Ideas By Sky

Closing is known by many names. For instance, in some areas, closing is called settlement and transfer. In some parts of the country, the parties in the transaction sit around a table and exchange copies of documents, a process known as passing papers (“We passed papers on the new house Wednesday morning”). In other regions, the buyer and the seller never meet; the paperwork is handled by an escrow agent in a process known as closing escrow (“We’ll close escrow on our house next week”). The main concerns are that the buyer receives marketable title and that the seller receives the purchase price.

This final chapter is the culmination of many efforts—finding an agent, negotiating offers, solving problems, coordinating inspections, and much more. At the closing, title to the real estate is transferred in exchange for payment of the purchase price. It’s also a complicated time because until closing preparations begin. During the closing period, new players come on the scene: appraisers, inspectors, loan officers, insurance agents, and lawyers. Negotiations continue, sometimes right up until the property is finally transferred. A thorough knowledge of the process is the best defense against the risk of a transaction failing.

There are some elements we need to finalize before closing, and they are:

agree for the necessary repairs

I would like to quote condosales.com article published in Nov, 2018: “The seller can give the buyer a lump sum at closing to cover the cost of repairs, which the buyer agrees to carry out. The seller can also prepay a contractor to do the work. Or, a portion of the sellers proceeds could be held in trust after closing and used for the repairs. The method usually depends on the complexity of the repairs and negotiations. Simple items should be taken care of before closing at the expense of the seller but extensive repairs should be quoted beforehand and agreed upon before closing’ The methods may change however the essential thing is to come to a mutual agreement both parties promise to carry out.

give notice and discuss move out plans

The proposed dates for the closing and the buyer’s possession dates should be based on an anticipated closing date. The listing agreement should allow adequate time for the paperwork involved (including the buyer’s qualification for any financing) and the move-in date to be arranged by the seller and the buyer.

remove of all contingencies

Buyers are responsible for determining that they are taking good title to the property. Either the abstract of title or a title commitment from a title insurance company will disclose whatever liens, encumbrances, easements, conditions, or restrictions that appear on the record that affect the seller’s title.

As part of the later search, the sellers may be required to execute an affidavit of title. This affidavit is a sworn statement in which the sellers ensure the title insurance company (and the buyer) that no other defects in the title have occurred since the date of the title examination (e.g., judgments, bankruptcies, divorces, unrecorded deeds or contracts, or unpaid repairs or improvements that might lead to mechanics’ liens). The affidavit gives the title insurance company a basis on which to sue the sellers should their statements in the affidavit be incorrect.

In areas where real estate sales transactions are customarily closed through an escrow, the escrow instructions usually provide for an extended coverage policy to be issued to the buyer effective the date of closing.

Buyers and their lenders require that the seller’s title complies with the terms of the real estate contract. Although practices vary from state to state, most require that the seller produce a current abstract of title or title commitment from the title insurance company. When an abstract of title is used, the purchaser’s attorney examines it and issues an opinion of title. The attorney’s opinion of title is a statement of the quality of the seller’s title, and it lists all liens, encumbrances, easements, conditions, and restrictions that appear on the record and to which the seller’s title is subject. The attorney’s opinion is not a guarantee of title.

For example, when you pay cash or obtain a new loan to purchase the property, the seller’s existing loan is paid in full and satisfied on the record. The exact amount required to pay the existing loan is provided in a current payoff statement from the lender, effective the date of closing. This payoff statement notes the unpaid amount of principal, the interest due through the date of payment, the fee for issuing the certificate of satisfaction or release deed, credits (if any) for tax and insurance reserves, and the amount of any prepayment penalties. The same procedure is followed for any other liens that must be released before the buyer takes title.

When assuming the seller’s existing mortgage loan, the you need to know the exact balance of the loan as of the closing date. Usually, the lender is required to provide the buyer with a mortgage reduction certificate, which certifies the amount owed on the mortgage loan, the interest rate, and the date and amount of the last interest payment.

The closing agent examines the title commitment or the abstract that was issued several days or weeks before the closing. Because liens may have been filed during the interval, two searches of the public record are often made. The first search shows the status of the seller’s title on that date. The second search, known as a bring down, is made after the closing and before any new documents are filed. The title or opinion of title discloses all liens, encumbrances, easements, conditions, and restrictions on the property.

home warranty is a must

Before finalizing mortgage, your lender will ask you to purchase homeowners insurance policy and carry your home insured through the continuance of the loan term.

In addition to home insurance, if your lender discovers that your property is in a flood hazard area, it must notify you. You will then have 45 days to purchase flood insurance. If you fail to procure the insurance, the lender must purchase the insurance on your behalf. The cost of the insurance may be charged back to you.

schedule your calls with utility companies

Depending on local custom, evidence of monthly or quarterly municipal utility charges (such as water and sewage charges) may be required at closing. The portion owed by the seller is debited through the date of closing; the prepaid portion is credited to the seller. Private utility companies normally handle their own final billing.

We will go over on closing disclosures and prorate calculation in our next post: closing.