RESPA REFORM QUESTION: WHERE DOES THE SELLER PAID TRANSFER TAX CHARGE ON THE HUD-1 AND GOOD FAITH ESTIMATE (GFE) GO?
Three weeks have gone by since the new RESPA Regulations went into effect and the most commonly asked question we have encountered thus far is how are Seller Paid Transfer Tax Charges shown.
The Frequently Asked Questions "FAQs" state that "All charges typically paid by the borrower must be disclosed on the Good Faith Estimate regardless of whether the charges will be paid by the borrower, seller, or other party?" The FAQ under Section 4 & 5 (see pages 34 & 35): Right to Cure Tolerance Violations has caused a great deal of confusion in some areas of the country on the issue of where to put the transfer tax fee. The confusion centers on whether the transfer tax fee has to be disclosed on the borrower's Good Faith Estimate even if the seller is paying for 100% of the transfer tax.
In some areas of the United States the local custom or tradition in a real estate closing has been to make the seller pay for the entire or a portion of the transfer tax or there is language in the real estate contract stating the seller is to pay for all or part of the transfer tax.
The answer is if the seller is paying for the entire transfer tax or a portion of the transfer tax then it must be listed on the borrower's Good Faith Estimate (GFE) and must be shown on the HUD-1 on the borrower's charge column on page 2 of the HUD-1 settlement statement. A credit may be given from the seller to the borrower on page 1 of the HUD-1 to offset the charge. The only exception to this is if state or local law requires the seller pay for the transfer tax. If state law or local law specifically requires the seller to pay all or a portion of the transfer tax then that portion was not required to be on the Good Faith Estimate.
Please remember though that a transfer tax, unless state or local law requires that it be paid by the seller, is a zero tolerance charge and must be disclosed on the borrower's GFE and on the HUD-1. It should also be noted that a lender may overestimate the transfer tax charge as reductions are not considered tolerance violations under the new RESPA guidelines.
Comments
Very good piece. We are seeing more and more lenders are including transfer taxes in GFE even if traditionally seller pays for those charges in a particular area such as NJ. It then require this complicated process of showing it on buyer side and then doing off-set on line 206/506. HUD should have really left transfer taxes out of this mess as it’s really a regulated charge and can not be over or under charged.
rick
Posted by: Rick Kabra | February 4, 2010 12:42 PM
If the transfer tax is listed in the Buyer's column of the HUD-1 but is traditionally paid by the seller, would the tax amount count against the seller concession limit thereby restricting the funds available for the buyer to use for closing costs and prepaids?
Posted by: Jo Ann Zurek | February 22, 2010 9:31 AM
If the loan officer did not disclose the transfer tax properly, what is the cure?
Posted by: Vonnie | February 23, 2010 2:03 PM
If it is typical for sellers to pay the transfer tax and the state or local law is silent as to who pays the transfer tax, then the transfer tax should not be considered a borrower cost, should be excluded from the GFE and placed in the seller’s column on the HUD-1, and should not be considered a fee subject to any tolerance.
Just because the FAQs address transfer tax by stating that if the state/local law is clear that the transfer tax is paid by the seller, it doesn't mean that the general rule regarding tipicallity shouldn't also apply.
What am I missing?
Posted by: JOHN NORMAN | March 12, 2010 11:55 AM
Marx, the problem is that no matter what we think the law means, each individual investor can impose its own set of interpretations as to these issues. So if in NC where there is a statute that says sellers pay 100% of the transfer tax, and we leave it off the GFE, the lender can demand we send a check to the borrower after closing before they will purchase the loan!!!!! What good is the law or the proper interpretation of it if the end-user imposes contrary demands? I know, the answer is to sue the lender for breach of contract...but that takes enormous time and money. Que sera sera......
Posted by: Ralph | March 29, 2010 5:48 PM