THE CLOSING PROCESS, EXPLAINED
This page contains information for both sellers and buyers regarding the closing process.
The last step in the selling and purchasing real estate, is the closing or settlement stage. By this point, all the contract contingencies have been met, the buyer has secured a loan commitment from the funding lender (in any), and the buyer has obtained a title commitment, from the title policy underwriter. At closing, the legal sale and purchase takes place, documents are signed by the parties to the transaction, then the seller transfers title to the property to the buyer, while the seller receives proceeds from the sale.
THE TITLE AGENT REVIEW
In Florida, title companies and attorneys typically handled the closing process, for a sale and/or purchase of real estate. They play several key roles in real estate transactions, on behalf of the different parties to the transaction, such as; insurance companies, the seller, the buyer and mortgage lenders.
Their job includes a thorough review of all pertinent documents, unique to the transaction, including examining the title of the property being transferred, coordinate funding, holding escrow deposits, preparing the final closing statement and filing records with the local public recorder's office.
What happens after the sale and purchase contract is executed?
After the sales and purchase contract is executed by the buyer and seller, typically one of the parties to the transaction, either the buyer or the seller, will chose the title company or attorney to handle the closing. (If contractually agreed, each party can have their own closing agent.)
Once the tile agent receives the sales file, containing a copy of the executed contract, the names of the parties, the buyer's lender information (if any) and the name and contact information of their homeowner's association, they begin to gather all the information pertinent to the transaction and begin the process of examining all the legal documents, recorded in the public record.
What does the title company or closing attorney actually do?
The title agent begins by searching the public record, to make sure the seller(s) is/are the rightful owner(s) of the property, being sold.
They search for all liens, including judgements against the owner(s) on title, which can include code violations, fines and other title encumbrances, attached to the property; voluntarily or involuntarily.
They contact the seller and ask or permission to contact their lender for any mortgage payoff, on any outstanding loans, attached to the property.
They establish contact with the buyer's lender (if any) to confirm funding.
If applicable, they receive the good-faith deposit from the buyer and provide the seller with the escrow letter, affirming the receipt of funds.
If requested by the buyer's lender, they may coordinate the survey of the property.
They will contact the buyer's homeowner insurance provider, to confirm the cost of the premium.
After a search of the public record for liens or other encumbrances to the property's title, they pass the file to the title insurance underwriter for further review and to make a final determination on underwriting the title policy.
If no issues are found with the property's title, they inform all parties to the transaction, via preliminary title report or commitment to title insurance.
Afterwards, they calculate the closing costs to the seller and buyer and prepare the preliminary final closing documents and the Closing Disclosure, (if the purchase is being financed) for review, by the parties and the buyer's lender (if any). Federal law requires that the buyer is provided with the Closing Disclosure, at least three days from the closing date.
If all the calculations are in order, they proceed to produce all the required legal documentation and coordinate the closing.
They also coordinate the funding coming from the buyer or the buyer's lender, for distribution, at closing.
Lastly, they file the deed and any mortgage instrument, with the local recorder's office.
What happens if issues are found with the title of the property?
If issues are found by the title agent during the discovery stage, they can negatively impact your sale and occasionally, end the sale altogether. The good news is, that most title issues or "defects" can be resolve by the closing date. Unpaid fines by the seller and municipal liens on the property, can usually be cured, or resolved before the closing date or at closing.
What happens if a title defect cannot be resolved by closing?
Occasionally, title defects cannot be resolved by the closing date. Therefore, the title insurance underwriter, will not issue a title insurance policy to the buyer or the lender. If this is the case, you as the seller will not be able to transfer the title of the property and the buyer will not be able to purchase, since no title insurance can be obtained. Defects can include, but are not limited to; possible previous forgeries on the deed, discover now, by the title agent, an improper recording or errors on the deed, improper transfer of title to heirs, which may for the property to undergo probate, unresolved boundary or survey issues and false impersonation of the owner; just to name a few. Therefore, it is of utmost importance that the seller knows the present condition of the property's title, otherwise, a sale may not be possible!
What is title insurance and why is it important?
Perhaps, the best type of insurance you can purchase is title insurance, since its only purchased once, and covers you during your time of ownership of a property. A title insurance policy will protect you against future claims to the title of the property, by any claimant. If you are financing your purchase, your lender will require you to purchase title insurance for yourself and on their behalf, commonly known as the lender's policy. If you are purchasing with cash, its a good idea to purchase title insurance anyway, to protect yourself against any future claim.
What happens if title defects are found and not resolved by closing?
If a title defect is uncovered by the title agent, during the public records search and examination of the abstract, and because of its nature, it cannot be resolved in time before closing, the sale may not be able to close, as contractually agreed. The buyer (if financing) will not be able to purchase title insurance, therefore, the buyer will be unable to proceed and will be entitled to receive their good-faith deposit, since the seller could not deliver a clear title.
Occasionally, title issues may require additional time to resolve, which can go past the closing date. At this point, the seller and buyer can agree to extend the closing date, to give the seller enough time to resolve the defect, and the sale can be saved.
Note: Buyers typically lock their loan commitments with lenders and many typically expire by the closing date. To extend the loan commitment, buyers may be asked to pay a fee, by their lender. At this point, the buyer may not be too happy with having to pay more and may ask you to pay the fee, or can decided to demand their good-faith deposit, since you could not deliver a free and clear tile, by closing.
What are the most common title problems title agents see?
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Judgement liens, must be satisfied at closing. It is wise prior to selling your home, to try and negotiate a lower amount, with any party awarded a judgment against you.
Tax liens- they encumber a property's title, when owners have an outstanding unpaid tax bill to the local taxing authority or the IRS.
Municipal liens- these come about due to unpaid fines, open permits and code violations, attached to the property.
Clerical errors- if errors occurred in the recording of the previous deed, it can cause havoc and impend the sale, until errors are corrected.
Unknown liens- these can come about, when creditors have filed liens against the current or previous owner and are now discovered.
Mechanical liens- these types of liens are typically filed by contractors, who have made a claim against the seller, for an unpaid balance.
Judgement lien- these are place on a property's title when the seller has been sued and the judgement amount has not been paid.
Note: There are many more types of encumbrances that can affect a properties title. If you as a seller you suspect there may be a cloud over the title of your property, it is best to uncover them, before placing your property up for sale. Waiting until the property is under contract for sale, can jeopardize your sales effort.
How much does title insurance cost?
In Florida, the state determines the cost of title insurance, which is based on the purchase price of the property. To figure your title insurance cost, you'll need to do a little math.
Purchases up to $100,000 are calculated at $5.75 per thousand.
Purchases above $100,000 are calculated at $5.00 per thousand.
Mechanical liens, like all recorded liens must be satisfied at closing. It is wise prior to selling your home, to negotiate a lower amount, with any contractor that has placed this type of lien on your property.
Purchase price $100,000
(100 x $5.75) = $575.00
Purchase Price $200,000
(200 x $5.00) = $1,000.00
How much does a title company charge for their services?
The fee for handling the closing process can vary slightly between different title companies an attorneys. Call any of the title companies or attorneys advertising on this page, to inquire about their closing fee.
What are the seller's total closing costs?
Typically, the seller's closing cost are around 2% of the sales price. However, the costs can be higher, if property taxes are still due and if the seller agrees to give the buyer any credit or pay for any part of the buyer's purchasing costs.
What are the buyer's total closing costs?
The closing costs to the buyer will depend if its a cash purchase, or if there is financing involved. On an all cash purchase, the average is 2% of the sales price. On financed purchases, closing costs can average between 3%-5% of the purchase price. The cost will include, the cost of the appraisal, survey, escrow monies towards taxes, and the cost of the pre-paid homeowner's insurance.
Tax liens or statutory liens, must be satisfied at closing. Unfortunately, they cannot be negotiated to a lower amount.
If you need assistance, we are here to help!
Although, we may not be able to do a complete and thorough examination of your property's tile, we may be able to identify potential issues, which can be addressed and resolved, ahead of time. Call us, we are happy to help and answer your questions.
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