Our investor doesn't permit any money back (even though VA does) and on this loan we have a no tolerance cure. Since this cure isn't a lender/seller credit, isn't the borrower entitled, legally, to get that money back on the hud?
If we zero out the bottom line that means that we are crediting/paying for their FINANCED transfer taxes. Last I knew lender and seller credits couldn't go towards financed items.

Our investor doesn't permit any money back (even though VA does)

That is not what I have read in the VA documentation:

"An IRRRL cannot be used to take equity out of the property or pay off debts, other than the VA loan being refinanced. Loan proceeds may only be applied to paying off the existing VA loan and to the costs of obtaining or closing the IRRRL. Therefore, the general rule is that the borrower cannot receive cash proceeds from the loan. If necessary, the refinancing loan amount must be rounded down to avoid payments of cash to the veteran."

So, if you need to credit the borrower, then you need to lower the loan amount.

Even if its for a tolerance cure? Its not due to the loan amount being too high. The loan officer didnt disclose transfer taxes.

Even if its for a tolerance cure? Its not due to the loan amount being too high. The loan officer didnt disclose transfer taxes.

Curing a regulatory violation does not equate to receiving cash back from the loan transaction.

If the investor is insisting otherwise then you should find a new investor.

I might have to disagree although I am not an expert on VA loans anymore. How can you have a cash back on the HUD-1 for one of these loans no matter what the reason?

Dan I am of your persuasion because its coming from us, as money we owe the borrower due to a mistake that couldn't be fixed.

We have found out first hand through a HUD audit, that government entities do not allow cash back, even if it's for a tolerance cure. They made us do a principal reduction after we had already given the cash back in a cure, so they got it twice!

Not sure how to handle these types of transactions going forward.....do we violate RESPA or agency guidelines??