The Real Estate Closing Process
The closing process for real estate involves more than just the transfer of money from the buyer to the seller, though that caps the deal, of course. There are also documents to be created and signed, final inspections to take place, a title search to be conducted, and more.
First of all, the seller’s attorney is tasked with creating the initial sales contract, with terms and conditions spelled out and agreed to by the buyer and his or her attorney. This happens at the beginning of the transaction, and more documents are needed before closing out the deal.
For all closings involving federally insured loans, such as FHA, VA, and the like, the Real Estate Settlement Procedures Act (RESPA) requires that all details of the transaction be disclosed on a seller Disclosure or a buyer disclosure form for each party.
A closing disclosure form, created by the Consumer Financial Protection Bureau (CFPB), is required for all federally insured loans. There are two closing disclosure forms: a buyer/borrower disclosure form and a seller disclosure form.
These forms summarize all funds received by the buyer and seller at closing, as well as all funds paid by the buyer and seller for the various expenses of the transaction, including real estate broker commissions, loan payoffs, fees for inspections, property taxes, and more.
Title Search and Final Inspections
The closing attorney for the buyer must also conduct a title search for liens, easements, or other issues with the title to the property. The seller must clear the title before the buyer can finalize the purchase. This includes settling any liens or other encumbrances on the property, including perhaps zoning or permit violations.
Once the title to the property is considered “free and clear,” the closing attorney can then obtain title insurance for the buyer.
The buyer’s attorney should also look into whether there are homeowner association (HOA) dues required and advise the buyer accordingly. The attorney should also obtain homeowners insurance for the property.
The Residential Property Disclosure Act requires sellers to disclose any defects to potential buyers with a form called the Residential Property and Owners’ Association Disclosure Statement. In addition, a buyer has the right to inspect the home and order additional studies, including a pest inspection and boundary survey. The buyer is obliged to pay for these inspections.
Naturally, any home inspection by the buyer should have taken place well in advance of closing so that the owner can make any needed repairs for the transaction to be completed on time. However, a final inspection should be done right before closing to make sure needed repairs have been made and that the property is in “move-in” condition.
Of course, the seller may still be occupying the premises at the time of the final inspection but must be prepared to vacate before the closing date. If needed, the seller can request additional time to vacate, but the buyer’s attorney should ensure that the buyer is protected should any damages be found once the seller has moved out.
Your Attorney’s Role in Closing
Attorneys for both the buyer and seller are involved in the closing of the transaction, which often goes like this:
- An escrow agent will oversee the closing at the attorney’s office of the buyer.
- The buyer provides his or her agent with funds to pay for the closing and signs all necessary paperwork.
- The buyer’s attorney records the new deed at the courthouse.
- The escrow agent will use the escrow funds to pay off any remaining mortgage and other closing costs.
- The remaining funds are then sent to the seller.