Welcome to your Determining the Reporting Person Quiz!

Read the prompt below and answer the questions to test your knowledge on Determining the Reporting Person Through the Cascade of Responsibility.

Prompt:

Determining the reporting person should always begin with an evaluation of the cascade of responsibility, even if the practitioners involved intend to enter into a designation agreement (because a valid designation agreement must always include the individual who would have been the reporting person had the cascade of responsibility applied).

The Cascade of Responsibility

The cascade of responsibility set forth in Section (c)(1) of the Reporting Rule provides that, if there is no designation agreement, the reporting person will be:

(i) The person listed as the closing or settlement agent on the closing or settlement statement for the transfer;

(ii) If no person described in subsection (i) is involved in the transfer, then the person who prepares the closing or settlement statement for the transfer;

(iii) If no person described in subsections (i) or (ii) is involved in the transfer, then the person who files with the recordation office the deed or other instrument that transfers ownership of the residential real property;

(iv) If no person described in subsections (i) through (iii) is involved in the transfer, then the person that underwrites an owner's title insurance policy for the transferee with respect to the transferred residential real property, such as a title insurance company.

(v) If no person described in subsections (i) through (iv) is involved in the transfer, then the person that disburses in any form, including from an escrow account, trust account, or lawyers' trust account, the greatest amount of funds in connection with the residential real property transfer;

(vi) If no person described in subsections (i) through (v) is involved in the transfer, then the person that provides an evaluation of the status of the title, or

(vii) If no person described in subsections (i) through (vi) is involved in the transfer, then the person that prepares the deed or, if no deed is involved, any other legal instrument that transfers ownership of the residential real property, including, with respect to shares in a cooperative housing corporation, the person who prepares the stock certificate.

While there are significant differences in real estate closing procedures in different states, the prevalence of the HUD-1 form at real estate closings provides a baseline for standardization.

The Real Estate Settlement Procedures Act of 1974 (“RESPA), codified at 12 U.S.C. § 2601 et seq., requires that parties to a covered real estate transaction must disclose certain transaction costs on Form HUD-1. The implementing regulations, sometimes called Regulation X, are currently under the authority of the Consumer Financial Protection Bureau and are published at
12 CFR § 1024.

While a HUD-1 form is mandatory for any “federally related mortgage loan,” real estate practitioners often use the form HUD-1 in non-financed transactions simply because it serves as a convenient means to manage payments that come from the closing.

The first level in the cascade of responsibility places the obligation of serving as the reporting person on the person identified as “the closing or settlement agent on the closing or settlement statement for the transfer.”

In any reportable transaction where the parties complete Form HUD-1, the “settlement agent” must be identified by name. Sections (ii) through (vi) provide alternative methods of identifying the reporting person.

If there is no reporting person from sections (i) through (vi), the final level in the cascade places the reporting obligation on the individual who either “prepares the deed or, if no deed is involved, any other legal instrument that transfers ownership of the residential real property, including, with respect to shares in a cooperative housing corporation, the person who prepares the stock certificate.”

Since a reportable transaction requires a transfer of residential real property, it is difficult to imagine any transaction in which there is no individual “who prepares the deed” or, in the case of a house cooperative, the person who prepares the stock certificate.”

The Reporting Person May be a Firm or Corporation

Importantly, the Rule requires that is an individual reporting person is “an employee, agent, or partner acting within the scope of such individual's employment, agency, or partnership,” then the reporting person determined through the cascade is “the individual's employer, principal, or partnership.” 31 CFR 1031.320(c)(2).

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