The new HUD is to real estate professionals what the IPAD is to computer geeks, an important and meaningful evolution. Unfortunately, the new HUD ends up being more new Coke than a tonic to the supposed deficiencies of the old HUD. Simply put, it defeats the major impetus for its creation, greater transparency.
Before we review the new HUD, let's review the old HUD and its imagined weaknesses. Such a review is also helpful as the new HUD essentially retains the format of the old HUD.
Despite its many critics, the old HUD was actually a well designed and easily understood document. While you may have heard some people, including attorneys, remark that it was too complicated to be explained, it was actually quite simple. I was always of the hope that such remarks from other attorneys was the product of laziness and not ignorance.
The very ambitious purpose of the HUD was to set forth all of the numbers for both the Seller and the Purchaser. The problem wasn’t how it was organized, but instead how it was manipulated by the person inputting the numbers. If completed correctly and completely, it accomplished its purpose flawlessly.
FORMAT OF THE OLD HUD
The HUD is arranged in the following manner: There are two (2) pages and on both the Purchaser’s numbers are on the left hand side and the Seller’s numbers are on the right hand side.
PURCHASERS’ PORTION OF THE OLD HUD
For Purchasers, the top part of the left hand side of the first page sets forth the purchase price plus adjustments and closing costs then sets forth the gross amount to be paid. The closing costs are itemized on the left hand side of page 2 with the bank closing costs appearing at the top and the title costs at the bottom. The bottom part of the left hand side of the first page contained the payments made, including the down payment, new mortgage principal and adjustments in favor of the Purchaser. Then at the very bottom of the left hand side of the first page is a summary, which simply deducts the total amount paid from the gross amount due and gives us a bottom line of how much funds the Purchaser needed to bring to the closing. This bottom line figure would be compared against the certified funds that the Purchaser brought to the closing.
SELLERS’ PORTION OF THE OLD HUD
For Sellers, the top part of the right hand side of the first page sets forth the purchase price plus adjustments and closing costs then sets forth the gross amount due to the Seller. The bottom part of the right hand side of the first page sets forth various deductions from the gross amount due including payoffs for outstanding mortgages, adjustments in favor of the Purchaser and costs of the Seller. The closing costs of the Seller are itemized on the right hand side of page 2, with the brokers appearing at the top and the title charges appearing lower down the page. Then at the very bottom of the right hand side of the first page is a summary, which simply deducts the total amount paid by the Purchaser from the gross amount due and gives us a bottom line of how much the Seller is either walking away with or, unfortunately, how much he has to bring to the closing.
THE NEW HUD
The mission of the new HUD was supposed to be greater transparency such that borrowers would be better able to understand and appreciate exactly what they were paying and for what purpose. Unfortunately, the new HUD fails miserably in accomplishing its mission.
The new HUD thankfully retains the format of the old HUD, which is set forth above, but tweaks it in what can only be generously described as in a very idiotic way. Actually, that epithet is probably too kind. What the new HUD does is to combine certain disparate fees for Purchasers pay such that they are no longer itemized. To add insult to injury, the fees that are combined have no relation to each other as some are title fees and some are bank fees. It is absolutely nonsensical and any sense of greater transparency is completely obliterated and left in its place is utter confusion. If the purpose of the new HUD had been to deceive and fool prospective purchasers, then it is a rousing success. Indeed, in order to understand what a Purchaser’s expenses were at the closing, one must either resort to itemizing the fees on a separate sheet of paper or using the old HUD.
THE NEW HUD IS MARRIED TO THE GFE
The new HUD is married to the Good Faith Estimate (“GFE”) and contains several references to it. Also, if certain seemingly randomly chose bank and title expenses on the HUD exceed their counterparts on the GFE by 10%, then the closing must be adjourned. Of course, this fate is easily avoided by simply manipulating the figures, ie. changing the title bill at closing so that the total fees are reduced and within the permitted deviation and the Purchaser then pays the balance outside of closing.
One misleading item in the new HUD is in the comparison between the GFE and the HUD, there is a reference to "transfer taxes" paid by the buyer. The problem is that in NY, the buyer does not typically pay transfer taxes, except for certain specific contexts. Instead, the buyer pays mortgage tax while the seller pays transfer taxes. It is quite confusing and misleading to imply in the HUD that the purchaser paid transfer taxes when it would have been very easy to simply use the proper term.
FINALLY SOME GOOD NEWS
The only redeeming feature of the new HUD is the summary of the loan terms which contains the pertinent loan terms in one useful place. However, the HUD did not have to be changed in order add this feature. Instead, it could have simply been appended to the HUD or, better yet, given as a separate disclosure.