Surprise Closing Costs

Once the negotiations are over and a buyer and seller come to an agreement over the purchase price for a home (or any type of real estate, for that matter), a contract is signed, and it's time to close the deal. In almost all real estate transactions, there are expenses and fees associated with the closing, or "closing costs." Closing costs are usually charged by the buyer's lender the bank that gave the buyer a mortgage to pay for the home-and typically include charges for things like fees for:


•Processing the mortgage
•The title company's search to make sure that no one else claims to own the property and that there are no liens against it
•Recording the deed with the appropriate government office in the county where the land is located
Usually, the sales contract states that each party, the buyer and the seller, is required to pay their own closing costs. But, if you're not careful, you could end up paying some costs and expenses that you weren't anticipating. To avoid these surprise closing costs, you need to read the closing papers carefully, or make sure that you have an experienced real estate law attorney at the closing with you.

Surprise!
How would you react if you sold property under a contract that called for the buyer to pay all of his or her closing costs, waited a month for the buyer to get financing, and then at the closing, found out that you were being charged for things like:

•Tax Service Fee $55.50
•Inspection Fee $35.00
•Photos $15.00
•Lender's Inspection Fee $80.00
•Document Review Fee $25.00
•Lot Review $25.00
•Appraisal Inspection $50.00
•Filing Fee $50.00
All of these fees were charged to sellers in actual closing statements, even though the contract called for the buyers to pay them. You can, or course, protest the charges, but chances are that the closing or escrow agent, who usually doesn't represent either the buyer or seller, will say, "Oh, HUD (or FHA or VA) requires the seller to pay these charges."

Well, that's not necessarily right. In fact, neither the Federal Housing Administration (FHA) (or its parent organization, the U.S. Department of Housing and Urban Development (HUD)), nor the U.S. Department of Veterans Affairs (VA) requires the seller to pay anything. Nor do they have the authority to require payment.

To be accurate, the closing agent should tell you that these agencies don't allow these charges to be assessed against the buyer-borrower, but they allow them to be charged to the seller.

Plan of Action
What if the seller doesn't want to pay for these expenses, which the lender supposedly incurred in making a loan to the buyer, because he feels that the sales contract was negotiated in good faith? Typically, the seller has agreed to pay:

•The sales commission, if a real estate agent is involved
•The cost of preparing the deed
•Pest inspection and clearance letter
•A title search (sometimes)
•One-half of the reasonable and customary attorney's closing fee
Even these items are negotiable. The buyer could agree to pay any and all expenses involved with the transfer of ownership. But, the law requires nothing except that the sales contract:

•Be in writing
•Reflects the true intent of the parties
•Is signed by parties, who are "competent," that is, of legal age and sound mind

So, why, then, do we find even carefully negotiated and expressly written purchase agreements being flagrantly misapplied by some lenders? While the federal government requires that lenders provide the buyer with a "good faith estimate of closing costs" well before the closing date, the seller gets no such estimate until the closing. The real estate agent may offer an estimate, but usually doesn't know what, if any, hidden or ambiguous "fees and inspections" may be added later because there is no consistency among lenders regarding fees assessed to the seller.

In the end, you need to ask about closing costs and get a written estimate. Some lenders, and particularly mortgage companies, as opposed to banks and savings and loan companies, have discovered that most sellers are either simply naive about closing costs or aren't about to kill the sale at the last minute because of a couple hundred dollars in excess charges they're bullied into paying.