Closing Agent HUD Settlement Statement Errors
By David Dickinson
I get questions all the time about errors on Settlement Statements completed by closing agents. I ran across the following Q & A in the ABA Banking Journal's Compliance Mailbox. I thought they answered it so well, I wanted to share.
Who's liable when closing agents err?
Q. Real estate closings for our bank are done by an outside title agency. Recent audits of the HUD-1 and HUD-1A closing statements have revealed items listed on the wrong lines; "paid outside of closing" listed incorrectly; and other issues. Employees in the loan area tell me they have no control over how the closing is done and cannot prevent this from happening. What liability do we have in these situations?
A. This is a difficult question to answer. Section 3500.8(b) of RESPA states that the "...settlement agent shall complete the HUD-1 or HUD-1A in accordance with the instructions set forth in appendix A to this part." This would seem to imply that the settlement agent is responsible. On the other hand, the regulatory agency exam procedures include instructions to ensure that the forms are completed accurately and properly. There have been reports of examiners who criticize banks and other lenders for not ensuring that the HUD-1 is completed properly (even though they are completed by others) because the settlement agent is acting as an agent for the bank/lender. Banks could also have extraneous liability that may arise from other official sources, such as state regulators. As a result, we have heard of some institutions who submit the information in a way so as to instruct the settlement agent on how to fill out the form. The idea is that this may help show that the bank intended to complete the form accurately and thus relieve it from liability. However, there is no guarantee that this will work. Each bank must therefore review completed HUD-1s and determine if they will continue to accept documents from a particular settlement agent. You should consider reporting this particular settlement agent to HUD for enforcement purposes. (See, for instance, the "Chicago Title" case www.hud.gov/offices/hsg/sfh/res/chicagosettl.pdf and www.occ.treas.gov/ftp/eas/ea2005-12.pdf, for more information.)
**Note: This item first appeared in the September 2008 issue of ABA Banking Journal. Used with permission; copyright 2008 by the American Bankers Association**
I couldn't have said it better myself.