What you should know about the real estate closing process
You pick out your dream house, make an offer and it gets accepted. Hurray! But, now what? The real estate closing process is where most of the work is, and where the most can go wrong. In order to get the seller to hand over those keys, you want to make sure that your real estate closing process goes as smoothly as possible.
Here to help us know how to have a smooth real estate closing process and what to steer clear of, we have real estate legal expert, Marjory Cajoux. Marjory has weighed in before on real estate issues related to buying a home. The Law Offices of Marjory Cajoux is a full-service boutique law firm that specializes in providing personalized, client-focused care with skilled expertise and quality representation. She can be reached at (718) 237-0411 and marjorycajoux@macalaw.com.
Could you describe the real estate closing process?
As a buyer during the closing process, you should expect to see the following people in the room on closing day: the seller’s attorney, your attorney, a representative from the title company, the real estate broker, if any, and a bank attorney if you are closing on a mortgage in order to purchase the home. If it’s a cash close, then it’s easy. If there is no mortgage component to the closing, no bank representative is there, obviously. But if the buyer has financing requirements then the bank representative is there.
What does the title company do at the closing?
Your attorney will choose the title company and order the title report. The title company will research any liens on the property (liens from creditors, judgments, IRS, State Taxes, governmental entities, Child Support, Student Loans etc.), the current owner and past owners to confirm that all previous transfers were legal, to confirm the description of the property, confirm that there has been no illegal alterations to the property (i.e. illegal basement, attics, work without permits), look at the survey and the boundaries and provide a report to your attorney, the seller’s attorney and your lender. The title report is one of the most important documents in the process because it shows that what is on the title is in fact what the contract reflects. Such as, if the contract states that it’s a one family home that the title also states that it’s a one family home and not a two family home. The title company will also check to make sure that the previous owner’s mortgage was satisfied and that the title is cleared.
Sometimes, there is a break in the title, where transfers haven’t been done properly, so they check to make sure there are no issues with the title for the last 40 years.
What does the bank attorney do at the closing if the buyer is getting a mortgage?
The bank attorney also reviews the title report to ensure that the property has no liens, is properly described, and that the seller has the authority to transfer title. The bank attorney may need to verify that certain financing requirements are in place that might need to be satisfied, such as, there needs to be a railing in front of the house, or financial requirements that need to be met. The bank’s attorney, before releasing the checks at closing, will make sure that all of your creditors and sellers’ creditors appearing on the title report are paid, compliance with any governmental violations, i.e. ECB, HPD, illegal alterations remedied, and the necessary financing requirements are satisfied.
What are some of the issues that home buyers run into the most during a real estate closing?
The buyer needs to have proper ID which means a driver’s license or passport that is not expired.
Another issue I’ve seen is a credit score that is too low to obtain the mortgage, or not having sufficient funds to close.
A big issue that buyers sometimes have is that they didn’t pay close enough attention to the timing. They need to put their documents together in a timely fashion in order to give the bank enough time to get approval within the time allotted in the contract.
I’ve seen people not coordinate leaving their current property efficiently and having to make an extra payment to the landlord, for example.
Other things that happen are that on the second walk through, buyers see things they don’t like but can’t change anything at that point as it wasn’t identified soon enough and wasn’t addressed in the contract.
Or, sometimes buyers negotiate repairs with the sellers, but the obligation was never put in writing in the contract. So, it becomes a battle at the last minute. If it’s not in the contract formally, then it can be impossible to enforce.
Sometimes, the previous seller will have a home equity loan that was not fully paid off or that was satisfied, but the Satisfaction of Mortgage was never filed with the County Clerk by the lender, and the title company will refuse to close. Or, that personal federal or income taxes are owed by either you or the seller. If that is the case, in order to close, the seller would have to put three times the amount owed into escrow in order for the title company to accept the change in title.
It’s important that all of these loose ends are tied up prior to the actual closing day.
What are some things that people should look out for, or ask about, that they might not know to be on the lookout for?
Buyers should question whether there have been any alterations to the property and If so, whether done with a permit and by a licensed professional. A beautiful complete basement with a bathroom and a kitchen should be a red flag, other red flags are: a deck, an attic, extra kitchen or bathroom. You should always order a survey. Most banks will not close without it. Some people take the survey lightly, but it is really important to make sure everything is as it should be with the survey.
In advance, a buyer should ask the seller if there is someone living in the home they want to purchase, either a tenant or subtenant, as you don’t want to get into a situation where a person won’t leave the property.
Also, a buyer should ask, is the owner the sole owner? You want to make sure that the seller actually has the authorization to sell the property and no other parties are needed to authorize the sale. They should also ask if the property is inherited as there are some documents that need to be filed if a property is inherited, and if the owner did not file these, then there could be a problem at closing time.
A buyer should also ask if there are any pipes that have burst that they know of, or issues with the boiler or the roof in the past five years, and other issues that could be costly that may or may not have been revealed in the inspection.
A buyer should also ask the seller why they are moving. Is it for a new job? The answer could reveal some issues with the home in general or neighbors.
How can home buyers ensure that they have a good, smooth closing?
Make sure you take a good look at the property and try to negotiate everything up front. You can make a list of things you want fixed, like a broken window, by telling your real estate broker to tell the seller’s broker ahead of the actual contract being on the table. Once you are into contract, it can be harder to negotiate for things you want as you’ve already come to an agreement.
You also want to find a bank and expedite the mortgage immediately as it can take some time to get financing and you don’t want this holding you up.
Get the buyers attorney to order the title report soon, as you want to have a sense of the title early on in case issues crop up.
Make sure you have the funds to close and that any taxes you need to pay are paid and pay your credit cards regularly so that your credit score isn’t affected, which could affect your mortgage closing.
Have your funds ready for the day of closing, and have your certified checks made. You should go through a pre-closing with your attorney where they review with you everything you will need, amounts to write certified checks for, etc.
I’ve had clients come to the closing, even though they were told they have to bring certified checks, and they say, “Oh my gosh, I didn’t know it had to be a certified check!” and then they are unable to close.
What role does a real estate lawyer play in the closing process and how should a home buyer engage with them for the most successful closing possible?
One thing that buyers are sometimes confused by is thinking that the lawyer negotiates the price. The home price negotiation is always done with the broker, not the lawyer. The lawyer is there to help you negotiate the actual contract, like repairs that need to be done, like, if the seller is removing chandeliers, that the seller patches the holes, for example, negotiate language to avoid default and protect your downpayment, negotiate terms to ensure that the property is ready and vacant at time of closing, or if not vacant that you receive compensation for post closing time, to ensure that your rights are protected if the seller enters into contract for a higher purchase price while your contract is pending, to ensure that you purchase a property free from any liens and encumbrances and that the seller has authority to sell the property.
As a lawyer, I am also there to help clients with the mortgage rules and contract contingencies. Sometimes there are issues with immigration documents or valid identity cards that need to be addressed.
The lawyer is there to protect the buyer’s down payment. And, also to negotiate extensions to the contract. Typically, the contract will say 30 to 45 days to obtain a mortgage commitment. You must pay very close attention to that time period because if you fail to obtain the mortgage commitment within the time period and do not request an extension form the seller’s attorney, you risk losing your down payment. The lawyer can negotiate extensions but don’t wait until the last minute to do this. For my clients, I make sure I call them ahead of the mortgage contingency expiring so that we have time to negotiate extensions.
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