Closing
CLOSING
The final transaction between a buyer and seller of real property.
At the closing, all agreements between buyer and seller are finalized, documents are signed and exchanged, money passes to the seller, and title to the property passes to the buyer.
Closings generally take place at the office of the title company, which issues title insurance to both buyer and lender. This insurance is issued after the title company has researched the chain of title to the property and cleared any matter that might interfere with a successful transfer of title.
Both the buyer and the seller may be represented by attorneys who review the closing package, which may include more than twenty-five documents and affidavits required by a raft of regulations. The buyer's attorney, if any, also reviews the title company's research to ensure that the buyer receives clear title.
An agent of the title company conducts and facilitates the closing. At the closing, the buyer reviews and endorses all loan documents, which may include the following:
- the mortgage,
- the promissory note by which the buyer promises to pay the loan and interest in full,
- a truth-in-lending statement, in which the lender informs the buyer of the approximate annual percentage rate over the term of the loan,
- various affidavits and inspection forms,
- a survey form indicating that the buyer has seen and understands the survey, and
- a private mortgage insurance application, if required.
The seller also endorses a number of documents at the closing. These may include the following:
- the deed transferring title to the buyer,
- a bill of sale transferring ownership of any personal property included in the sale,
- any required affidavits, such as affidavits concerning mechanic's liens or inspections, and,
- in the case of new construction, a certificate of occupancy.
Among the documents that both the buyer and the seller sign are an affidavit indicating the source of the funds the buyer is using to purchase the property, and a settlement statement showing all the costs associated with the transaction. This statement, required by the Real Estate Settlement Procedure Act of 1974 (RESPA) (12 U.S.C.A. § 2601 et seq.), is required in all transactions involving a mortgage from any lender whose funds are federally insured or regulated. RESPA mandates full disclosure by the lender of all the terms and conditions of the loan, as well as a good-faith estimate of the buyer's closing costs. These may include fees for the loan origination process, credit report, appraisal, title search, survey, and administrative procedures.
At closing, the buyer also pays the contract sale price, minus any earnest money deposited, usually in certified funds; loan discount fees, or points, charged by the lender to obtain the mortgage; and attorneys' fees. The buyer is often required to purchase separate buyer's and lender's title insurance policies, although in some areas this expense is split between buyer and seller.
Once all the necessary signatures have been obtained and the monies have been disbursed, the buyer takes possession of the property. In some areas, it is customary to allow the seller a short period of time to vacate the premises; in other areas, the seller may be expected to move out before the closing. If any disputes arise at closing, the title company may escrow a portion of the funds to settle the dispute later so that the closing can be concluded.
further readings
Eigen, Ann vom. 1999. "Proposed RESPA/TILA Changes—The Lawyer's Role in Residential Real Estate Closings." Probate & Property 13 (January-February): 32–6.
Gadow, Sandy. 2003. The Complete Guide to Your Real Estate Closing: Answers To All Your Questions—From Opening Escrow, To Negotiating Fees, To Signing the Closing Papers. New York: McGraw-Hill.
Glink, Ilyce R. 1994. One Hundred Questions Every First-Time Home Buyer Should Ask. New York: Random House, Times Books.
Irwin, Robert. 2004. Home Closing Checklist. New York: McGraw-Hill.