The closing process
Transfer of title
Transfer of purchase funds
Lender closing requirements
The closing event is the culmination of the real estate transaction. During this event, the buyer pays the purchase price and receives title to the purchased real estate. At the same time, the buyer completes financing arrangements, and buyer and seller pay all required taxes, fees, and charges.
Customary practices. There are a number of customary procedures and practices for conducting real estate closings in Florida. For example, it is common for sellers to pay for the documentary stamp tax on the deed and for buyers to pay the documentary stamp tax on the note. See “Rules of thumb” later in this section for more examples.
Time. The sale contract sets the date of the closing, usually within sixty days of signing. The time period between signing and closing is expected to be sufficient for the removal of any contingencies, such as the buyer’s obtaining of financing, the performance of inspections, and the correction of identified physical defects. Failure of either buyer or seller to perform pre-closing actions specified in the contract can delay or terminate the transaction. If the contract includes a statement that “time is of the essence,” all parties agree to meet the time limitations exactly as stated. If both parties consent, however, they can re-schedule the closing date.
Location. Closings occur at various locations, such as the office of the title company, the lender, the escrow agent, one of the attorneys, the broker, or the county recorder. The sale contract specifies the location.
Parties at closing. The primary parties at the closing are normally buyer, seller, and a closing agent or escrow officer. Other parties who might be present include the title officer, attorneys, brokers or agents, and the lender’s representative. It is not actually necessary for any of these parties to attend the meeting. The closing agent can complete the transaction, provided all documents have been duly executed in advance.
The closing process The closing process consists of buyer and seller verifying that each has fulfilled the terms of the sale contract. If they have, then the mortgage loan, if any, is closed, all expenses are apportioned and paid, the consideration is exchanged for the title, final documents are signed, and arrangements are made to record the transaction according to local laws.
The Closing Process
Transfer of title
The seller must produce evidence of marketable title, such as a commitment for title insurance by a title insurer. Before making a title commitment, a title company performs a title search to discover any liens, encumbrances, restrictions, conditions, or easements attaching to the title.
If there are any encumbrances or liens that damage the title, the seller is expected to remove these prior to the date specified in the contract. The most common title cloud is an unpaid lien.
The seller may also be asked to execute an affidavit of title stating that, since the date of the original title search, the seller has incurred no new liens, judgments, unpaid bills for repairs or improvements, no unrecorded deeds or contracts, no bankruptcies or divorces that would affect title, or any other defects the seller is aware of.
The purchaser, purchaser’s lender, or title company may require a survey to verify the location and size of the property. The survey also identifies any easements, encroachments, or flood plain hazard.
The buyer should inspect the property to make certain that the property is in the condition in which the seller states that it is, and that any repairs or other required actions have been performed. A final inspection, called a buyer’s walk-through, should be conducted as close to the closing date as possible.
If the seller’s mortgage lien(s) are to be satisfied at closing, the lender will provide a payoff statement, also called an offset statement, specifying the amount of unpaid principal and any interest due as of the closing date, plus fees that will be due the lender and any credits or penalties that may apply. The holder of a note secured by a trust deed will provide a similar statement, called a beneficiary statement, to show any unpaid balance. Even if the buyer is assuming the seller’s mortgage loan, the buyer will want to know the exact amount of the unpaid balance as of the closing date.
Finally, the seller produces and/or deposits with the escrow agent the deed that
conveys the property to the buyer.
Transfer of Purchase funds
The buyer usually produces and/or deposits with the escrow agent the following:
- earnest money
- loan funds and documents
- any other cash needed to complete the purchase
If the closing occurs “in escrow” rather than face-to-face, the principal parties deposit funds and documents with the appointed escrow agent, and the escrow agent disburses funds and releases documents to the appropriate parties when all the conditions of the escrow have been met. If for any reason the transaction cannot be completed, for instance if the buyer refuses the title as it is offered, or the buyer fails to produce the necessary cash, the escrow instructions usually provide a mechanism for reconveying title to the seller and funds to the buyer. In such a case, both parties return to their original status as if no sale had occurred.
Lender closing requirements
A lender is concerned about the quality of the collateral a borrower is providing in return for the mortgage loan. The collateral would be endangered by defects in the title, by liens that would take precedence over the mortgage lien, such as a tax lien, and by physical damage to the property which is not repaired. Consequently, the lender typically requires a survey; a property inspection; hazard insurance; a title insurance policy; a reserve account for taxes and insurance; and possibly, private mortgage insurance. In some cases the lender may also require a certificate of occupancy verifying that any new construction performed complies with local building codes.
A broker usually continues to provide service between the signing of the sale contract and the closing by helping to make arrangements for pre-closing activities such as inspections, surveys, appraisals and repairs and generally taking steps to ensure that the closing can proceed as scheduled.
A broker may conduct proceedings at the closing meeting, or may have no further role in the transaction after the sale contract is signed, depending on local practices and the transaction in question. In Florida, proceedings are conducted by a closing officer but the broker or associate is expected to be able to explain and verify entries on the closing documents and to attend the closing with the buyer and seller. The broker or associate is also responsible for delivering the escrow check to the closing.
Finally, if the seller of the property is a non-resident alien, U.S. law may require the broker to withhold and transmit to the Internal Revenue Service a portion of the sale proceeds to cover the alien seller’s income tax liability. There are also special reporting requirements when the transaction involves a non-resident alien.