My newbie mistake: error on HUD-1 settlement statement discovered 1 mo after closing - any chance of going back?

Question

Hi BP,

Long time lurker - great site here. I'm a newbie investor, currently about a month into my first property "adventure". This site has been a wonderful resource working through the entire process. Haven't posted much because I've been able to find just about everything I need on the site already.

Here's my situation - and I can't seem to find anyone posting a similar issue previously.

Sale price: $98K

Seller agrees to pay 2% of closing costs: $1960

Seller agrees to pay my half of transfer tax (1%): $980

Total credits from seller: $2940

Net price after credits: $95K

I ended up for the first time in a situation where we didn't get the HUD-1 the day before (I have purchased/refinanced my own homes several times over the years and always had it at least the night before). For this deal, first time I see the HUD-1 is at the closing table - I wasn't happy about it - perhaps I should have delayed closing to review, but closing was on a Friday during the holidays, and I had the weekend blocked off with no distractions to get started working on the property, and well... here we are... I know you're supposed to review the HUD-1 until you're blue in the face, and then review it again - I did. I actually pointed out that there was a $980 in my column for the transfer taxes that should have been in the seller's column. I'm told not to worry by my mortgage broker, since it was credited on the front side of the form. However - and here is my mistake - the number was flat wrong and I missed it. It should have been $2940, but instead was $1960. My wife missed it. My realtor missed it. Mortgage broker missed it. The closing agent obviously missed it, but he was not in the room when I brought it up.

Fast forward 1 month after closing - after busting my tail working nights and weekends over Christmas and New Years I have the place rented out - and now I'm going over my budget numbers and they aren't adding up - I'm about $1000 over. Turns out, this shortfall was because I payed half of the transfer tax ($980) and was not properly credited for it on the HUD - the seller got this money.

So - after the long intro - here is my question:

Has anyone had any success after the fact getting a seller to correct an error like this? How did you go about it? Any legal issues to think about?

Did sellers pay up after the fact? or were they greedy and keep the money they weren't really weren't entitled to because of a mistake in accounting?

Did anyone ever have to sue? (eg, small claims court or other)

I spoke with the title company and they said to contact my RE agent. My RE agent believes me, but wants to check over the paperwork himself before he reaches out to the seller's agent - currently waiting to hear back from him.

$1000 bucks is not a trivial amount of money - so I don't want to just "let it go". I understand that I might just be chalking this up to the price of experience, but I would love to get the input of the folks on BP who have actually been through a similar situation.

Thanks in advance,

Steve

Stephen T. · Answer

Update/conclusion: Glad to report that in the end it was relatively painless. We had our RE agent contact seller's agent. Seller's agent explained situation to seller and she sent us a check in the mail. Issue solved. Thanks again to all who pitched in to help.

Bill Gulley · Answer

The error will be shown by the contract and the HUD-1, doesn't matter what you signed, doesn't really matter what opinions might be of those involved, the or any mistake will need to be corrected. This in on the closing agent as Steve mentioned. It is an insured closing meaning the title insurance company also insures the settlement or, there is separate coverage. It's up to the closing company to correct the error and pay any amounts of any mistake. Many may try to sluff off an error, but you need to remind them the error is in violation of settlement requirements. Be a little more aggressive to light a fire under the closer. :)

Steve Babiak · Answer

The title company should be making the effort to rectify this mistake that they introduced.

Bill Gulley · Answer

Stephen, that's great news that you had a decent seller. It may not be over, the HUD still needs to be amended, the closer, and both brokers can have their files audited, they can all get slapped, it may also change your tax basis and it certainly changes tax issues for the seller. The closer needs to amend the tax filings. I suggest you tell your agent and have them birddog this through a correction. Make about 5 copies of that check, it's now funds paid out of closing. Great you got it straightened out, but the paper work needs to be finished. :)

Stephen T. · Answer

@Kevin Dickson On your note about small claims court - I just rechecked my purchase agreement (standard PA realtor association contract) and it has as mediation clause... so I guess I have to go that route before pursuing legal action. Hopefully it doesn't get that far (see previous post), but thinking ahead, has anyone ever been forced to go to mediation over a sales contract (or for another RE dispute)? How did it work out for you? Was it expensive? Did you have to pay up front?

Stephen T. · Answer

Thanks to all for the helpful and timely advice. Will get a bit more agressive with the title co and see where that gets me. Heading over later this afternoon with the backup documentation. Will post back with updates/resolution.

Pete T. · Answer

I would talk w. the closing agent/att and ask them how they plan to resolve the error and go from there. If they are a group you work w. they will have an interest in helping the process of fixing the error. I would be careful in dealing w. the other party bc they may feel its strange that you are coming at them for more money so far after the fact.

Kevin Dickson · Answer

If all else fails, you would probably win in small claims court against the seller. It's a hassle, but inexpensive. And the experience of small claims is worthwhile because that's where you can sue tenants in default, or any other issue under about $7k Chances are the seller will pay before the actual court date, which will save you the three or four hours.

Jeff Lubeski · Answer

I would think if it is in the signed PA and not paid properly at closing, then the Title Company is responsible to resolve this. I recently had an issue where I was charged for prorated taxes and because of errors in the documents, the prorated tax funds were given to the seller. The taxes were not paid. I discovered it several months later when I could not get a CO due to unpaid taxes. I went back to the Title Company and pointed out the error. They saw the error and within 24 hours they sent the tax payment including late fees to the city and they went back to the seller to get this portion of the funds back.

Darrell Shepherd · Answer

Short answer is you signed it so it'll be tough. Long answer is you could raise hell and go after everyone involved and probably get paid anyway. If it were me, I'd go to the seller and tell them on your accounting review you realized they were over paid. I'd stick to my purchase and sale agreement on something I sold even if it was pointed out to me 30 days after closing. Doing things right is good for business. Some will, some wont, though. If that doesn't work, I'd go back to the attorney and ask them about their E&O policy. They'll probably pay you rather than have you file a claim, but more likely will work on your behalf to put pressure on the seller. The people involved will probably tell you its too late, but thats because thats the easy way out for them. Its not their money so dont take their word for it, perseverance is what will pay off.