The purpose of a real estate closing is to transfer the title or Deed to a property from one owner (we will refer to as the Seller) to another owner (Buyer). This transaction is executed by an attorney hired by the Buyer. One or both parties may attend the closing in person at the attorney’s office or it is also common for the Seller to sign their documents the day before if they do not wish to attend in person.
There is a significant amount of preparation that takes place in the days and weeks prior to a closing, and thus there is also some stress associated with the process because a last-minute problem may mean the closing may need to be cancelled and rescheduled by one or two days. Since there may be additional plans made that depend on the closing (ie. the purchase of another home by the Seller or moving plans by the Buyer), completing the closing on the scheduled day is of paramount importance. If the closing date is moved, the HUD/Settlement numbers may need to be recalculated to reflect the new closing date, as interest accrues on a daily basis.
What can a Buyer expect when going thru a real estate closing process?
To initiate a real estate closing, typically one of the parties to the transaction (most commonly the real estate agent for the Buyer) contacts a closing attorney’s office to schedule a date for the closing to take place. Once the signed contract is received by the attorney’s office, the preparations can begin.
Staff at the attorney’s office will order and review a title search to ensure that the Seller has the legal authority to sell the property and that no one else has legal claim to it. If a problem is found, the issue will be addressed and fixed in order to produce a “clear title” which is free from defects. If the problem is not simple to fix, the title ownership issue would need to be researched and resolved before the closing process can continue. The Seller must have the clear ownership to the property in order to convey it to anyone else.
Assuming the title is clear, the processor will then work with the Buyer’s chosen lender to gather the necessary information required to prepare the HUD/Settlement Statement. They will use numbers set forth in the signed contract, and then gather additional identifying information such as social security numbers, current and future addresses as well as property-related information such as the amount of the buyer’s homeowner’s insurance, current property taxes, and homeowner’s association (HOA) information. Copies of covenants may be ordered from the HOA on the Buyer’s behalf.
Once the Buyer’s lender advises the parties that the loan has been approved, a closing date may be scheduled on the attorney’s calendar. All the parties to the transaction, the Buyer, the Seller, the real estate agent (if one is involved) and possibly the lender’s loan officer representative will convene in the attorney’s office on the date of the closing.
In general, these are the typical steps that take place during a real estate closing:
- The attorney will step thru the large amount of paperwork, explain the intent of each of the documents, and obtain the appropriate signatures in the necessary places on each of the documents.
- If the HOA has a set of covenants, this needs to be communicated and/or copies given to the Buyer. This may have already been done when the original purchase contract was negotiated, but if not a copy may be provided at this point. It is important to understand that once the property is purchased, the Buyer can be held to the rules and regulations specified in the Covenants. It is therefore very important for the Buyer to know exactly what the covenants include.
- The Buyer produces the funds to cover three types of charges: (1) the purchase price of the property, (2) the total for all closing costs and (3) the establishment of escrow accounts. Escrow accounts are holding accounts that receive payments from the Buyer for property taxes and homeowner’s insurance that are included in their monthly mortgage payment. Setting up these accounts usually requires several months of advance payments to provide a financial buffer for the lender. Then each month when the Buyer pays their mortgage, the lender puts aside a specified amount in the escrow accounts and eventually pays the appropriate entities when the bills are due. The funds used for all of these expenses may come in several forms from the Buyer, such as a cash down payment, and/or the lender’s money in the form of a certified check or a wire transfer through their banking institution to the attorney’s office.
- By signing it, the Seller executes the Deed containing the legal description of the property which officially delivers title to the property to the new owner/Buyer.
- The Seller then receives a check for the proceeds of the sale based on the terms and conditions of the purchasing contract.
With these items completed, the real estate closing is concluded and the keys to the new home are handed to the Buyer. However, after the closing, the closing attorney still has some additional tasks to complete on the Buyer’s behalf:
- They will complete the file by disbursing the remaining funds via checks written to any vendors that are awaiting payment for services that are listed on the HUD/Settlement Statement. Typically this could include a home inspector, home appraiser, radon inspector, title company and/or also a payment to themselves as the Buyer’s attorney.
- Should any matter remain, the attorney’s office will complete the necessary documents to correct any issues. For example, sometimes a name is spelled incorrectly and needs to be changed or a signature did not include the signer’s full name.
- They are responsible for transporting the Deed to be recorded in the records of the County Courthouse where the property is located.
- The recorded Deed and copies of other closing documents will be forwarded to the appropriate parties.