Filling up Settlement Statement (HUD-1) form

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ASSIGNMENT #4

Real Estate Process

Spring 2019

Real Estate Closing & Settlement Statement Preparation

Due: April 4th submitted via Blackboard

Objective: To develop ability to conduct a commercial real estate settlement statement

Format: HUD 1

Assignment:

To: Settlement Agent

Re: Preparation of settlement statement for Big Red Apartments

Date: Date of closing is March 26, 2015

You will find below all the information necessary for completing the settlement statement for

closing today’s sale of Big Red Apartments. Day of closing is being treated as a “buyers day”

for purposes of allocating expenses and credits. Please review the following assumptions and

accompanying documents and generate a settlement statement using the attached HUD-

1statement of sale for the transaction as set forth below:

THE PLAYERS

• Seller: Ken and Linda Danter Buyer: Sibley Partners LLC; Travis Frost, Managing Member (and personal guarantor)

• Lender: BB&T Bank; Jason Moore, Commercial Loans Mgr.

• Listing real estate agent: David Hodes, Realty America

• Selling real estate agent: Doug Weill, Century Real Estate

• Seller’s Attorney: Gary Stevens - $750 fee

• Buyer’s Attorney: Adam Klausner - $1,500 fee

• Lender’s Attorney: Marcus and Blarney, LLP

THE PROPERTY

• Big Red Apartments. Big Red Apartments is a 88-unit townhome development built in 1982 that comprises 22 buildings. Each unit is a 2 bedroom/1 bath layout with 900 sf gla.

Current occupancy is 95.5% with each occupied unit leased at $900/month and with an

equivalent security deposit amount equal to one month’s rent paid. No interest is due on

these security deposits held by the seller.

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• Property Taxes: Taxes are the responsibility of the owner (not tenants) and are paid in arrears1 (eg. 2nd half 2014 payable in 2015).

o Assessed Value of Property: $3,000,000 o City Tax Rate: $15.00 per $1,000 of Assessed Value (2nd half begins 7/1)

▪ Tax bill was received on 3-1-2015 for 2nd half 2014 and is due on 4-15-2015

o County Tax Rate: $10.00 per $1,000 of Assessed Value (FY begins 1/1) ▪ Tax bill was received 1-15-2015 for full TY 2014 and has been paid by seller

o School Tax Rate: $20.00 per $1,000 of Assessed Value (FY begins 7/1) ▪ Tax bill was received 1-1-2015 for 2nd half 2014 and has been paid by seller.

THE PURCHASE DEAL

• Purchase Price: $4,000,000.

• Earnest money deposit: $40,000 by buyer, held by the selling real estate agent, to be applied as a credit against the purchase price at closing

• Listing Agreement: 3.25% commission based on purchase price, split evenly between listing and selling agent; all commissions to be paid by seller

• Existing Mortgage: to be paid off by seller from proceeds at closing. Principal balance as of 3/1/2015 was $1,000,000 with an interest rate of 5% (simple interest calculated on a

365-day year payable in arrears - e.g. the March 1st payment pays February’s interest).

The seller made their March 1st payment

• Rents: rent for current tenants to be adjusted at closing. All but three tenants paid their monthly rent for March on 3-1-2015. The remaining three tenants were paid up through

February but are past due for their March 1st rent payment. Buyer and seller agree that

buyer assumes all responsibility on day of closing for past and future rent, including

collection activity and associated proceeds.

• Security Deposits: to be transferred to buyer at closing

• Expenses: each party pays its own attorney fees. o Seller Expenses:

▪ Survey: ALTA survey to be provided by seller ($5,000) ▪ Deed stamps/transfer tax ($6 per $1,000) ▪ Record discharge of existing mortgage ($50) ▪ Record Franchise Tax Search/Cert of Good Standing ($30) ▪ Title Search/Abstracting/Tax Searches ($300)

o Buyer Expenses: ▪ Record deed ($60) ▪ File Survey Map ($10)

THE FINANCING DEAL

Financing:

• BB&T: BB&T Bank is providing $3,000,000 in first mortgage financing at an interest rate of 4.25% with the first payment due on May 1, 2015. The payment on 5-1-2015 will

pay the interest for the coming month (simple interest calculated on a 365-day year

payable in advance - e.g. the May 1st payment pays May’s interest), and the loan will

begin amortizing from that first payment date. Interest will be due from day of closing

through the first payment date. The lender is also requiring that the buyer/borrower

establish a $75,000 reserve account due to concerns found with the existing waste water

1 When property taxes are paid in arrears the taxes for the current year (eg. 2015) are pro-rated based on the tax rates

and assessments.

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treatment facility on the property. Buyer will provide funds to establish the reserve

account as a part of closing and have it reflected on the settlement statement.

• Seller financing: The seller is providing an I/O (interest only) loan of $700,000 at 5% interest with a balloon payment due at the end of the first year. The first payment is due

May 1st (simple interest calculated on a 365-day year payable in advance) with interest

from day of closing to first payment date to be included in the settlement statement.

• Borrower Expenses: o Record Mortgage ($50) o Mortgage Tax ($5 per $1000) (there is no tax due on the seller-financed portion). o Title Insurance at State-mandated regulated rates of $3 per $1000: Owner’s policy

to include market value rider ($200) and Lender’s Policy to include the following

2 endorsements. (Buyer has elected to decline owner’s coverage). Title insurance

will include the following endorsement requirements:

▪ Adjustable Rate Mortgage Endorsement ($100) ▪ Environmental Protection Lien Endorsement ($50)

o Appraisal Fee to Upstate Appraisers: ($6,000) o Flood certification: ($35) o Property Insurance to Burns Fire & Casualty: $2,500 annual premium

▪ (already paid by buyer prior to closing). o Phase 1 Environmental Audit to GeoSludge: ($1,500)

▪ (already paid by buyer prior to closing). o Origination fee to BB&T Bank: ($15,000) o Lender’s Settlement fee to Marcus & Blarney, LLP: ($1,500) o No escrow account for taxes/insurance to be established at this time