I learned an expensive lesson this week. ?In general, for Hawaii purchase transactions, escrow fees are split 50/50, owner’s title insurance is split 60/40 and the conveyance tax is paid by the seller. ?I learned that this is not law, actually just the traditional agreement as outlined in the HAR (Hawaii Association of Realtors) standard purchase contract, Section C-11.
The transaction I was about to close was an REO (bank or lender owned property) owned by Fannie Mae. ?Fannie supplies their own purchase contract and within it is a section that states that, regardless of local tradition or customary practice, Fannie Mae will not pay any transaction costs nor any transfer (conveyance) taxes. ?This means that the buyer is responsible for 100% of the escrow/settlement fees and 100% of the owner’s title insurance premium.
…and Even More to Learn
Fannie Mae’s contract also contains a section that states, per federal statute, Fannie Mae is exempt from paying taxes. ?Astonished and after several readings, this makes it seem as if the transaction would be subject to no conveyance tax. ?Hooray!!!! However, if you read the actual federal statute referenced in the contract, Fannie Mae is NOT exempt from real property taxes, so the buyer IS responsible for the conveyance tax in this transaction.
The seller in this transaction (Fannie Mae) did provide a credit of $1550, but that didn’t go very far, considering that total escrow/settlement fee for an REO transaction is actually higher than normal and ran almost $2000. ?The additional portion of the owner’s title insurance was almost $700 and the conveyance tax was $440.
All told, the additional costs equated to a little over $2000. ?As the lender and one who made the mistake, I absorbed the costs, creating an expensive lesson. ?Hopefully you can learn from me.
If you are a VA borrower, you aren’t responsible for any part of the escrow fee, but you will still be faced with paying the full owner’s title insurance and conveyance tax. ?The amount of these depends upon the size of the transaction, but will likely run anywhere from $600 to $1400 extra.
Here’s what you can do to make sure you’re accounting for the total cost of the transaction:
- Review C-11 of any standard HAR (Hawaii Association of Realtors) Purchase Contract to be sure it is intact.
- Review any non-standard contract in its entirety to see if it makes any reference to transaction fees. ?If it doesn’t and if the seller is a corporation large enough to be recognized, check with escrow to see how the company typically addresses the issue.
- Your lender should disclose the conveyance tax, escrow and title fees on the GFE, if they are not disclosed, check with the escrow company to find out how much they will be.