a mortgage.

New RESPA regulations were published in November 2008 and are scheduled to take effect Jan. 1, 2010. To prepare for the changes, Federal Title & Escrow Company is hosting a free event for 100 guests, which will feature a presentation by mortgage banking and consumer finance expert Holly Spencer Bunting.

To attend this free event and learn more about RESPA, contact the marketing department at Federal Title.

Wondering just how savvy you are when it comes to RESPA? Take this RESPA Quiz created by Realtor.org and test your knowledge of the law.

RESPA Reform Expert to Shed Light on Upcoming Changes

August 17, 2009 Leave a comment

Mortgage banking and consumer finance expert Holly Spencer Bunting will educate real estate agents, mortgage lenders and members of the media about upcoming changes in RESPA regulations during a complimentary luncheon next month.

Federal Title & Escrow Company is hosting the event in the Dogwood Room at the Kenwood Golf & Country Club in Bethesda, Md. on Wednesday, September 16 beginning at 10 a.m.

Bunting is an associate with the Washington, D.C. office of K&L Gates, concentrating on issues of federal and state regulatory enforcement, according to the firm’s website. She represents companies in the mortgage lending, title insurance and real estate industries in connection with regulatory compliance matters and defends clients subject to government audits, investigations and enforcement proceedings.

Additionally, Bunting advises clients about federal and state consumer credit and protection laws and regulations, including the Real Estate Settlement Procedures Act (RESPA). Consequently, Bunting has delivered several presentations on RESPA and compliance and written several articles about the consumer protection statute, including “Finally, a Final RESPA Rule,” and “RESPA’s New Average Charge Provisions – Available for Some.”

Free RESPA Reform Luncheon, Presentation

August 14, 2009 Leave a comment

Are you still chewing over the details of the new RESPA rule, wondering how the changes will affect your daily work routine?

Federal Title & Escrow Company invites you to hear the real story on RESPA and enjoy complimentary lunch in the Dogwood Room at the Kenwood Golf & Country Club in Bethesda on Wednesday, September 16 at 10 a.m.

Mortgage banking and consumer finance expert Holly Spencer Bunting will discuss the new RESPA rule, which goes into effect on the first of the year. Bring your questions for a Q&A session immediately following the presentation.

Here’s what Holly had to say about her upcoming presentation:

Despite the U.S. Department of Housing and Urban Development’s (“HUD” or “Department”) publication of its final rule to amend the Real Estate Settlement Procedures Act (“RESPA”) in November 2008, the rule continues to stir controversy as the effective date for the new HUD-1 Settlement Statement and Good Faith Estimate draws closer. While there is still hope that HUD will delay implementation of the new forms until the Department coordinates its efforts with the Federal Reserve, settlement service providers are gearing up for the January 1, 2010 effective date. This session will provide an in-depth overview of the components of HUD’s final RESPA rule and the new HUD-1 and GFE disclosure forms.

Space for this free event is limited to the first 100 guests, so reserve your spot today! Last day to RSVP is Tuesday, September 8.

Have you considered incorporating your real estate business?

November 3, 2008 Leave a comment

Have You Considered Incorporating
Your Real Estate Business

By Stephen J. O’Connor of Tobin O’Connor & Ewing

A corporation or limited liability company (LLC) can be formed quickly and efficiently by filing standardized documents with the appropriate jurisdiction. A corporation that, after being formed, elects to be taxed as a “pass-through” entity under Subchapter “S” of Chapter 1 of the Internal Revenue Code is known as an S corporation.

So, why should you consider forming an S corporation or LLC to operate your real estate business? There are two principal reasons.

1. First, each of these entities may protect you from personal liability for the debts and obligations of your real estate business. By contrast, a self-employed real estate agent (often called a “sole proprietor”) can be liable for damages and injuries caused by the business, such as a “slip and fall” incident. The sole proprietor real estate agent also may be legally responsible for the professional errors/omissions or negligent acts of other agents or staff he or she employs or engages. No liability-shielding entity, however, can protect your personal assets from debts and obligations arising out of your own professional errors/omissions or negligent acts.

2. Second, your overall income taxes may be lowered by choosing an entity to operate your real estate business. An LLC or S corporation, for the most part, is not subject to income tax at the entity level. Owners avoid “double taxation” by paying income taxes on the profits of the LLC or S corporation on a flow-through basis like a sole proprietor. While an LLC with just one owner (or “member”) is disregarded as a separate entity for tax purposes (and therefore treated as a sole proprietorship), an LLC with multiple members can allocate profits/losses in any way they choose. In an S corporation, shareholders must receive dividends in proportion to their shareholdings, regardless of the amount of time or effort they “invest” in the business. The biggest tax advantage enjoyed by S corporation shareholders is that they pay employment taxes (FICA and Medicare) only on money received by them as wages or salary, but not on profits or dividends (a savings of up to 12.4% compared to an LLC or sole proprietorship). LLC members typically pay employment taxes on the entire amount of LLC profits (regardless of whether or not the profits are distributed to the members).

There are several noteworthy distinctions between an LLC and an S corporation.

For instance, an LLC is not required to hold meetings or to keep formal minutes, while an S corporation may be required to do so. Owners of an S corporation are limited to a maximum of 100 stockholders and cannot include nonresident aliens or other entities, while members of an LLC have no such restrictions. Stockholders of an S corporation may deduct “pass-through” losses only to the extent of their actual investment in the company, while members of an LLC may deduct “pass-through” losses not only up to the amount of their actual investment in the company, but their proportionate share of the company’s borrowings as well.

If you are considering the formation of an entity to operate your business, you will want to organize the entity in the jurisdiction (i.e., Maryland, Virginia or the District of Columbia) in which you operate your business (not necessarily where you reside). This may eliminate the need to file tax returns in multiple jurisdictions relating to the business.

Lastly, an LLC is the definite choice of entity to hold your rental real estate. Since rental income is not subject to employment tax, an S corporation is of no avail for this business purpose.

For more information on planning your business, forming an LLC or S Corporation, please contact Stephen J. O’Connor at Tobin O’Connor & Ewing, 202-362-5900.