The HUD-1, also known as the settlement statement, is one of the most important documents you'll review when buying or selling a house. The document isn't much different than a receipt; it details the funds paid and received by all parties to the transaction. You, your lender, the associated real estate agents and the escrow agent approve the HUD-1 before closing.
A lender approves mortgages with several conditions attached. It sends the list of conditions, known as closing instructions, to the escrow agent. The closing instructions tell the escrow agent how to fill out the settlement statement and any additional conditions for loan approval and fund disbursement; for example, the lender requires a confirmed closing date to arrange funds disbursement. The escrow agent must receive formal approval from the lender of the final HUD-1 before she can distribute funds.
Real Estate Agents
Many people work with real estate agents when buying and selling homes. The commission an agent earns is predetermined in the sales contract you sign to buy or sell property. When the escrow agent prepares the settlement statement, the real estate agent typically gets a chance to confirm that her commission is correct before the escrow agent sends the HUD-1 to the lender for final approval.
The escrow agent has, amongst her many tasks, the responsibility to ensure that funds are disbursed to the proper parties; afterall, the escrow agent also gets paid from the sale's proceeds. Requiring the lender to approve the settlement statement shields her and the real estate agents from liability should the lender make an accounting error.
Buyer and Seller
The buyer and seller must approve the settlement statement before the transaction completes. The settlement statement tells the sellers how much they have to pay to close the sale or how much they'll receive; the HUD-1 also tells the buyers much money to bring to closing. In most cases, the HUD-1 is the first form the closing agent -- the escrow agent or an attorney -- goes over in detail at the closing table, and you'll sign it after her review.
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