We have a purchase transaction with funds set aside in a reserve account for renovations. Closing costs are being deducted from the loan amount. Credits in Section L include EM deposit 5k and prorated taxes of $750--the exact amount that is showing as a negative in Cash to Close. If we take the loan amount, less the purchase price and closing costs, add the EM deposit and prorations, the borrower's account should reflect the rest--with zero cash to close. Our LOS provider says the negative credit is correct and the borrower can take the funds at closing and deposit them into the reserve account. I can see a negative figure if the borrower was getting a disbursement, but that is not the intent. How should this be disclosed properly?

I do not quite follow what you are saying, but if you are requiring the borrower to establish a reserve account with the bank holding the funds for renovations, then you need an entry for that in Section K under Adjustments.

We do have the reserve account in Section K. We also had to make another entry in Adjustments to offset the Section L entries for the EM deposit and the prorations in order to show cash to close as zero; otherwise, it's a negative number, showing the borrower getting the money back.

Without all the numbers that you are dealing with and their reasons for the entry, I am not sure how anyone can really help. Why would you make another entry to offset an earnest money deposit?? I still do not understand the goal. You don't make entries to balance the transaction to get to zero, you adjust your amounts. If the consumer is getting cash back and you don't want them too, then your loan amount is too large.