CLOSINGthe Real Estate Transaction

D. Zaharopoulos

CLOSING

is the consummation of the real estate transaction

Terminology:

»Settlement & transfer

»Passing the papers

»Closing escrow

»COE – close of escrow

Parties involved

»Buyer’s issues

»Seller’s issues

»Lender’s issues

»Broker’s interest

»Title Company’s issues

Pre-closing Procedures

Buyer’s Issues• Seller delivering good title• Property is in promised

condition:– Title evidence– Seller’s Deed– Any docs showing removal of

liens & encumbrances– Survey– Result of property inspection– Any leases

• Final Inspection *

Seller’s Issues• Buyer has obtained financing• Buyer has sufficient funds to

complete sale

Buyer’s Issues: Final Inspection

* Buyer’s Final “Walk-through”

• Necessary repairs made

• Property well-maintained

• Fixtures in place

• No unauthorized removals or alterations

Lender’s issuesTo protect its security

interest in the property– Title insurance– Fire &hazard insurance– Survey– Termite inspection– Certificate of occupancy for

new builds– Escrow accounts for taxes

& insurance– May have an attorney at

closing to represent interests

Broker’s interest

• Collecting the commission and/or conducting the proceedings

Lender’s issues

• RESPA requirements on a 1-4 family residential federally

related new first mortgage loan

• HUD booklet to all applicants (“Closing costs & You”)

• Provide good-faith estimate of all settlement costs

within 3 days of loan application

• Provide form HUD-1 (uniform settlement statement)

available for inspection at or before settlement.

Title Procedures

2 title searches:

1. preliminary title report as of the contract date

2. “bring-down endorsement” – final title search for the date the deed is recorded

Title Reports

Schedule A

• Names of insured, owners, lenders, legal description, estate & tenancy

Schedule B (“pre-existing conditions”)

• General exceptions

• Special exceptions

Conducting the Closing

Two types:

1. face-to-faceAttended by buyers, sellers, attorneys

At title insurance company, lending institution, broker’s office, attorney’s office

2. Closing in EscrowDisinterested 3rd party is in a position of trust

Escrow Terms

• Escrow agent = company

• Escrow officer = person presiding

• Escrowor = buyer and seller

• Escrowee = title company

Escrow Procedure

Must contain a valid contract in order for escrow to exist

The contract supersedes escrow

Escrow Procedure

Broker deposits buyer’s earnest money with escrow agent, once contract is signed

Before closing, seller gives escrow agent:– Deed conveying property to buyer– Title evidence– Existing hazard insurance policies– Payoff statement and/or letter from lender– Any docs necessary to clear title

Before closing, buyer deposits balance of cash or loan documents, proof of insurance, and any other docs needed.

Escrow agent responsibilities

• Determines if title is marketable and all other conditions met

• If title has liens, they are paid off first

• IRS reporting requirements – Form 1099-S must be filed by the closing agent

If the sale cannot be completed, parties are restored to their former status

Preparation of Closing Statement

• Debit = a charge, an expense

• Credit = entered in a person’s favor

Buyer’s debits & credits totaled = cash buyer must bring to closing

Seller’s debits & credits totaled = amount seller will receive at closing

Expenses

• Broker’s commission

• Attorney’s fees

• Recording expenses

• Transfer tax

• Title expenses

• Loan fees

• Tax & insurance reserves

Prorations

• Accrued items = buyer credit• Prepaid items = seller credit

Examples

• taxes and interest usually paid in arrears:

credit buyer, debit seller• Insurance usually prepaid:

credit seller, debit buyer• Rents usually prepaid:

debit seller, credit buyerNote: security deposits belong to tenants and must be

transferred intact from seller to buyer.

Prorations

• Always use 360 day year, 30 day month unless specified to use 365 day year

In AZ Day of Closing belongs to

BUYER

AZ - specific

• Final step in closing escrow, when deed gets recorded (but is not necessary in AZ)

• Final step in transferring title is document delivery

(not recordation)

• Death of either party will not terminate escrow. (Estate is obligated either way)