HUD-1 As a Marketing Tool - For Realtors

How Can HUD-1 Help You Generate Business? ----------------------------------------- HUD-1 is a standard form you use very often. The form serves not just as a settlement closing statement, but also as a proof of payment of different tax deductions. Understanding the form and the tax deductible items and communicating them to your clients will help your clients to minimize their taxes and help you to build trust and get more business exposure. What is the HUD-1 ----------------- HUD-1 is a form used by the settlement agent (closing agent) to itemize all incoming funds and all charges paid and accrued by a borrower and seller for a real estate transaction. When is the HUD-1 Issued? The Real Estate Settlement Procedures Act (RESPA) requires that the form be issued in all real estate transactions in the United States which involve federally related mortgage loans. RESPA states you should be given a copy of the HUD-1 at least one day prior to settlement. When Do Clients Need HUD-1 For Taxes? ------------------------------------- Clients use the information included in the form when they file their annual taxes. The filing deadline is normally April 15 of every year for the proceeding year. To allow the client enough time to file taxes using the HUD-1 information, it is recommended that a copy of the HUD-1 will be sent to the client in January. Because the real estate transaction takes place during the year, usually long before filing the tax return, the HUD-1 given to the client at closing time could be lost or misplace. Sending the client a copy of the HUD-1 with a cover letter will be very helpful and time savings to the client. HUD-1 Client Sample Letter -------------------------- The following is a sample letter you can use to send your clients: [Date] TAX TIME IS COMING Dear [Client's Name]: Tax time indeed is just around the corner, and the first thing you will need is a copy of the Closing Statement on your property. Moving can be a very busy time, and you may have misplaced this very important document. I would like to be sure you avail yourself of all the tax advantages possible from our transaction. If your accountant has any questions, please have him or her call me (if you need a referral to an accounting you can trust, I'd be happy to provide you with one). I look forward to continuing as your realtor and providing you the highest level of service possible. Yours sincerely, [your name] Oh, by the way... If any of your friends or relatives are thinking about buying or selling a home, I'd love to be of service to them. So, when you think of these people, just give me a call with their name and number. I'll be happy to follow up and tend to their Real Estate needs. Which HUD-1 Information Is Important For Your Client's Taxes? The information reported in the HUD-1 relates to the following tax statements and schedules: Tax form HUD-1 line Schedule A (itemized deductions), Line 10 - Annual mortgage interest deduction Line 901 Schedule A (itemized deductions), Line 10 - Points deduction Line 802 Schedule A (itemized deductions), Line 6 - Real estate taxes deduction Line 1003, 1004 Schedule E (rental income), Line 20 - Depreciation (cost of property is required) Line 101, 102 Schedule E (rental income), Line 12a - Mortgage Interest Deduction Line 901, 802 Schedule E (rental income), Line 9 - Insurance 903, 1001, 1002 Schedule E (rental income), Line 16a - Real state taxes 1003, 1004 Schedule E (rental income), Line 18 - Other deductions 703, 801-811, 1005, 1101-1110, 1201-3, 1301-1302 Schedule D (capital gain) Part I, II, Column d - Sales Price 401, 402 Schedule D (capital gain) - Part I, II, Column e - Cost or other basis 101, 102 Form 6252 (installment sale), Line 8 - Selling price 401, 402 Form 6252 (installment sale), Line 8 - Cost or other basis 101, 102 Form 4797 (sale of business property), Part I, Column d - Cost or other basis 401, 402 Form 4797 (sale of business property), Part I, Column f - 101, 102 HUD-1's two sections -------------------- Section J, Summary of Borrower's Transaction This section contains 6 sections, and basically summarizes the entries made to the section L (Settlement charges, see below). * Section 100, Gross Amount Due from Borrower * Section 200, Amounts Paid By or In Behalf of Borrower * Section 300, Cash at Settlement From/To Borrower * Section 400, Gross Amount Due to Seller * Section 500, Reductions in Amount Due to Seller * Section 600, Cash at Settlement To/From Seller Section L, Settlement Charges That's where many entries are tabulated before being brought forward to page 1. Columns contain charges that are paid from either the borrower's or the seller's funds. Your closing statement probably won't have entries in all lines. * Section 700, Agency Commissions * Section 800, Items Payable in Connection with Loan * Section 900, Items Required by Lender to be Paid in Advance * Section 1000, Reserves Deposited with Lender * Section 1100, Title Charges * Section 1200, Government Recording and Transfer Charges * Sections 1300 & 1400, Additional Settlement Charges and Totals Line By Line Description Section 700, Agency Commissions 701 Commissions paid to real estate agencies 702 Commissions paid to real estate agencies Section 800, Items Payable in Connection with Loan 801 Processing or originating loan fees. If the fee is a percentage of the loan amount, the percentage will be stated. 802 "Points" charged by the lender. Each point is 1% of the loan amount. 803 Appraisal fees. If paid with loan application before closing, it should be marked "POC," (paid outside of closing). The amount would be shown, but would not be included in the total fees you bring to settlement. 804 Cost of the credit report if it is not included in the Origination Fee. 805 Inspections fee, done at the request of the lender. 806 Private Mortgage Insurance (PMI) application fee. 807 Assumption fee, when buyer takes over seller's existing mortgage. 808 Miscellaneous items connected with the loan, such as fees paid to a mortgage broker. 809 Miscellaneous items connected with the loan, such as fees paid to a mortgage broker. 810 Miscellaneous items connected with the loan, such as fees paid to a mortgage broker. 811 Miscellaneous items connected with the loan, such as fees paid to a mortgage broker. Section 900, Items Required by Lender to be Paid in Advance 901 Interest collected at settlement for the time period between closing and the first monthly payment. 902 Mortgage insurance premiums due at settlement. Escrow reserves for mortgage insurance are recorded later. If your mortgage insurance is a lump sum payment good for the life of the loan it should be noted. 903 Hazard insurance premiums due at settlement. It is not used for insurance reserves that will go into escrow. 904 Miscellaneous items: flood insurance, mortgage life insurance, credit life insurance and disability insurance premiums. 905 Miscellaneous items: flood insurance, mortgage life insurance, credit life insurance and disability insurance premiums. Section 1000 Reserves Deposited with Lender 1001-1007 Funds used to start the borrower's escrow account, from which the lender will pay next year's premiums. Each mortgage payment includes an amount that covers a portion of these recurring expenses. 1008 Escrow adjustment calculated by the settlement agent by comparing different escrow formulas to assure the lender does not collect more escrow funds than allowed. Section 1100, Title Charges 1101 Settlement agent's fee. The fees for the abstract or title search and examination are entered in lines 1102 Abstract / title search fee 1103 Examination fee 1104 Title insurance binder (also called a commitment to insure). Payment for title insurance policies is entered later. 1105 Deed preparations record charges and work on mortgages and notes 1106 The fee charged by a notary public for authenticating the execution of the settlement documents 1107 Attorney's fees. 1108 Title insurance (except the cost of the binder). 1109 Informational lines disclosing costs for the separate title insurance policies (Only line 1108 is carried forward.) 1110 Informational lines disclosing costs for the separate title insurance policies (Only line 1108 is carried forward.) 1111-1113 Other title-related charges which vary by location: tax certificate fee / private tax fee Section 1200, Government Recording and Transfer Charges 1201 Recording fee 1202 City or County recording fee 1203 State recording fee 1204-1205 Miscellaneous recording fee items Section 1300, Survey and inspections fees (for pests, lead-based paint, radon, structural inspections, inspections for heating, plumbing, or electrical equipment) and home warranty. Line 1400 Total settlement charges paid from borrower's and seller's funds. They are also entered in Sections J and K, lines 103 and 502. Section J, Summary of Borrower's Transaction Section 100, Gross Amount Due from Borrower Line 101 Gross sales price of the property. Line 102 Personal property charges (draperies, washer, dryer, outdoor furniture, and decorative items purchased from the seller) Line 103 Total settlement charges to borrower (from Line 1400 section L) Lines 104-105 Amounts owed by the borrower or previously paid by the seller (include balance in the seller's escrow account if the borrower is assuming the loan and uncollected rents borrower may owe the seller) Lines 106-112 Item paid in advance by seller (Prorated portion of city/county taxes) Line 120 Gross amount due from borrower. Total of Lines 101 through 112 Section 200, Amounts Paid By or In Behalf of Borrower Line 201 Buyer's credit for the earnest money paid when the offer was accepted. Line 202 The new loan paid to the borrower by the lender. Line 203 Loan borrower assumes or takes title subject to an existing loan or lien on the property. Lines 204-209 Miscellaneous items paid by or on behalf of the buyer (allowance the seller is making for repairs or replacement of items or a note seller accepts from borrower for part of the purchase price) Lines 210-219 Bills seller has not yet paid, but owes (taxes, assessments or rent collected in advance by the seller for a period extending beyond the settlement date) Lines 220 Total for all items in Section 200. The total is added to the borrower's proceeds. Section 300, Cash at Settlement From/To Borrower Lines 301 Summary of the total amount due from the borrower. Lines 302 Summery of all items already paid by or for the borrower. Lines 303 The difference between lines 301 and 302 representing the amount of money the borrower owes at closing. If negative number the borrower will receive funds back at closing. Section K, Summary of Seller's Transaction Section 400, Gross Amount Due to Seller (amounts added to the seller's funds) Line 401 Gross sales price of the property. Lines 404-405 Amounts owed by the borrower or previously paid by the seller (escrow account's balance or uncollected rents) Lines 406-412 Items paid in advance by the seller (prorated portion of city / county taxes) line 420 is the gross amount due to the seller. Total of Lines 401 through 412. Section 500, Reductions in Amount Due to Seller (amounts are subtracted from the seller's funds) line 501 When a third party holds the borrower's earnest money deposit, and will pay it directly to the seller. line 502 Total from line 1400, the seller's total charges as computed in Section L. line 503 When borrower assumes or takes title subject to existing liens which are deducted from the sales price. line 504-505 First and/or second loans which will be paid-off as part of settlement (including accrued interest). line 506-509 Miscellaneous entries line 506 Deposits paid by the borrower to the seller or third party other than the settlement agent line 510-519 Bills unpaid by seller (taxes, assessments or rent collected in advance ) line 520 Total of all items in Section 500. The total is deducted from the seller's proceeds. Section 600, Cash at Settlement To/From Seller line line 601 Gross amount due to the seller, from line 420. line 602 Total reductions in seller's proceeds, from line 520. line 603 Difference between lines 601 and 602. Cash amount paid to seller (if a negative number the seller owes money at closing) Tax USA Inc. ------------ Tax USA, Inc. is a complete tax, accounting and financial management firm specializes in small businesses, corporations and high income individuals. Tax USA Inc.'s mission is to exceed clients' expectation by providing superb tax, accounting & financial Management services. We offer our clients tax, accounting and bookkeeping services, CFO Outsourcing, Budget Review and Business Plans, Cash Flow Management, Payroll Services and Entities' Incorporation. Our Clients We focus on small and mid size businesses, non-profit organization and high income individuals. Client list comprised of corporations, non-profit organizations and high-tech employees. 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