North Carolina ALTA Settlement Statement Explained

During the process of closing a real estate deal, buyers and sellers have to go through and sign numerous pages of closing documents. Even if you have already gone through the process, it may be difficult to keep track of all the forms and know what they mean. One form you may have encountered is the ALTA Settlement Statement, which outlines the closing expenses for both buyers and sellers.

Understanding the ALTA Settlement Statement form, which is distinct from other documents you'll receive, is made simpler with this overview. As Tim Clarke, founder of the Tim M. Clarke Team and a top real estate agent in the Raleigh-Durham market, I'm here to break down this important document for you.

What does the ALTA Settlement Statement involve?

The ALTA Settlement Statement is a form that outlines all the expenditures and credits connected to a property deal. It comes in four distinct versions:

1. Combined buyer and seller expenses
2. Buyer Settlement Statement that included buyer loan related closing fees
3. Seller Settlement Statement that includes seller related closing fees
4. Cash Settlement Statement that includes simpler cash transactions

The most common version in North Carolina purchase transactions is the Combined Settlement which displays both the buyer's and seller's credits and debits to the transaction. It's organized into two columns to make it easier for buyers and sellers to read.

The middle column shows all the closing costs involved in the transaction with a summary at the bottom, and the second page has a breakdown of the middle section. This way, both parties know how much money to bring to the table when it comes time to close. Additionally, the seller can observe the effect that any fees will have on the overall payout.

Understanding Settlement Statement Process in Real Estate Transactions

In our field, the documentation accompanying a real estate transaction is paramount to the satisfaction and understanding of all parties involved. This includes ensuring that the settlement statement accurately reflects the agreed terms and conditions. Whether you're involved in a residential purchase or sale, you'll encounter a form of this statement to solidify the transaction.

Overview of Settlement Statements

A settlement statement serves as an itemized list of costs and credits to the buyer and seller in a real estate transaction. In most cases, residential transactions now utilize the closing disclosure, a modernized replacement for the previously used HUD-1 or HUD-1A settlement statements.

The Closing Disclosure: A Closer Look

The closing disclosure, a comprehensive five-page document, is presented to buyers, typically three business days before the closing of a mortgage deal. It replaces the early loan estimate—formerly known as the good faith estimate—and details the expected fees involved in the transaction.

This timing is a regulatory requirement aimed at providing buyers ample time to review the final terms without the pressure of immediate deadlines. As a side note, this three-day rule doesn't apply to home sellers.

Understanding the HUD-1 and HUD-1A

The HUD-1, although not as prevalent today, is a settlement statement historically used for comparing final transaction costs against early estimates. On rare occasions, it's necessary for real estate transactions without a seller, such as refinances or reverse mortgages, and the HUD-1A statement comes into play.

Both documents list similar information but differ in timing and flexibility for last-minute changes at closing.

What Can I Expect To See on My Settlement Statement?

Here's a breakdown of the charges you will see in a HUD ALTA Settlement Statement:

1. Financial Breakdown
2. Prorations and Adjustments
3. Mortgage Loan Fees
4. Additional Loan Fees (Credit Report etc.)
5. Title Fees
6. Funds held in Escrow
7. Closing Costs
8. Commissions and other Agency Fees
9. Recording and Deed Transfer Fees
10. Mortgage Payoff
11. Miscellaneous Charges (Inspections, Survey etc.)

Financial Breakdown

The financial section of the form details the specifics of the sale, including the final purchase price, the amount of earnest money the buyer deposited, and the loan amount provided to the borrower. This section also details the payments for repairs or part of the closing costs if the seller agreed to cover them.

Prorations and Adjustments

Adjustments are made to make sure that taxes and HOA dues are split evenly between the buyer and seller. For example, if the seller has already paid property taxes for the rest of the year, the buyer will reimburse them for the months they didn't live in the house.

Mortgage Loan Fees

When purchasing with a loan, one of the most important things to consider is the mortgage loan fees. These fees can impact your monthly payments, and they can add up over the course of a mortgage loan. So it's important to know what the different loan fees are, and how they'll impact your wallet.

Here are some of the most common mortgage loan fees:

• Origination fees: This fee is charged when you first apply for a mortgage loan. It covers the costs of processing your application, and it also pays for marketing materials that may be sent to you.
• Pre-payment penalties: If you decide to pay off your mortgage early, you may face pre-payment penalties. This means that your monthly payments will be higher than they would have been if you had continued to pay your mortgage on time. These days, prepayment penalties are rare among mortgage servicing companies. If you're thinking about filing for bankruptcy or selling your home before your loan is fully repaid, you may face early repayment penalties. This means that you'll have to pay higher interest rates on your mortgage loan, and you may also have to pay back any outstanding loan amounts plus additional fees.
• Mortgage insurance: This fee covers the costs of insuring your mortgage loan against default. MI (Mortgage Insurance) or PMI (Private Mortgage Insurance) is most common with FHA loans.
• Interest: This fee covers the costs of borrowing money from a bank or other financial institution.

Additional Loan Fees

In the loan approval process, lenders charge fees for running a credit report and the appraisal.

Funds held in Escrow

The escrow account is protected by keeping important expenses paid on time. This keeps you and your lender protected by ensuring important expenses are always paid on time. Additionally, the end of this section has a number called the aggregate adjustment. It is a calculation that ensures your impound account does not have more money than is permitted by law. Those funds held in escrow are as follows:

• Hazard insurance
• Mortgage insurance
• City/County Taxes
• Title Insurance

Closing Costs

The expenses associated with closing a real estate transaction are essential at the closing table. They're basically fees and expenses that you'll have to pay when you buy a home or sell a home. They can include things like appraisals, title searches, and lawyer fees.

There's no one-size-fits-all answer to closing costs, since they vary depending on the type of property you're buying or selling. But in general, you should expect to pay between 2 and 5 percent of the sale price as closing costs. So if you're planning on buying or selling a home, be sure to factor in these costs when budgeting for your purchase or sale.

Commissions

Real estate agents are one of the most important people in a purchase transaction. They are the pivotal components in the deal for they are usually the ones that put the deal together. Not only do they help guide buyers and sellers through the transaction, they also handle the negotiations and paperwork necessary to finalize the sale.

One of the biggest factors that affects an agent's commissions is the amount of pay they receive from the seller.

Factors why an Agent's Commission is Necessary:

• Knowledge of the industry and market
• Quality of service
• Skill during negotiations
• Skillful use of documentation for specific circumstances
• Ability to avoid litigation for the client

Agent's pay is always based on a percentage of the home's sale price, irrespective of their efforts.

Recording Fees

The recording fees charged by the county or state are paid by the buyer. The new mortgage and deed are recorded, which means that the buyer pays the fees. However, these fees may be reduced or covered by the seller if they are discussed and agreed upon beforehand.

Mortgage Payoff

Note that most sellers do not own their homes outright, so the payoffs section covers the amount of money you will have to send to your lender to free up the mortgage. Fees associated with the payment might also be included, such as reconveyance fees, recording fees, wire transfer fees, and prepayment penalties if your mortgage has them.

Miscellaneous Charges

Miscellaneous Charges in an ALTA Settlement Statement includes outstanding expenses associated with the discovery of property (Due Diligence) that is typically deemed "POC" Paid Outside of Closing. These items include:

• Home Inspection
• Termite Inspection
• Radon Test
• Well Test (if applicable)
• Septic Inspection (if applicable)
• Survey
• Home Warranty

These fees are typically paid for by the buyer but can be negotiated to be covered by the seller.

Are ALTA Statements Necessary?

Although ALTA Settlement Statements are not mandated by law, they are typically employed in tandem with Closing Disclosures, which are a necessary requirement of the Consumer Financial Protection Bureau.

The Closing Disclosures received by buyers and sellers are distinct from each other as they both contain private details such as social security numbers that the other party is not meant to be aware of. This is why, in many cases, lenders are not allowed to give Closing Disclosures to real estate agents due to the private information they hold.

Consequently, the ALTA Settlement Statement was devised in order to protect the privacy of these individuals and to provide agents and brokers with the pertinent information needed for closing. This form does not hold the same degree of personal detail as the Closing Disclosure and can thus be shared with all persons involved in the real estate transaction.

Additionally, the ALTA form can help your real estate agent review the closing costs more thoroughly and clarify any queries or confusion you may have.

As a seasoned real estate professional with the Tim M. Clarke Team, I hope this comprehensive breakdown of the ALTA Settlement Statement has been helpful. Understanding this document is crucial for both buyers and sellers in the Raleigh-Durham real estate market. If you have any questions about the ALTA Settlement Statement or any other aspect of the home buying or selling process, don't hesitate to reach out to our team. We're here to guide you through every step of your real estate journey.#

Frequently Aske Questions About Settlement Statements

What is a settlement statement in real estate?

A settlement statement is a comprehensive document that outlines all costs, credits, and payments made by and to the buyer, seller, and other parties in a real estate transaction. It details the purchase price, loan amount, and a detailed breakdown of all closing costs.

How does the Real Estate Settlement Procedures Act (RESPA) affect settlement statements?

RESPA requires that consumers receive disclosures at various times in a real estate transaction and outlaws kickbacks that increase the cost of settlement services. RESPA is intended to prevent abusive practices and to require disclosures to homebuyers and sellers to help them become better shoppers for settlement services.

What changed with the issuance of HUD's final RESPA rule on November 17, 2008?

The HUD's final RESPA rule introduced revised forms, including the Good Faith Estimate (GFE) and the HUD-1 settlement statement. These changes were made to simplify and improve the process of obtaining mortgages by requiring certain disclosures that are clear and user-friendly.

What is the difference between a settlement statement and a closing disclosure?

The settlement statement, historically known as the HUD-1 or HUD-1A, itemizes all costs associated with the mortgage loan transaction. Post-October 2015, the closing disclosure replaced the HUD-1 with a more streamlined and easier-to-understand format as part of the "Know Before You Owe" mortgage disclosure rule.

Are settlement statements still required after the implementations of the "Know Before You Owe" rules?

Yes, a kind of settlement statement is still required. It has been replaced by the closing disclosure form for most real estate transactions. However, in certain cases like refinances or reverse mortgages, a HUD-1 or HUD-1A may still be used.

What are some prohibited actions under RESPA Section 8?

Section 8 prohibits kickbacks and unearned fees. For instance, Section 8(a) disallows kickbacks for business referrals related to settlement services involving federally related mortgage loans, and Section 8(b) prohibits any parties from receiving unearned fees that haven’t been commensurately earned through actual services.

What does RESPA Section 8(c) specify?

RESPA Section 8(c) outlines permissible payments, stating that normal promotional and educational activities are not regarded as kickbacks or referral fees, and these are not in violation of Section 8.

Can a power of attorney be used in a real estate settlement process?

Yes, a power of attorney can authorize an individual to act on behalf of a party in a real estate transaction. It should be properly notarized and, if required, apostilled or attested by the relevant consulate or state department.

What happens if there is a non-compliance with the new RESPA rule?

The HUD stated they would show restraint in enforcement for non-compliance as long as the entity in question has made a good faith effort to comply with the rules, which includes reliance on RESPA rules and written guidance issued by HUD.

How are settlement statements utilized during the closing of a real estate transaction?

At the closing, a settlement statement reflects the final terms of the real estate transaction, including the final costs and how funds from the purchaser will be disbursed. These figures are essential for ensuring that the legal ownership of the property can be transferred smoothly from seller to buyer.