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Real Estate Law

HUD Adjustments At Your Real Estate Closing

When estimating their closing costs, many people do not consider the adjustments made on their HUD...

Wait what? Back up. What is a HUD??

In this context, HUD is short for HUD-1 Settlement Statement. This is the last document you will review before you closing on your purchase or refinance. The HUD is the borrower's go-to-guide and outlines all the money that is changing hands during the transaction. It summarizes all the important information including your interest rate, term, closing costs, amount to be paid at closing, and adjustments for expenses paid by the seller.

HUD Adjustments can be very tricky to understand, so we have put together a short guide with an example scenario to help all confused homebuyers.

HUD Adjustments:

Adjustments are a mechanism by which attorneys take into consideration items which may be prepaid in advance or due by a Seller involving the real property to be purchased.

Commonly adjusted items include:

  • Fuel such as propane and oil
  • Water and sewer assessment and usage charges
  • Real estate property taxes and fire district taxes
  • Rents and security deposits, in the case of rental properties or those occupied by tenants
  • PUD (planned unit development) or Condominium Common Charges

Adjustments appear on the HUD and are typically adjusted as of the date of the purchase, with the Buyer taking responsibility for the date of closing.

Example of A HUD Adjustment:

In most towns in Connecticut, property taxes are paid on a semiannual basis, meaning twice a year. When the first installment of taxes is paid in January, the payment covers the period from January 1st through June 30th, and when the second installment of taxes is paid on July 1st, the payment covers the period from July 1st through December 31st.


Closing Date: May 1st

Yearly Property Tax Liability: $5,000

  • Installment 1 (covering January 1st- June 30th)- $2,500
  • Installment 2 (covering July 1st – December 31st)- $2,500

On the date of closing the Seller has already paid the January installment covering through the end of June of the present year, thus the Seller is due back a credit for taxes from May 1st through June 30th, which is calculated in the following manner:

            Calculation of days: 31 days in May + 30 days in June = 61 days to adjust

            Per diem tax adjustment: $5,000 total tax liability / 365 days in a year = $13.70 per day

            Total adjustment due from Buyer to Seller on line HUD-1 Line 106: $13.70 per day x 61 days = $835.70

How the Mortgage Forgiveness Debt Relief Act Could Affect Your Short Sale

By Corinne Abbott

As of January 1, 2014, the Mortgage Forgiveness Debt Relief Act will no longer be in effect.  This act had allowed for a deficiency in repayment of a loan that was forgiven by a lending institution to be forgiven for tax purposes.  For example: if an individual borrowed $10,000.00, and after only paying back $2,000.00, defaulted on the loan, and the lender forgave the $8,000.00 difference, the $8,000.00 would typically be considered income because it is an amount that was received that is no longer required to be repaid to the lender.  Under the Mortgage Forgiveness Debt Relief Act, an individual did not have to pay taxes on the $8,000.00 benefit of the forgiven debt, so long the underlying debt was related to the sale of a principal residence for less than what was owed to a mortgage lender and the individual met additional defined criteria.

As of January 1, 2014, this is no longer the case.  Therefore, if an individual is in the process of a short sale, it is possible that when property is sold for less than the outstanding amount due, and the lender approves the forgiveness of the deficiency, the number that the lender essentially “forgave” will be considered taxable income and must be reported on a tax return as income by using Form 982 and attaching it to your tax return for the pertinent year. 


While the Mortgage Forgiveness Debt Relief Act has not been extended to apply in 2014, this does not necessarily mean that it will not be retroactively extended and applied, as it was last year; however, because of the uncertainly of this action, Penner Law Firm wanted to take the opportunity to explain this development to you relative to your short sale transaction. Our law firm does not handle tax law nor do we purport to advise our clients on tax liabilities or individual implications.  We strongly advise that you speak with a certified public accountant or tax attorney to discuss the possible implications to you for the upcoming tax year.  

CFPB Sends Strong Message

By Billy Snider, Esq.

The Consumer Financial Protection Bureau (“CFPB”) inflicted some pain upon a Utah mortgage bank in the form of damages and penalties in excess of $13 million dollars.  The money is part of a November 7, 2013 proposed settlement of an enforcement action brought by the CFPB for alleged violations of the Regulation Z loan originator compensation rule (“LOC Rule”). 

The suit was filed on July 23, 2013 in the U.S. District Court for the District of Utah.  In its complaint, the CFPB alleged that the lender, Castle & Cooke Mortgage, LLC, and two of its officers, “developed and implemented a scheme by which the Company would pay quarterly bonuses to loan officers in amounts that varied based on the interest rates of the loans they originated-the higher the interest rates of the loans closed by a loan officer during the quarter, the higher the loan officer’s quarterly bonus.” CFPB v. Castle & Cooke Mortgage, LLC, et al., Case No. 2:13CV684DAK (“The Complaint”).    The LOC Rule, which was part of the 2010 RESPA reform passed in the wake of the financial crisis, prohibits a loan originator from receiving “compensation in an amount that is based on any of the transaction’s terms or conditions.” 12 C.F.R. § 1026.36(d)(1(i). 

The complaint also alleged that the bonus system was not reflected in any compensation agreements, and that the company failed to maintain a written policy explaining the method used to calculate the bonuses.  Despite this, the bonuses were reflected in the payroll records, without any indication as to what portion of a bonus was attributable to a particular loan.  In addition, the CFPB claimed that the defendants violated the LOC Rule’s record keeping requirements. See The Complaint.

The proposed consent order, which needs to be approved by the court, provides for the following:

Monetary damages in the amount of $9,228,896; a civil penalty in the amount of $4 million; a permanent injunction against the defendants from violating the LOC Rule; and a requirement that evidence of compliance with the LOC Rule be maintained.

This case is of note for three reasons: 

(1) The CFPB has once again served notice that it is going to aggressively pursue parties it believes to have wronged consumers, even when that wrong is not readily apparent from the face of the transaction; (2) by including the two officers of the company in the suit, CFPB Director Cordray has remained true to his stated commitment to not only go after companies, but the individuals doing “bad things under the umbrella of the company”; and (3) the size of the settlement is consistent with CFPB enforcement actions in the past, and continues to send the message that if you violate federal consumer laws, the CFPB will find you, and when they do, you are going to pay. 

Safety Isn't Expensive, It's Priceless.

Enhancing safety standards is not always an easy road but, once a new standard is adopted as common practice, it can be extremely beneficial.  In accordance with recent Connecticut legislation entitled Public Act 13-272 beginning January 1, 2014 Sellers of one to two family residential real estate dwellings built prior to October 1, 2005 will be required to provide the Buyer of their property with an affidavit concerning smoke and carbon monoxide detectors. 

Both smoke and carbon monoxide detectors must be installed in accordance with the manufacturer’s instructions.  The devices may be battery operated or hardwired into an existing system and must be situated within the house in accordance with the manufacturers recommendations for number of detectors and placement in proximity to bedrooms and appliances.   


At the time of closing, the Seller is required to furnish the Buyer with an Affidavit stating under oath that there are smoke and carbon monoxide detectors in the property that meet the requirements set forth above.  If the Seller is unwilling or unable to provide this Affidavit, they will be required to provide the Buyers with a credit in the amount of two hundred fifty dollars at the time of closing to be added to the HUD-1 Settlement Statement.  The detectors must meet the following criteria.

A smoke detector must meet the following specifications:

  1. Capable of sensing visible or invisible smoke particles.
  2. Installed in accordance with manufacturer’s instructions and in the immediate vicinity of each bedroom.
  3. Must not exceed the standards under which such equipment was tested and approved.
  4. Capable of providing an alarm suitable to warn occupants when such equipment is activated.

A carbon monoxide detector must meet the following specifications:

  1. Capable of showing the amount of carbon monoxide present as a reading in parts per million.
  2. Installed in accordance with the manufacturer’s instructions.
  3. Not exceed the standards under which such equipment was tested and approved.
  4. Capable of providing an alarm suitable to warn occupants when such equipment is activated.

If the home does not contain any fuel-burning appliance, fireplace or attached garage, Carbon Monoxide detectors are not necessary.


Although this is a significant change in the closing process for Buyers and Sellers in Connecticut, many neighboring states have similar requirements for a residential real estate transaction.  According to the United States Fire Administration, every year in the United States, about 2,500 people die in house fires where there were no smoke detectors present or, the smoke detectors were not functioning properly.  Not only do smoke detectors help save the lives of the residents of the home, but they also help save firefighters lives by not putting them in a perilous situation that may have been avoided, i.e. running into a burning building to save occupants trapped inside.

The Center for Disease Control reported that “each year, more than 400 Americans die from unintentional Carbon Monoxide (CO) poisoning, more than 20,000 visit the emergency room and more than 4,000 are hospitalized.”  Carbon Monoxide affects all humans and animals present in a vicinity where Carbon Monoxide is detected because it is absorbed by red blood cells faster than oxygen is absorbed.  If humans and animals do not get enough oxygen into their bodies their tissues and organs breakdown causing brain damage and death. 

What this means for you.

Aside from the potential life and property saving effects this legislative change will have, it means all Buyers and Sellers need to be informed of this requirement to ensure a smooth legal transaction.  Sellers must install these detectors if they have not already done so and certify that they are in compliance with all specifications.  Buyers must obtain a signed affidavit at closing from the Sellers or they are entitled to a credit of $250.00 at the time of closing.  All other industry professionals should be aware of this new requirement in order to fully educate their clients and prevent closing table debacles.