The buyer has been found, the deposit received, the sales contract signed and the buyer`s financing obtained. The next (and, you hope, last) big step is the closing.
The closing is when the seller receives the money for the house and the title (ownership) passes to the buyer. The closing is the culmination of the entire transaction; it`s when you turn the keys over. A sheaf of other documents and checks will likely change hands. But exactly what happens, and in what order, will depend on state law and local custom. Therefore, the following discussion should be regarded as a general guideline. You`ll have to rely on your lawyer, escrow agent and broker for specifics.
One important point is relevant to all closings. If everyone does his and her homework in advance, the closing should be a relatively simple and smooth process. The objective is to avoid last-minute negotiations and fights in which emotions could ruin an otherwise done deal.
It`s estimated that about 5 percent of all house closings are called off after contracts have been signed. Sometimes lawsuits ensue-long-lasting, expensive lawsuits. Yet, in many cases, the problems could have been headed off.
Sometimes closings are canceled because buyers and sellers disagree over who should pay for repairs that a house inspector has recommended. Or the buyer`s mortgage lender decides to raise the interest rate or shorten the length of the mortgage-or, worst of all, decides that the buyers shouldn`t get all the money they wanted to borrow.
Still other reasons why house closings have fallen through are related to special, maybe oddball, circumstances:
– At one closing, with lawyers, bankers, sellers and real estate agent in attendance, the buyer began examining all the bills he had to pay. He turned pale, excused himself from the room, and was never seen again.
– The charming little pond in the back yard turned out to be an overflowing septic tank.
– The seller had told the buyer that a railroad track behind the house was abandoned. When the buyer came around one day and heard a train, she bowed out.
– The night before the closing, the buyer`s mother-in-law was mugged in front of the house.
– The woman whom the seller had introduced as his wife, and who had signed all of the sale documents, turned out to be a close friend of the seller but not his wife. His real wife, and the real co-owner of the house, hadn`t signed any of the sale documents.
These are not normal situations, but it is normal for closings to be fraught with tension and anxiety. For buyers and sellers, large sums of money are at stake. For lawyers and agents, there are serious responsibilities, which could lead to costly lawsuits. Trivial things, like a pile of trash discovered in the basement, or missing fireplace equipment noticed a few days before the closing, can cause turmoil because everyone is on edge. That`s why absolutely everything that can be done before the closing should be done.
What should be done before the closing? Almost everything. Some steps should be taken care of well in advance, because they take time, and some at the last minute. Here is what should be done well in advance:
– The buyer should secure mortgage financing and should advise his or her bank of the closing date. You or your lawyer should keep checking on the progress being made.
– Your lawyer should give all the calculations and amounts to be paid to the buyer`s lawyer. (If the buyer owes you $130,000, you might want four checks in different amounts instead of a check for the lump sum, so that you can sign over some of the checks for other uses, such as buying a replacement house.) These should be paid in certified or bank, and not personal, checks.
– Your lawyer should review every document and letter received from the buyer`s lawyer and should notify the buyer`s lawyer of any questions or problems.
– The buyer should obtain all necessary inspections, or waive the right to do so.
– If you are required to clear any problems with the title, or complete any repairs, everything should be taken care of in advance of the closing.
– Your lawyer should estimate all of the closing costs and adjustments and discuss them with the buyer`s lawyer so that any questions or
disagreements can be resolved ahead of time.
– You should obtain certificates of occupancy for all improvements or additions you made on the house. Obtain a flood-hazard or other necessary certificate. Double-check with your lawyer on what else you must bring with you to the closing-like a termite-inspector`s report and the keys to the house. Also find out what closing costs you must pay, and bring checks to cover them.
Here are last-minute things to do before the closing:
– Arrange with utility companies to shut off all water, gas and electricity in your name and to issue final bills to your new address. Concurrently, the buyer should notify the utility companies of the purchase, so that service will be continued in the buyer`s name. If the utilities are a lien on the house being sold, some of your money may be held in escrow pending payments of the bills. In this case, the utilities should be directed to send their final bills to the escrow agent.
– Get a written confirmation from your bank of the principal balance remaining on your mortgage. Also have the bank notify you of the amount of interest that accrues each day. This is important because if the final payment is mailed to the bank rather than handed over at the closing, additional interest should be paid to cover the day or two the mail will take to reach the bank.
– Confirm by telephone a few days before the closing that everyone who must attend the closing will, in fact, be there and know the correct address, time and directions.
– File a change of address form with the post office.
– Have your phone disconnected, or have your calls forwarded.
– Arrange for your oil company to estimate the value of any heating oil remaining in your tank.
The closing can be held at any one of the following places: the office of your lawyer, the office of the buyer`s lawyer, the office of the title company, the office of the buyer`s bank, the office of the bank`s lawyer, etc. Be flexible. The location will often be governed by the lender or some other party. Usually, the sales contract will specify where the closing will take place.
Although custom, local law and convenience of the parties all dictate who will be present at the closing, the following are possible candidates:
– Seller`s lawyer. Your lawyer should be present at the closing to represent your interests. Documents that may not have been available before the closing might have to be reviewed. Often minor, last-minute decisions must be made. It may be possible to avoid having your bank`s representative present (thus saving any fee you might be charged) by having the buyer`s lawyer represent your bank and forward documents and payments to your bank after the closing. (The buyer is concerned that your mortgage be paid off so it doesn`t remain a lien on the house he or she is buying.) The drawback to this is that the buyer won`t be able to obtain written confirmation at the closing that your mortgage has been satisfied.
– Escrow agent. This is usually an independent party, perhaps a representative of the title insurance company or of the bank. Whether you`ll use an escrow agent depends on the custom in your part of the country. If present, the escrow agent will handle all of the money and paperwork associated with the closing, using the sales contract as a guide to ensure that all terms are adhered to and all monies are appropriately applied (for instance, to pay outstanding real estate taxes and utility bills).
The escrow agent may arrange for the recording of documents, payments of repair or insurance costs, proration of insurance or taxes, and other matters necessary to effect the closing.
– Buyer`s lawyer. The buyer`s lawyer will have to be present for the same reasons as the above. In some states the buyer`s lawyer represents the mortgagee/lender and, possibly, the title company (which ensures the buyer`s title to your house). In these instances, the buyer`s lawyer may have to be approved by the lender and/or title company to perform the necessary functions.
– Seller`s mortgagee. If you have a mortgage outstanding, your bank may require that its representative (perhaps its lawyer) attend the closing to obtain the check from the buyer for the amount of outstanding mortgage due.
– Real estate agent. The agent will be there to pick up the commission check and to provide you with a statement indicating that the commission has been paid in full. He or she may assist in resolving any questions or disputes between the buyer and seller concerning the condition of the property, personal property involved or other matters.
———-
From ”How to Sell Your House in a Buyer`s Market” by Martin Shenkman and Warren Boroson (John Wiley and Sons Inc., $14.95). Copyright 1990 by Martin Shenkman and Warren Boroson. Reprinted by permission of John Wiley and Sons Inc. Available from the publisher by calling 212-850-6069.
