The real estate closing can be confusing, but mostly it can be boring. The attorneys do all the work, and the buyer has a lot more documents to sign and figure out than you do. But after all the work you did getting the home on the market and living through the marketing process, you deserve a bit of a break.
The basic dynamic of a closing is simple and involves three parts: (1) the buyer completing paperwork to get financing from a lender, (2) you transferring ownership of the property to the buyer, and (3) the lender giving you a check. What happens at the closing is simply the execution of various forms that give final confirmation to the agreements made in the contract of sale between you and the seller, and the mortgage commitment between the buyer and the lender.
That said, closings can be confusing to the lay person, because attorneys use a lot of jargon and shorthand in trying to facilitate a complicated process quickly and efficiently. To give you an idea, here is an overview of what happens at a closing:
In addition to the buyer, buyer’s attorney, seller, and seller’s attorney, you’ll see two other significant participants at the closing:
•The closer. The closer is usually employed or contracted by the title company issuing title insurance for the buyer, and will actually run the closing as an intermediary between the seller’s and buyer’s attorneys.
•The bank attorney. The bank attorney represents the lender in the transaction, and is there to make sure the loan documents are executed correctly. The buyer’s attorney sometimes is authorized to double as the bank attorney.
Of course, the closing might involve some other support personnel, chiefly paralegals and other assistants. And the real estate agents might be there to show of support and to keep you company, even though they don’t have any formal role in the closing itself.
The Buyer’s Financing
Most of the time at the closing will be taken up by the buyer finalizing agreements with the lender on the mortgage terms. The lender will have a series of complicated documents that the buyer needs to understand and sign in order to obtain the loan necessary to buy your home, including the following:
•Truth in Lending Statement, which is federally required to disclose the actual financial terms of the loan.
•Itemization of Amount Financed, which tallies up the actual cost of the financing.
•The Monthly Payment Letter, which breaks down monthly payments into principal, interest, taxes, and insurance.
•The Note, which is the loan agreement between the borrower and lender.
•The Mortgage, which is the lien put on the home by the lender to provide collateral to the Note.
Once all that is completed, the buyer is in a position to purchase the property from you. For most of this process, you won’t have much to do and will be making small talk with everyone at the table, while the buyer gulps furiously and contemplates how much he will have to pay in interest over the full 30 years of his loan.
Transfer of Ownership
Now, with the buyer ready to go and a lender waiting to give you a check, the attorneys will begin having you execute documents that will transfer ownership from you to the buyer. These documents include:
•The Settlement Statement (HUD-1), which contains all the settlement charges associated with the transaction.
•The Deed, which is the actual document that transfers ownership from you to the buyer. At some point in the process, you’ll be signing that document, which signs away your ownership rights.
•Proration Agreements, which are simply side-agreements to the contract that prorate the housing costs (taxes, HOA fees, utilities) according to the date of the closing. For example , if you paid the property tax bill for the year three months ago, the buyer will be reimbursing you for 75% of that bill, since you lived in the home for only 25% of the year. The attorneys will be hunched over calculators for much of this process while they use standard formulas to figure out who owes what to whom.
•Receipts. You might have to sign tax and utility receipts indicating your awareness that certain costs have to be paid by one side or the other.
•Name Affidavit. At some point, the attorneys will ask you to provide identification proving that you are who you say you are, and ask you to sign a document attesting to your identity. That’s to make sure that you are the person legally allowed to transfer title.
•Closing Statement. The final document of the closing, listing all the documents that executed and included as part of the closing.
When that’s done, you get a check for the sale of the home. The check will usually be an odd-looking number, because various deductions and additions will be made at the closing (usually calculated
by the attorneys before the closing) for offsets like the tax and utility bills. But once you sign over the deed, and accept the check, you’re at the end of the home selling process. And you deserve some congratulations.