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.

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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

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

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.

  1. Know exactly what the contract says you are supposed to pay.
  2. Look at the settlement form and understand every item on it and who is responsible to pay that item.
  3. Make sure the items on the settlement form represent the contract.
  4. Do the math yourself. Financial professionals can't necessarily be trusted with addition and subtraction, even if they have a calculator and a computer.
  5. 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!