What Happens in a Real Estate Closing?
Buying property can be an exciting process. You look at properties, find one you love, and make an offer. When the sellers accept that offer, you will need to close on the property. For many buyers, the closing is a mystifying process. This article will explain what to expect at a Real Estate Closing.
The Closing Process
Closing is often called "settlement." These two terms are used interchangeably, so a Real Estate Closing and a Real Estate Settlement are the same thing. In a nutshell, this is when all documents are signed, monies are exchanged, and the property transfers to the buyer. The period between acceptance of an offer and closing is often called "the escrow period."
What Happens During Closing?
All parties involved meet in a mutually agreed upon location to review and sign all of the documents. Since most of these documents are prepared in advance of the Settlement Meeting, you should have already thoroughly reviewed them with your attorney. If there is a mortgage involved, these documents are reviewed, signed, and notarized during this meeting, and the monies are disbursed to the seller. The buyer also pays his share, including closing costs, via certified check. Often, the buyer is also required to set up an escrow account to cover things like taxes, insurance, and the first few mortgage payments. The buyer will need a separate certified check for this. In addition, closing costs (usually 3-5% of the financed amount) are paid with a third certified check. The Real Estate Agents also receive their commissions during the closing conference.
Who is at a Settlement?
Whether you are the buyer or the seller, hopefully you've followed our advice and retained an attorney to help you with the whole process. Your attorney should have reviewed ALL contracts and documents, as well as helped you with all negotiations. Your attorney should also be there for the closing. In addition to buyer's and seller's attorneys, you can expect both the real estate agents (both the Buyer's and Seller's agents,) a representative from the financing agency (usually a bank,) and a representative from a title company. You will also need a Notary Public to notarize all the documents. Often, one of the Real Estate Agents, Bank Representatives, Lawyers, or Title Company representatives is a Notary. Connecticut, Georgia, and Delaware all require an attorney to execute the closing, so if you live in one of those states, settlement definitely includes at least one lawyer.
Where Does the Closing Take Place?
A closing may take place in a number of places, be that an Attorney's Office, a Title Company, an Escrow Company, or the Lender's Office. If it is a "cash" transaction with no mortgage, settlement usually occurs at the Attorney's office, either yours or that of the seller.
When Does the Closing Occur?
The closing takes place at a date and time mutually agreed upon by all parties. Generally, there is approximately a month between acceptance of offer and the settlement meeting.
How Long Does the Process Take?
Generally, the Closing takes between 30 and 90 minutes, depending on how prepared all parties are, and how long it takes to review the documents. However, if issues arise during the closing, it may need to be rescheduled, and it may take several days.
What Documents Need to be Executed?
Usually, the closing involves signing the following documents:
- The Closing Disclosure Form: This is an itemized list of the buyer's final costs, credits, and charges;
- Deed of Trust or Mortgage Document: These are the actual terms and conditions of the financing agreement;
- Promissory Note: This is the actual IOU form to the lender, detailing the actual amount of money you are borrowing and will need to pay back;
- Loan Estimate: This document outlines the actual closing costs, which are in addition to financing and down-payment;
- Title Insurance: protects an owner's or a lender's financial interest in real property against loss due to title defects, liens or other matters.
What Happens After Closing?
You take possession of the property, and the new deed is recorded. You also receive your keys at this meeting.
What Issues May Arise During Closing?
Hopefully, the closing will go smoothly, and there will be no issues. Ideally, both parties have all the documents ahead of time, and have had a chance to review them, so that issues do not prevent a smooth closing. However, the following issues may delay or prevent a settlement:
- Errors in the Documents: These can be as simple as typos, or there may be terms that were not previously agreed upon.This is why it is important to thoroughly re-read ALL documents before signing them. DO NOT sign any documents containing errors until those errors are corrected.
- Money Issues: Often, funds are delayed, especially if the purchase involves a mortgage. If checks are delayed, settlement may need to be postponed.
- Title Issues: Sometimes title issues are found that must be cleared before final settlement may occur. These may be unknown liens placed by contractors or an Association, unpaid Association fees, tax deeds, etc. Despite the presence of Title Insurance, the Buyer's Attorney will not allow settlement to commence if any title issues are found.
- Issues Found During the Final Walk-Through or Inspection: Many contracts are contingent on a Home Inspection. If the Inspector finds any issues, the Buyer's Attorney may negotiate buyer credits to fix these deficiencies. Likewise, if any issues were found during a final walk-through, such as damages to the home, paint defects caused during a moving out process, non-working fixtures or appliances, or cleanliness issues, the attorneys may negotiate repairs or credits, or even a reduction in the final cost of the property.
If any of these issues arise, the closing may be delayed or continued on another day. Sometimes, these issues may prevent a closing from happening at all. The contract may fall through if significant issues crop up. Again, these issues are best handled by an attorney, whether you are the buyer or the seller.
Often, "Earnest Money," or a deposit is made when the offer is accepted. If the closing falls through, what happens to this money is dependent on several factors, including the wording in the sales contract and the reasons for the closing falling through. Again, it is best to let your attorney handle these negotiations. Whether you are the buyer or the seller, it may cost you a lot of money if you try to handle these negotiations yourself, or if you leave them to your Real Estate Agent. It will most likely cost you far more than you would have paid in Attorney's Fees.
Summary
This article attempted to demystify the closing process. It outlined the who, what, when, where, and hows of the settlement process. It also stresses the importance of retaining a skilled Real Estate Attorney to represent you at settlement. There are a plethora of complicated documents to sign, and even more issues that may arise, all of which are best handled and negotiated by your lawyer.
The Law Offices of Heath D Harte are located in Connecticut, a state which requires an attorney to be involved in the closing process. Again, we stress you hire your OWN attorney, rather than depending on the Real Estate firm to provide one. Only your own attorney has your best interests at heart, (or should we say at Harte, as we always have our clients' best interests at the forefront.) There are just too many issues that may crop up during the settlement process that can cost you far more than paying attorney fees. With the proper preparation, we can even represent you at the closing so that you do not even have to be present. If you live in one of the areas in which we practice, we are happy to represent you throughout the entire home buying process, from identifying property to buy, to placing an offer, to reviewing and negotiating documents, to handling the closing for you. We can take most of the stress out of the home buying process.
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