By James C. “Beau” Brincefield, Jr.
Fear of the unknown is natural. Perhaps that is why many buyers see settlement or closing as the most intimidating portion of the home buying process.
Knowing what to expect at settlement should eliminate a first time buyer’s concerns, helping to make the occasion the happy one it should be.
Settlement is when the buyers and sellers, their attorneys and real estate agents meet to review and execute the final documents required to complete the sale of the property. The buyers usually receive the keys to the house and take possession immediately after signing the papers at settlement.
The first step in preparing for a smooth closing is to select the right settlement agent. This usually is done by the. buyer when the purchase offer is submitted, but it can be done later.
Non-lawyer settlement agents are prohibited by law from giving any legal advice, preparing legal documents or explaining them. Also, non-lawyers are not permitted to discuss any matters revealed by a title search of the property.
For these and many other important reasons, buyers usually are better off selecting an attorney to conduct the settlement, or at least to represent them if a non-lawyer oversees the settlement.
If it is important to you for settlement to occur on or before a certain date, the purchase contract must state that fact clearly. Otherwise, the law allows the settlement to be postponed for a reasonable period of time, which may conflict with other contractual obligations.
Buyers are asked to bring a cashier’s or certified check to the settlement. The amount of the check – the settlement office can provide a good estimate several days before closing – will cover the down payment (less a good faith deposit, usually made when you put the contract on the house), prepayments on insurance and taxes and other closing costs. Buyers also should bring a personal check, in the event costs slightly exceed the estimate. Buyers will receive a refund shortly after closing if the cashier’s check was higher. than the actual costs.
Coordinating the collection and preparation of the many documents required for settlement is primarily the settlement agent’s responsibility. Usually, there are more than 20 or 30 documents that must be presented or signed at settlement. Among the most important settlement documents are the deed, the settlement sheet, the notes and deeds of trust, the title insurance policy and the survey.
The deed officially transfers the title to the property from the seller to the buyer. It is very important for the buyer’s attorney to make sure that the deed accurately describes the property being conveyed and that the deed conveys the property to the buyer in the right way.
The settlement statement, called the HUD-1, is the document that reflects all the financial aspects of the transaction between the buyer and seller, lender and other parties to be paid from the settlement proceeds. It is important for the buyer or the buyer’s attorney to check the allocation of costs on the settlement sheet to be certain that the proper charges have been made to the proper parties.
Where financing is involved in the purchase of a home, the buyers are required to sign a note and deed of trust for each loan obtained. The deed of trust note evidences the actual loan, and the deed of trust is recorded in the land records to create a lien against the real estate to secure the payment of the note.
Buyers should make sure that they get good title to their property. Whenever institutional lenders are involved in financing a home purchase, they will require the buyers to purchase title insurance protecting the lender’s interest in the property.
Buyers also should purchase title insurance that protects their interest in the property. Non-lawyer settlement agents are prohibited from discussing any title questions with purchasers who are not represented by attorneys. Consequently, the prudent buyer should ask an attorney to review the title insurance binder and policy, which is offered to ensure that comprehensive coverage has been obtained for any potential problems especially where a new home is being purchased and there is the possibility of outstanding mechanic’s or materialmen’s liens.
Prudent buyers also will check the permitted land uses in the immediate area of the property. If that lovely tract of woods behind the home is planned for a highway or the vacant lot next door turns into a fire station, the home may not be worth the asking price.
Although the preparation and coordination of real estate settlements is a complicated and time consuming process, the actual settlement itself can be a pleasant experience for everyone involved when the right documents are in the right form in the right place at the right time.
Reprinted from The Journal, Friday, February 25, 1994.