The Closing Process Overview

Closing on a house is an exciting, life-changing moment. But before that final step, expect closing costs, lots of documents and be ready to show off that signature.

What are closing costs?

“Closing costs are the fees and expenses you must pay before becoming the legal owner of a house, condo or townhome. According to Freddie Mac, you can expect to pay 2 percent to 5 percent of the mortgage loan in closing costs. These can include:

• Origination fee

• Underwriting fee

• Appraisal fee

• Credit report fee

• Title search fee

Whether you are purchasing a new home or refinancing an existing mortgage, closing costs need to be paid.” - Ellen Chang

What is Escrow?

“Escrow is a means for enabling ownership transfers to occur fairly and squarely. It involves bringing an impartial third party into a transaction to see that the buyer and seller perform as they have agreed they would.” - Sandy Gadow

An escrow closing makes sure that your money and documents are obtained by a disinterested third party who has a legal responsibility to protect them. All parties involved in the closing process have legal protection during closing and it’s all managed by the disinterested escrow holder, which minimizes the possibility of fraud or violation of any terms of the agreement. The third party ensures impartiality, keeps or holds funds and documents safely until all details have been settled, handles all necessary steps to complete transaction, then after steps are taken, disburses the documents and money to the right party at the right time. Escrow enables the transfer of your real estate purchase, sale or trade to take place as smoothly as possible while satisfying the contract.

Requirements for escrow closing

“For an escrow to be valid there must be:

• a binding contract between the parties to an transaction, and

• conditional delivery of transfer instruments or money to a third party

Generally, there are two or more underlying transactions, and two or more related escrows in an escrow transaction. An escrow agent is a limited agent of the parties to the transaction in that he or she acts as the agent but only for a specified purpose as directed in the escrow instructions. His/her position is like that of a trustee.

The primary duties of an escrow agent are:

• duty to follow the escrow instructions;

• duty to use good faith and reasonable skill; and

• duty to redeliver goods on the completion of conditions.” - Stimmel Law

the title company

The title company will perform the title search and issue the policy of title insurance and is responsible for searching the title and determining if the seller has legal right to convey title to the new buyer. The title company will report to you a list of all the items relevant to your property.

Real estate attorneys can do the closing. They may order the title search and issue the title insurance policy. The real estate attorney is responsible for reviewing the documents and coordinating the closing with your lender. An attorney assists buyers and sellers in digesting complex information, signing important legal documents and making important decisions relating to holding title.

Real estate attorney duties:

• put buyer’s good faith deposit into an escrow account

• order title search

• review title report

• review the title commitment and survey together cohesively

• review the survey to be certain that it is recent, has original seal and correct legal descriptions. Determine if there are building line violations, based on encroachments of improvements over the building lines. Look for evidence of any unrecorded easements. Be sure property has access to a street.

• look into any liens found in the title report

• evaluate title insurance buyer is getting

• hand out title commitment or preliminary title report to the appropriate people

• get title work to lender according to the buyer’s loan instructions

• follow all the stipulations of purchase contract between buyer and seller

• prepare any addendums as necessary or changes to original contract

• assist in clearing up any discrepancies quickly by talking with buyer, seller and realtor.

• available to answer buyers and sellers questions

• coordinate the closing date with buyer, seller and lender

• receive the closing package from the lender, reviewing all loan documents for accuracy

• prepare or get a power of attorney form for any party not available to attend the closing

• attend closing and explain documents

• record deed, mortgage or deed of trust, satisfaction of mortgage or any other recordable documents that would go with the transaction

• deposit the lender’s loan proceeds check into the attorney’s escrow account

• distribute sales proceeds check to seller and any refund check to buyer

• pay parties per final statement of closing costs

Closing process overview

Contingencies of the purchase agreement need to be met, the buyer’s loan must be approved and processed and the agreed-upon repairs must be made to get a notification to appear at the closing office. The buyer will be asked to bring in a certified or cashier’s check for the down payment and seller will be asked to bring in the right identification for notary purposes.

At closing, an exchange of money for the deed to the property will occur. The buyer signs closing documents and releases any remaining money owed to seller. The seller signs a deed transferring legal title to the property to the new buyer.

When completed, the deed will be recorded in the county recorder’s office, along with any mortgage documents and the buyers will receive a policy of title insurance, guaranteeing the title to the property is valid as of the date of closing. The seller will receive the balance of the funds required for the sale to take place.

Typical Escrow Timetable by Sandy Gadow

Week 1: Open escrow. Buyer’s initial deposit put in escrow. Inspections ordered. Preliminary title report ordered – title and lien search. Survey if required.

Week 2-4: Buyer shop. for loan and compare loan closing cost estimates. Submit loan application. Appraisal ordered. Inspections reviewed. Buyer sign off on contingency items. Buyer deliver balance of down payment money to escrow. Closing agent clears any title, judgement, or lien issues.

Week 3-4: Buyer receives loan commitment from lender. Lender prepares loan documents and final verifications with buyer. Any final repairs made or termite work done. Buyers and seller review final closing statements one day prior to closing. Buyer final walk-thru inspection of property.

Week 5-6: Buyer: deposit balance of money due 1-3 days prior to closing. Buyer sign loan documents. Seller: sign deed and final closing instructions.

Week 6-8: Close escrow, record documents and pay off old loans and miscellaneous charges. Deliver the deed to the buyer. Prepare the final closing statements with any adjustments. Release funds to seller.