One of the motivating reasons for the existence of The White Coat Investor website is that I have been ripped off by many different types of financial professionals and I was sick of it. These include a recruiter, an insurance agent, a financial advisor, a realtor, an appraiser, and a lender. However, up until recently, I had never been ripped off by a settlement agent. You know, these are the guys you pay a few hundred bucks to when you buy or sell a house to do all the paperwork, handle the money etc.
We recently sold our unintentional investment property in Virginia. As part of that process we paid nearly all of the closing costs for the buyer (essentially required at that particular price point if you ever want to sell) as well as our own closing costs. On the day of closing, we received the HUD statement as required by law. I went over it line by line with my settlement agent, confirming whether each item was a buyer's cost I was paying, or my cost as a seller. I then told her it all looked good and that as long as the math worked out, we'd sign it and send it back and be done. Surely the settlement agents can do basic math, right? I mean, they have calculators and computers, right? Now, by the time I had been over this, it had been prepared by the buyer's settlement agent and reviewed by mine. Here's what it looked like.
Jibberish, right? No way can any rational person make any sense of this given what was sent to me. Let me dissect it a bit for you. First, the columns on the right are for the buyer, and the ones on the left are for the seller (me.) However, a lot of the stuff in the left columns is actually a buyer cost that I've agreed to pay. The contract was that I'd cover closing costs up to 3% of the sale price, $114,500, so that's $3,435. I also agreed to pay $200 toward carpet, so $3,635 worth of closing costs. The seller closing costs include paying off my mortgage, the HOA disclosure packet, the HOA rush fee, a real estate commission of 6% of the purchase price ($3,435 x 2), the $100 deed prep fee, the $540 settlement fee, the $769.90 property tax, and the $117 grantor's tax. The remainder of the charges on the left are buyer's costs I've agreed to pay that should add up to the $3,635. So let's add that stuff up:
| Origination Fee | 850 |
| Appraisal Fee | 450 |
| Credit Report Fee | 69 |
| Flood Certification | 12.5 |
| Settlement Fee | 525 |
| Title Insurance | 341.9 |
| HOA Transfer fee | 54.66 |
| Real estate commission | 166.13 |
| Title Insurance | 284.4 |
| Prepaid interest | 22.74 |
| Tax | 97.17 |
| Tax | 92.25 |
| Tax | 291.5 |
| Tax | 276.75 |
| Recording Fee | 101 |
| 3635 |
Okay, that adds up. So far so good. I was expecting to pay $3,635 of the buyer's closing costs and I'm indeed paying $3,635.
Now, let's take a look at what I'm paying and getting back.
First, the credits. The purchase price is $114,500 and I should get back $189.34 from the HOA fee I've already paid and $263.61 of the property taxes I am prepaying in the left column. (HOA fees are paid in advance and taxes are paid in arrears.) That adds up to:
| Purchase Price | 114500 |
| HOA Credit | 189.34 |
| Tax Credit | 263.61 |
| 114952.95 |
Well that's weird. I calculate that the total of the 2nd column should be $114,952.95. But the sheet shows $96,749.14. I'm no mathematician, but that just doesn't seem right. Maybe I just don't understand how this form works. Let's just add up what I think I should be getting and see if that amount matches what they say they're going to pay me ($18014.47.) So I basically had to recreate this sheet as a spreadsheet on my own (makes you wonder why I paid $1,165 to settlement agents, no?)
| Debits | Credits | |
| Purchase Price | 114500 | |
| HOA Credit | 189.34 | |
| Tax Credit | 263.61 | |
| Mortgage | 84389.3 | |
| Buyer costs | 3635 | |
| HOA Disclosure | 273.28 | |
| Rush Fee | 54.66 | |
| Commissions | 6870 | |
| Deed Prep | 100 | |
| Settlement | 540 | |
| Taxes | 769.9 | |
| Grantor's Tax | 117 | |
| Total | 96749.14 | 114952.95 |
| Difference (my proceeds) | 18203.81 | |
Now, that figure doesn't match the figure they have for my proceeds. I think I should get $18,203.81. They think I should get $18,014.47. That's a difference of precisely $189.34, the amount of my HOA credit. So I called back my settlement agent and told them I want my $189. She said she'd take a look at it and get back to me. Two days after closing, I had to call her again and she sheepishly admitted the statement was wrong and that they'd send me a new one in the morning (now three days after closing.) She made several excuses including that the buyer's agent had prepared the form and that the forms were new in Virginia due to all kinds of new, recently passed laws and that they were still figuring out how to use them. The next morning, I had the following forms sent to me.
Guess what? Now that they know I can and will use math against them, the figures are actually correct. But the question remains- Are these two settlement companies (Barristers of Virginia and Liberty Title and Escrow) both incompetent, or was someone actually trying to rip me off. I have no idea, but I'm glad I went to the trouble to run the numbers. I still can't figure out where that $189 that was supposed to go to me would have gone.
I thought the excuses were pretty weak. First, “the buyer's settlement agent (to whom I paid $525) prepared the form wrong.” Well I'm paying YOU $640 to make sure the forms are right. The second, “There are brand new laws and forms we're still learning.” So I'm the guinea pig? You couldn't do a dry run when the forms changed? How would you like to walk into an emergency department, need a life-saving procedure, and have me, as the only doc there, tell you I have no idea how to do what you have hired and paid me to do which is THE ONLY THING I DO AT MY JOB. (I mean that's all these guys do. They prepare this form and disburse money based on how it is prepared.) Then you have to walk me through the procedure you need. Ridiculous. I'd be sued for malpractice, lose my license, and be thrown off the medical staff before my group could fire me.
What's the moral of the story for you, dear reader? Well, there are several.
- Know exactly what the contract says you are supposed to pay.
- Look at the settlement form and understand every item on it and who is responsible to pay that item.
- Make sure the items on the settlement form represent the contract.
- Do the math yourself. Financial professionals can't necessarily be trusted with addition and subtraction, even if they have a calculator and a computer.
- Don't rip off The White Coat Investor or hundreds of thousands of people will hear about it. It's not libel when it is true and I have the documentation (as you can see above.) If the two title companies involved would like their names removed from this post, I think a $189 to the WCI scholarship fund would be about right for the hassle of doing so (and having to prepare my own settlement forms.)
What do you think? Innocent mistake (i.e. incompetence) or conniving financial professionals? Am I being too hard on these guys? Have you been hosed by a settlement agent? Do you go over your HUD forms with a fine-toothed comb? Why or why not? Have you ever found an error? Comment below!
Only a $189 contribution requested by the settlement company to the scholarship fund?! Definitely a bargain for them considering what WCI’s time is worth these days! Although it did make for a nice blogpost…
This kind of experience is frustrating, but I’d give the people involved the benefit of the doubt that it was probably an innocent mistake, not intentional. In my (admittedly, only one) experience going through the real estate purchase process, I was struck that the people working in that industry just aren’t super sharp (at least, not for the type of transaction I was doing – maybe things are different in other markets or at very high end price points). I had people write the wrong city for my purchase address, and make other similar errors. I don’t think the profit margins were very high for many of the people involved, so it was not shocking that the people doing the work might not be the smartest. Good lesson though, that people should of course always check the math when they’re purchasing something, particularly real estate where the #’s are so large!
So you’re surprised they didn’t live up to your professionalism and sense of responsibility to your patients? I just lower my expectations in transactions like this. We had a mortgage broker change his commission by 1.5% of the sales price from our good faith estimate to the final HUD statement. The attorney called the lender directly. They told him to use the good faith estimate. Saved us over 2K. The mortgage broker threatened us with legal action. The attorney had fun with it as he was tired of seeing this happen. We reported him to all the appropriate state agencies. Never heard a peep from him. Do not sign the paperwork if there is a mistake at closing. Be ready to walk out. Maybe, actually do walk out. You’ll see how fast it gets fixed.
My brother who is an attorney said he could not understand all the paperwork at his closing! The process seems needlessly complex to me with too many unintelligible fees.
Agree. Needlessly complex. Ripe for disruption and cannot wait for it. I couldnt figure out why the amount of house we were approved to buy dropped so much (didnt matter as wed already gone frugal) over the course of the process and why all this documentation was being asked at the last minute…etc…It turned out during the last preparation someone counted one of my loans (the big one). Apparently they missed the exact same principal, account number, etc…glad I had previously told them to jump off a bridge when they asked if I could cut 50/month off my bills.
I think in these situations you just have to expect things to go wrong. The people involved dont really care, and theres no incentive for it and they switch constantly which just increases the rate of errors.
This is a great reminder to examine the paperwork carefully. I closed on a home this past summer and had a very similar experience. Instead, it was my “buyers agent” cramming a previously non-disclosed $295 “agency fee” onto the settlement statement. Found out at that point that the realtor had an ownership interest in the settlement agent!
I called multiple title/settlement companies at that point for estimates, and obtained quotes up to $750 less than what I was originally being told the cost was.
In the end, title company/settlement agent matched the low quote I obtained, and erased the agency fee – this saved me over $1000!
Lessons learned:
1) always shop for title insurance and settlement agent fees
2) carefully review any bill or statement, don’t sign unless you understand it!
What stood out to me at first was that “somebody” had forced the columns to match and the math was obviously wrong. That was bizarre. Obviously, having them match was more important than the actual entries.
I think you are playing fast and loose with the term “financial professional”, though.
Rats, now I’m trying to look for my own HUD to review the #s
I did review the actual items line by line but didn’t think I would need to actually tally the numbers myself to rule out simple arithmetic errors
Although truth be told, I mock my dad for doing this with his credit card receipts and bills. I may need to start doing that myself also…
Weird that I trust a bank and a credit card company more than a settlement agent huh? I guess I just figure it’s a computer doing the adding there. I only dove into this form because I wanted to understand what was going on.
The transition from HUD to Closing Disclosure rules was in October, iirc. Plenty of time for them to get their act together.
My guess is that it’s an innocent mistake.
That said, I have seen these “innocent mistakes” made by highly-paid professionals numerous times. Regardless of profession. Mistakes that I find inexcusable.
* Estate attorney, estate accountant, and financial adviser recommending ways to disposition assets that I know to be extremely tax-inefficient. As in massive tax-liability inefficient.
* Tax accountant calculating stock option basis incorrectly, which would have resulted in an extra $4,000 tax liability (that the IRS would not have caught).
* PCP mis-diagnosing carpal tunnel as a pinched nerve for several months and a half-dozen office visits (despite family history and exhibiting all the symptoms)
* Attorney making blatant errors when preparing my will.
* Experienced septic guy installing the wrong kind of septic tank for my region (!!)
* Doctors prescribing medications together that a quick internet search shows should never be prescribed together.
The list goes on. Honestly my conclusion is that “professionals” are idiots, and professional certifications aren’t worth the paper they’re printed on. Our species survives only because there is generally a significant safety margin built in to everything.
Once in a while I go back and look at where my high school classmates ended up. Kids whom I knew to be very.. let’s just say average.. are now accountants, lawyers, financial advisers, corporate VPs, etc… So my guess is that’s why the obvious errors.
And of course, I’m a programmer. More than once I’ve had a colleague come to me with an obvious bug in my code, and ask me WTH I was thinking and how I missed such an obvious bug. So I guess, pot meet kettle.
lol, did any of your average classmates end up as doctors? Sounds like you’ve had more than your share of bad luck in your professional relationships.
I’ve met many CPAs who make me wonder how the heck they ever passed the exam (back when it really was difficult). Of course, passing an exam only proves you are good at studying and taking tests.
I only have one classmate whom I know is a doctor, but he was always one of the bright students.
My suspicion is that my experience is typical. The cases I listed are the tip of the iceberg (though granted, probably the most egregious examples). But I find most people have sufficient faith in professionals that they assume things are done properly/optimally and fail to double-check. It takes some intuition to identify problems and it takes a willingness to look foolish if you’re wrong to actually question people about them. The error WCI identified above would have been missed by most everyone.
For example the estate account/attorney… We had a sizable income liability in an estate for assets that were going to be transferred to several trust accounts. The accountant wanted to pay the taxes in the estate, and then transfer assets into trust accounts. But by transferring the tax liability with the assets into the trust accounts, and using a misalignment of the estate fiscal year and the trust fiscal year to transfer the liability over two fiscal years we were about to get 8x the standard deduction, nearly eliminating the large tax liability.
That’s the kind of thing that I would have /expected/ a highly paid accountant to figure out. And it’s definitely not the kind of thing that i would expect a personal representative to have identified.
PHR3DLY…
“PCP mis-diagnosing carpal tunnel as a pinched nerve for several months and a half-dozen office visits (despite family history and exhibiting all the symptoms)”
Well I might describe carpal tunnel to someone as a pinched nerve. I’m just an anesthesiologist, but carpal tunnel really just is a entrapped (pinched) nerve in the carpal tunnel by the fascia over it or tendons around it. Surgical treatment is release of the fascia above.
Well, to be clear he kept trying to fix it by cracking my neck.
Weird that that doesn’t cure carpal tunnel. I thought you could cure anything by cracking necks. 🙂
just have to crack it hard enough
This just happened to me as well during a refinance! They tried to charge me for an appraisal that had been pre-paid directly to the appraisal company. They also tried to blame the new forms, so I think there are a lot more incompetent people working in this area than anyone realizes. It took me 2 minutes looking at the form to realize it was in the wrong column. Sad, I would expect more from such an integral piece in our real estate transactions!
I think the key take-away point from this is the importance of understanding the transaction. If something doesn’t make sense (i.e. – the above form), don’t just trust the party in charge because they are the “expert”. You have to be your own advocate (they don’t care about your money!), and that starts by having an understanding of the charges/fees, etc. I think this principle applies to most scenarios. I’m tempted to give these professionals the benefit of the doubt, but the more I think about it, in this scenario, negligence seems just as improper as malfeasance, so I think this post is fair.
First year as an attending, my accountant filled out the roth ira paperwork form incorrectly. Thanks to WCI, “saved” roughly $2k i would have paid in taxes.
Needless to say, we are not using that accountant any more.
Lots of CPAs struggle with the 8606. It’s really not a common form, despite how much we talk about it on this site.
This is so timely. I’m closing on a refi on Monday but spent last weekend picking apart the closing disclosure and leaving irate messages after seeing blatant mistakes.
For all of our closing costs to be covered, we have to set up an escrow. Ok, fine – we’ll get an escrow waiver later. Not fine is how the escrow included this year’s homeowner’s insurance that we’ve already paid, and additionally they wrapped up the escrow and accrued interest into the principal payment, increasing our loan principal by ~$10,000 (!!!!!) This was in addition to apparently several other mistakes in the closing costs that the loan officer noticed after we called the other issues to her attention.
Since that’s been corrected, the eyeballed totals seem correct. But this column is prompting me to get out the calculator and double check the math.
I’ve reviewed 4 HUD statements for us and at least that many for other people over the years and have encountered just one that did not have an error on it after it was labeled “final” by the title company. When buying our house (out of foreclosure), there was an error for over $3K in our favor on the final HUD due to an assessment being paid by the seller when the contract had stipulated that we would need to pay it. Our realtor said not to say anything, but keep the $ in savings until our 90-day review period had passed and if the selling bank didn’t reliaze it before then it was on them. It was a common enough occurrence that she was not surprised at all, though it was a little bigger than the mistakes she usually saw.
Wow! I’m curious whether you took the realtor’s advice.
We did. It’s been 6.5 years since then and we never heard a peep. Most likely the person who was in charge of handling approving the contract was different from the person who approved the HUD at the bank we bought the house from. Having the buyer pay the assessment was non-standard, so the title company screwed up when reading the contract, assuming it was being done the standard way.
seems unethical.
I think it would bother me too to know I’d profited when I wasn’t supposed to. There are downsides to checking the paperwork!
This kinda makes me want to go back and look at past HUD statements, although there’s probably little that could be done at this point if I did find errors.
It’s futile trying to understand every line. They get cooperation by obfuscation.
I just went through something similar with my title company and, unlike Stephanie, you can’t convince me that these are accidental oversights. Remember, they’ll submit the CORRECT amount to the respective localities, and will thus keep any overages that you pay. Pre-October 1st, they all made out like bandits since they didn’t have to give the buyer or seller any final numbers until the day before (or the day of, in many cases) closing. As you saw, no lay person can make sense of these numbers within 24 hours. This has changed as of October 2015, but you and I were caught up in the old system.
By the way, WCI, I’d love to know how you were ripped off by the recruiter.
“Sure, you’ll have no trouble getting stationed in Europe!”
“Oh yes, having the military pay for medical school will work out a lot better for you financially.”
“Oh, you probably won’t get deployed at all.”
“Officer training school is no big deal.”
It’s more a function of my naivete’ than anything else, not all that different from buying loaded mutual funds and whole life insurance.
Considering the amount of errors and discrepancies in medical billing I think it’s shocking that anyone is surprised by billing errors elsewhere. Is there a single person that trusts the professional or facility bills from hospitals or doctors or the insurance company processing of those claims? I was incorrectly hit for a bill of over $1000 last year by the hospital I work for when they incorrectly processed the bill for my son’s sleep study. The insurance company told me it wasn’t going to be covered at all and refused to pay anything. Turns out the hospital coders/billers filed it incorrectly and once they withdrew it and refiled we were fine.
Consider how often physicians examine parts of a patient that were irrelevant to the history or complaint or document ROS questions that are nothing to get Level 5 billing.
Better yet, consider how often in the age of EMRs physicians use electronic templates and never DELETE things we didn’t examine or ask and generate a higher bill for the patient while having inaccurate documentation.
At least if one does the exam or asks the questions it can be justified as thoroughness and/or liability prevention (and every so often I find an ear foreign body in a pediatric patient without ear complaints), but in many cases it is not helping anything but the bottom line.
My satellite company erroneously charged me for Showtime this week when they ended my free trial early — no way I would pay for it. A restaurant overcharged me for a meal last week.
I think asking for donations to remove their names from the blog post is a bit much. It’s awesome to have a powerful forum to air these grievances, but maybe you need to make a Yelp-like section on the blog to provide WCI/user reviews of specific companies for that type of information.
The lesson here is not to trust the total on ANY bill.
Medicine has issues, no doubt. You can start a website to point them out if you like!
I’ve thought about a second career in trying to help fix our insane medical system. But for now, I’m working on the finance field.
Maybe $189 is too high for a $189 error, dunno. It would be fun to get a letter of apology I could post though.
If I started a blog about what was wrong with medicine I’m not sure how I would attract advertisers and affiliates the way you do in order for it to be profitable.
I don’t think the companies owe you anything beyond a sincere apology. Paying to remove negative reviews is legal but starts pushing boundaries of business ethics. If they were going to do something beyond an apology then it should be to partially refund you.
Paying people to remove negative comments isn’t something most businesses are likely to pursue — not exactly a good precedent. Also, unless you emailed this to the CEOs of the company I’m not sure how they would even know to respond at all.
They won’t know to respond for a while, until Google picks it up. Then it’s highly likely that the post will show up on the first page for anyone Googling their firm name.
I’ve already been “refunded.” I made sure I was refunded before I signed the paperwork. That’s the point of the post-it’s easier to get your “refund” up front!
As you’ll note in the post, no one is paying ME anything. 100% of that scholarship money goes to the winner(s). At any rate, that comment is a bit tongue in cheek. I also don’t expect to receive money or an apology.
🙂 I didn’t think you weren’t expecting money and I know it isn’t going to you personally. However since you made a point of emphasizing how this isn’t libel, you seemed somewhat serious in expecting a response of some kind.
I fully agree — get the refund before you ever get the service. That goes back to the point of don’t trust any bill — review them all.
I think it would be great to get a response, but doubt I will. I don’t call out individual companies very often, thus the explanation.
They should have had you sign a consent form before closing with statistics about how many times the incorrect math can potentially lead to a decrease of your financial well being…. Brilliant post. Can’t wait to close on my first house in a month!
“Never attribute to malice what can adequately be explained by stupidity.”
Always, always always get a settlement statement 24-48 hours prior to closing, inspect it for accuracy, understand each item, and if it doesn’t add up, delay the closing.
It’s a little different if you’re the seller and you want to cash out ASAP, but the title attorneys and the real estate agents want to collect their fees and will do everything in their power to keep the closing on-schedule.
My father invests in commercial real estate (no HUD form, but there is a settlement statement) and the discrepancies can be thousands of dollars.
Interesting. Looked back at my HUD-1. The math is right, but I see that I got doubled charged for document fees – one was in the settlement summary and another one was hidden in a “supplemental summary” but they were for the same fee just charged in two different places. Well, that was a $100 mistake.
Doesn’t feel good, does it?
I would agree that you should look closely at your closing statement in both your consumer and commercial real estate sales. There are opportunities to not only cross check the math but also challenge/negotiate some of the negotiable settlement charges prior to closing.
New TRID disclosures from the CFPB also dictate the timing on when you should receive the closing disclosure/settlement statement prior to a closing among a myriad of other items. I would suggest talking with your agent and/or lender prior to closing to get a good feel on timing of information.
Most likely an innocent mistake made by the office assistant who doesn’t care enough about the boring task of organizing a spreadsheet. Or they don’t understand the spreadsheet to begin with. Nonetheless you’d think the person who created the spreadsheet would’ve employed the sum(x,y,…) function to make it idiot-proof?