The “closing” of the purchase of a home is when the parties formally complete the sale (some states use the term "settlement" instead of "closing"). Several parties usually attend the closing, including the buyer and seller, their attorneys, and their real estate agents.
What Happens At The Closing
The closing process varies from state to state and even within the same county or city. However, some activities are standard with most closings. Generally at the closing many things happen, including:
• the documents are reviewed one final time to make sure all terms and conditions have been met;
• the buyer presents his or her homeowner's insurance policy or a binder and receipt showing the premium has been paid;
• the closing agent lists the money the buyer owes the seller and the seller owes the buyer (see "Closing Statement" below);
• the seller provides proof of any inspections, warranties or other documents required to be provided;
• the buyer signs certain documents including, among others, the Closing Statement, the mortgage note (promising to repay the loan), and the mortgage (giving the lender the right to sell the property if the loan payments are not made);
• the seller signs certain documents including, among others, the Closing Statement, a deed transferring title to the house, a bill of sale covering personal property items included in the sale, and an affidavit indicating that he or she has the right to sell the property;
• the balance of the purchase price is paid to the seller; and
• the seller delivers the deed giving title to the buyer.
In some areas, a closing agent handles the paperwork and disburses the funds. Right after the closing, the deed and mortgage will be recorded with the appropriate government entity.
Closing Statement
A "closing statement" is a document that details the financial matters involved in the transaction. It lists all funds the buyer and the seller have paid, and all funds each party has received. If the purchase involves a federally insured loan, the required "closing statement" will be on a form from the federal Department of Housing and Urban Development. If no federally insured loan is involved, the closing statement may be on a different form.
Financial matters that are handled in a closing include making adjustments to the purchase price to determine exactly how much money the buyer must pay. The seller gets credit for items it has prepaid but that benefit the buyer (such as property taxes), and the buyer gets credit for items the seller owes but has not yet paid. These items are typically prorated. For example, if the seller has paid property taxes for a six-month period and the closing takes place exactly halfway through this period, then the buyer will owe the seller for three months of property taxes (since the seller prepaid these for the buyer).
When The Closing Occurs
An estimated closing date is set forth in the contract between the seller and buyer. This date is negotiated between the parties, and it typically occurs several weeks after an offer is formally accepted (though in some cases parties will want a faster closing). A final closing date is usually chosen after the buyer's mortgage loan is approved and he or she has signed a loan commitment letter.
If one of the parties cannot complete the deal on the closing date, there is a chance he or she can be held in breach of contract. This usually occurs if the contract states that "time is of the essence." If the contract does not state that "time is of the essence" and one party cannot close on the specified date, some courts have allowed the contract to stay in effect for a reasonable time if the party is making a good faith effort to close the sale.
Closing Costs
There are various expenses buyers and sellers incur when transferring ownership of a home or other real property. These costs are over and above the cost of the property itself. There are many different kinds of closing costs, including costs associated with the loan (these vary, but often include a loan origination fee, loan discount fee, appraisal fee, document preparation fee, credit report fee and other fees), government-imposed costs (like recording fees and transfer taxes) and general fees associated with the purchase, like title insurance costs (including costs for title search and examination, document preparation and notary fees), survey fees, and pest and other inspection fees.
The parties can negotiate in advance who will pay for these costs. Because there are so many different types of closing costs, it is wise to have your lawyer review the fees to make sure they are valid and being charged to the correct party.
What The Buyer Receives at the Closing
The buyer typically receives many things at the closing, including:
• Settlement statement itemizing the services provided and fees charged
• Truth-in-Lending Statement
• Mortgage Note
• Mortgage or Deed of Trust
• Binding sales contract
• Deed to the property
• Keys to your new home
The image of a typical closing is of people signing many documents without reading them. Unfortunately, this is often the case. However, signing these important documents without reading and understanding them can cause problems later, especially if they were prepared by the other side. It is better to get legal help well before the closing, when your lawyer can review the offer, purchase agreement, and other documents, and can add or correct terms to help protect you. Your lawyer should also be at the closing to make sure your interests are adequately protected and that everything is done properly.
Contact an attorney at Triscaro & Associates today. Please call us for all your legal needs. We offer a full range of legal services to individuals, families and businesses, including personal injury, estate planning, real estate, family law and business matters. We are dedicated to providing the highest quality legal services at a reasonable cost.