From what you have told us, it sounds like you are disclosing transfer taxes correctly. As stated in HUD’s Settlement Cost Booklet, transfer taxes should be disclosed in Block 8 of the GFE and in Line 1203 of the HUD-1 Statement: “Line 1203 lists the charge for transfer taxes. Transfer taxes are charged by state or local government to transfer real property or place a new lien (mortgage or deed of trust) on a property. This charge is listed in Block 8 of your GFE.”

In addition, according to HUD’s guidance on the disclosure of transfer taxes, the question of whether you must disclose transfer taxes at all depends on local law. HUD’s RESPA Rule FAQs (from April 2010) state the general proposition that you are not required to disclose charges that are not paid by the borrower: “Charges that typically would not be charged to the borrower, but would be charged to another party — such as the seller — do not have to be included on the GFE.” However, if a charge is not clearly attributable to either party, you must disclose the charge: “If there is a question about whether the borrower or seller is to pay for a particular settlement service, the charge for that service should be disclosed on the GFE.” RESPA Rule FAQs, Question 2 under GFE – Seller paid items.

HUD’s FAQs also provide details on how transfer taxes should be disclosed:

“(2) Q: How is the transfer tax disclosed in Block 8 of the GFE?

A: The amount the borrower is likely to pay for transfer taxes is disclosed in Block 8 of the GFE. In some areas this amount, as a matter of practice, is governed by state or local laws. If state or local law is unclear or does not specifically attribute transfer tax to a seller or borrower, the amount to be disclosed on the GFE is governed by common practice or experience in the locality of the property.

If the seller is paying a portion of the transfer tax that was not disclosed on the GFE, then that portion should be listed in the seller’s column in the 1200 series on the HUD-1.”

In a 2010 webinar, HUD provided additional guidance on disclosing transfer taxes where a real estate purchase agreement determines which party is responsible for transfer taxes. Slide 55 from that webinar states that when a contract assigns the transfer tax liability to the borrower, you must disclose the entire transfer tax amount, even if local law assigns liability to the seller. However, the rule is not the same when a contract assigns transfer tax liability to the seller. In other words: “If you have contract prior to issuing GFE and contract assigns MORE than state law, put the higher amount. . . [but] If contract assigns LESS than state law, put amount assigned by state law.” HUD Webinar, March 18, 2010 (videoPowerPoint slides).

Based on the HUD FAQs, you need to look to your local laws and common practices to determine how to disclose transfer taxes. Accordingly, the required disclosure will change depending on the locality of the property securing a loan. In addition, if you have a contract before issuing the GFE which requires the borrower to pay more than what is required under state or local law, the contract amount should be disclosed on the GFE. On the other hand, if a contract requires that the seller pay some or all of the transfer tax, you still must disclose the transfer tax amounts that state and local law requires the borrower to pay.

In the case of the Illinois state transfer tax, the Real Estate Transfer Tax Law is ambiguous — it does not place the burden of paying the tax on either the seller or buyer. Instead, the law states that the tax is “imposed on the privilege of transferring title to real estate.” 35 ILCS 200/31-10.  Consequently, the party liable for the Illinois real estate transfer tax depends on the contract between the buyer and seller. According to the HUD FAQs, because Illinois law does not specifically attribute transfer tax to a seller or borrower, if the contract is silent on this point, the disclosure “is governed by common practice or experience in the locality of the property.”

In addition, many municipalities and counties in Illinois impose their own transfer taxes. Often, these local transfer taxes will specify that either the buyer or the seller is liable for the tax. See, e.g., Chicago Municipal Code 3-33-030(C) (which places the burden of paying the Chicago transfer tax on the buyer). The Attorney’s Title Guaranty Fund (ATG) maintains a webpage tracking all local transfer taxes, including information on whether the buyer or the seller must pay the tax.

In sum, when there is no express assignment of payment responsibility in either applicable law or the contract, the ambiguity will need to be resolved by reference to “common practice and experience” in the locality. In such case (as will be the case for the Illinois transfer tax when the contract is silent), the common practice in the relevant locality will determine whether the seller or buyer should be disclosed as paying the transfer taxes. And in cases when the purchase contract assigns tax liability to one or the other party that differs from applicable laws, you should follow the rules stated in the HUD webinar as described above.