Your Guide to Real Estate Closings
Obviously buying and selling a home is about dollars and cents and property values. What's not so obvious is that its' also about the law.
Every aspect of a sale, from purchase contract to title search has essential legal dimensions. Since this might well be the largest transaction of your life, it makes sense to have good legal advice through out the process, from contracts with brokers to purchase offers and financing.
Nowhere is legal help more essential than in the time leading up to the closing (or settlement as it is sometimes called), and the closing itself, when all aspects of the deal are pulled together.
Before the Closing
At the closing, the buyer buys, the seller sells, and the lender lends. None of this can happen without careful preparation.
In the weeks leading up to the closing, the parties and their lawyers review all the documents to see that everyone is fulfilling the conditions of the sales contract. This might include satisfying any inspections specified in the contract (for example, for plumbing, heating and electrical systems or for structural soundness). It might also include satisfying the attorney-approval rider (making the contract subject to approval by the parties' attorneys), mortgage contingency rider, and the like.
Also essential is a title search to assure that the seller has authority to sell the property, and that there are no existing claims against the property, such as undisclosed unpaid mortgages, liens of workers or people supplying construction property (both known as mechanic's liens), outstanding court judgments, and liens for unpaid taxes. A title search will also discover easements (rights of a third party to use the property) and other encumbrances that the seller should be aware of. Any defects in the title should be corrected before the closing.
Of course, much of this preparation will have to do with financing. Though it is sometimes possible to assume (take over) an existing mortgage, and a few sellers will act as a lending institution by retaining a lien on the property and having the buyer make payments directly to them, the vast majority of sales are financed through new mortgages.
The process of getting a mortgage involves sorting through a variety of possible mortgage brokers, lenders and loan alternatives (fixed rate or variable, 15 year or 30 year term, etc.) Qualifying for a loan involves providing income information, credit history, a list of outstanding debts and assets, and documenting the source of the down payment. The lender will also want to obtain an appraisal of the property (to make sure it is worth at least the loan amount). The lender will sometimes also require a registered survey.
It is during this time that many of the settlement costs - which can amount to from 2 to 7% of the cost of the loan - are incurred. There are generally no fixed rules about which party pays which fees. Local custom will play a role, but so will negotiation - buyer and seller often allocate some settlement coasts in the sales contract. Other costs might be negotiable between buyer and lender. The time to negotiate about settlement costs is early in the process.
In order to prevent unpleasant surprises at the closing, federal law requires that, if the buyer is obtaining a federally insured mortgage, several days before the closing a settlement Statement be made available that details the figures as known at that time for closing costs,. However, these are preliminary, and final figures might well differ.
The Closing Itself
That is where all the i's are dotted and t's crossed.
The buyer makes the required payments, the seller produces all the documents necessary to convey the property to the buyer, the lender advances money and receives documents in return guaranteeing the right to sell the home to recover the value of the loan in the event of nonpayment.
Here's a quick look at the legal dimensions of these transactions.
The buyer and seller pro-rate certain credits and charges. The seller will receive credits for fuel on hand 9such as oil in home heating tank), prepaid taxes, unused insurance premiums, prepaid interest, and escrow deposits for insurance, taxes and public utility charges such as water and sewer taxes. The buyer will receive credits for earnest money deposited and taxes or special assessments that the seller has not paid. The buyer and seller may also have an agreement to transfer certain personal property along with the real property.
With all the pieces in place, all the documents in hand and all the checks written, the deal will be done. The seller receives the purchase price, minus the down payment, and the buyer walks out with the deed and the keys to a new house.