And HUD responds ...

Have you ever had somebody explain something to you that just doesn't make sense?

That happened to me a few days ago when I spoke to Kevin Stevens, a compliance protection specialist with the U.S. Department of Housing and Urban Development.

See, there was this legal action last year which determined that Natural Hazard Disclosure (NHD) statements in California are a settlement service as part of the escrow process and are subject to the Real Estate Settlement Procedures Act (RESPA).

Settlement services are essentially all the services that are paid for before a home changes hands, including things like mortgage insurance, property taxes and notary fees. And NHDs? They'd have to be at or near the top of the list in terms of importance. These are the reports that let a buyer know if the home they are purchasing is in a fire zone, an earthquake area or subject to some other undesirable situation.

"They are considered, unquestionably, to be a settlement service," Stevens, said. "Not all states have them."

But California does. So I asked Stevens how homebuyers, home sellers and real estate brokers in California are made aware of this. He said the requirement is listed in Section 1300 of HUD 1.

Well, I went onto HUD's website to check that out. Section 1300 of HUD 1 is listed under the banner, "Additional Settlement Charges." And that section includes just two entries: 1301 is listed as a "survey" and 1302, a "pest inspection."

The remaining lines - lines 1303 through 1305 - are blank.

That strikes me as rather odd because other sections of HUD 1 - sections 800, 1000 and 1100, for example - list a myriad of fees. Section 800 lists the loan origination fee, loan discount fee, appraisal fee, credit report, lender's inspection fee, mortgage insurance application fee and the assumption fee. Section 1000 includes hazard insurance, mortgage insurance, city property taxes, county property taxes and annual assessments.

And Section 1100 lists the settlement or closing fee, abstract or title search, title examination, title insurance binder, document preparation, notary fees, attorney's fees, title insurance, lender's coverage and owner's coverage.

But when we get to Section 1300, no mention is made of a Natural Hazard Disclosure statement. It's not hinted at, mentioned in passing or posted on the form in any way. Still, Stevens insists that California buyers, sellers and real estate brokers would be aware of the requirement. He explains it this way:

"It's not pre-printed," he said. "The title company ... would type that into the form."

The title company? Wow! Now I am really at a loss. What does the title company have to do with Natural Hazard reports? Nothing! In California, title companies are regulated by the Insurance Commissioner’s office of the state of California, with no relationship to the Natural Hazards industry, which is completely unregulated.

I will insist on getting the answer from someone at HUD. By now I wonder, “Is there someone who can direct me to a place in the statue, document, hidden drawer or a cloud in the sky that refers to the Natural Hazards Report as a settlement service?"

Where's my NHD?

J.K. Nakata, U.S. Geological Survey

Anyone who has ever purchased a home knows the process is pretty involved - and sometimes very long.

Buyers in search of their dream home often spend months or even longer scoping out the local housing market, not to mention the school systems, bus lines, shopping centers and a host of other factors before making their buying decision. All told ... it an be an emotionally draining experience.

And then there are the fees - lots of them.

These run the gamut from city and county taxes to the appraisal fee and a credit report fee. But there are plenty more, ranging from the mortgage insurance fee, closing fee, title examination fee, notary fees, attorney fees and additional costs for such things as hazard insurance and the lender's inspection fee.

These settlement services are all clearly outlined in HUD 1, a document provided by the U.S. Department of Housing and Urban Development. But there's one settlement service that's been left off the list - the Natural Hazard Disclosure report.

I don't understand why NHDs aren't included because these reports can contain some of the most crucial information you'd ever want to know. Consider this: What if you moved into a nice four-bedroom, two-bath home but found out a year later that you were sitting directly atop an earthquake faultline? Or in a high-fire zone? Or what if you learned you were in an area prone to mudslides?

These are the kinds of things NHDs reveal - ahead of time. Needless to say, they can play a BIG part in your decision to buy, or not buy, a home. A legal action last year determined that NHDs in California are, in fact, a settlement service as part of the escrow process and are subject to the Real Estate Settlement Procedures Act (RESPA).

I contacted HUD to get their position:

Are Natural Hazards Reports a settlement Service?

HUD spokesman Brian Sullivan said, "For California it most certainly is a settlement service."

Is HUD enforcing this mandate?

"We believe so,” Sullivan said. “If it’s not, it’s a violation of RESPA.”

But if HUD is enforcing this, why aren't NHDs included in HUD 1 as a settlement service for real estate transactions that occur in California? Sullivan didn't exactly have an answer for that one.

"It's not a requirement across the country," he said. "Just in certain states."

I can not find any communication from HUD that reflects Mr. Sullivan's comments. No mention on HUD 1, no official or un-official communication was posted, not one word in any place. Are these legal requirements posted in a secret drawer that I cannot reach? Is HUD reaching far out of the legal requirements?

I am committed to get to the bottom of this one; I do not believe in legal requirements that are posted on a cloud.