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Thomas D. Kearns


New RESPA Regulations: RESPA Cures

Mistake by Bank in Closing Cost Estimates Results in Bank Paying the Cost . . .

Most of the residential real estate closings I handle are in the upscale part of the market with multi million dollar prices and buyers paying all cash or obtaining a loan from their private banker. Recently, however, I attended a closing to help my wife close a more typical residential real estate transaction. It was her first closing back from surgery and the closing was for the acquisition of an investment condo by friends. During the closing, the bank’s representative was on the phone a lot with his client and kept mentioning a “RESPA cure”.

The closing proceeded and the HUD-1 form prepared by the bank included a $6,000 payment back to my client. Since the unit was purchased from a sponsor, the buyers had to pay the seller’s transfer taxes. The taxes were not properly estimated by the lender on the Good faith estimate (GFE) of expenses given by the lender to the buyer prior to closing. Under the new RESPA rules, the lender was required to cure the defective estimate by paying the taxes. That’s right. If the defect in the estimate is significant, the bank has to pay the entire expense involved.

So a tax that the buyer agreed to pay and knew about winds up being paid by the bank! I was a bit sheepish that this caught me by surprise. I felt a bit better when I searched the New York Times archives and found no articles discussing “RESPA cures”. Here’s a nice plain English summary.

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