The Home Buying Process, Part Six: The Closing Table Polka

It’s been a few weeks since I checked in with you guys, and I apologize for the delay. When I wrote the piece on Closing Nightmares, I never imagined I’d have one of my own. Our home purchase was subject to one of the problems that we discussed in that piece and another that I had never before encountered. First, we’ll talk about what happened with mine, and then we’ll talk about what should happen at the closing table.

My Closing Nightmare

Our closing promised to be an easy transaction. Since we were clear to close a full week before our date at the closing table, my husband and I could have never anticipated the problems we were going to experience in the days before and after closing.

We were set to close on a Friday, so when I got a call from our Realtor on Wednesday saying that there was a snag, it was all I could do to not come unglued. Ultimately, it meant that those repairs we asked for weeks prior to closing weren’t going to be made before the big day, but we came to an escrow agreement that everybody could live with. I only wish that was the end of the story.

Our Seller was living outside the area, so he had to overnight his part of the closing documents to the local closing company, along with a cashier’s check for the difference between what he owed his lender and what we paid for the house (this is not a common scenario). The documents were acceptably complete, but about 20 minutes before we were supposed to be at the closing, we got another call from the closing agent.

The Seller’s funds were made out to his mortgage holder, not the closing company. This might sound like a little thing, but it could have literally caused the whole deal to fall through. When the Buyer gets to the point that we were, where frustration overcomes good sense, the temptation is strong to walk away.

We already were having to reschedule our subcontractors and our move (not to mention our vacation time for all of this) back several weeks due to the incomplete repairs, now the deal teetered on the brink of collapse. The Seller’s side of the transaction couldn’t fund, meaning that his mortgage would not be paid off and therefore he’d be unable to transfer title to my husband and I.

It was clear that the Seller had intended to send the proper funds to closing, but after consulting with our Realtor, her Broker (also my Broker when I was an agent), the closing agents and putting several unanswered calls into the Seller’s Agent, we had fully confirmed that we were in a precarious position. We could go ahead and fill out the documents in good faith, hoping the check would magically right itself and the house would be ours, or we could walk away and the Seller would be in default.

We chose instead to delay closing and eat the donuts we brought to closing while we waited for some firm answers. About the time that the Seller’s Agent finally called us back (an hour or so later), our closing agent got news from the Seller’s bank that the situation would be rectified and a replacement check was being issued that moment and sent overnight.

After all of that drama, Joe and I sat down and signed our small stack of paperwork. But, because we didn’t have that check in hand, our house wasn’t technically closed — so it wasn’t technically ours. We would spend the weekend in limbo, not knowing if the house we were working on was actually ours or if we were just pouring money into someone else’s property.

The relief I felt, when the closing agent called me Monday morning to say she had received the cashier’s check, is indescribable. It was like all the frustration, anger, anticipation, worry and anxiety just washed away like a wave. I have personally closed about a dozen homes and was the Agent on hundreds more — and never had I encountered something like this.

It was a troubled transaction, and we learned a lot from it. Fortunately, yours won’t be like this, not unless you’re very lucky — and if it is, you need to buy a Lottery ticket right away.

How A Closing Should Go

What I wrote above is a good example of how not to close. Whether you’re the Buyer or Seller, you’ve got to fulfill your contractual obligations on time, and correctly. Otherwise, you can really mess up a good transaction. Luckily for our Seller, I was a seasoned closing veteran, but if he had been dealing with a first time homebuyer, things might have gone very differently.

So, in a perfect world, what should happen at a closing? Well, first… you should close. This is how that works.

Once you have your Clear to Close, your file is complete. That means that your loan documents are all in hand, your title insurance has been all but issued, your flood certification is complete and you’re ready to sign on the dotted line. Because it’s important to schedule the Seller and the Buyer tightly, sometimes it can take additional time to actually sit down at the table, depending on what’s convenient for everybody. You can opt to split the closing, so that you close with a different company than your Seller, but really, that’s an unnecessary complication that everybody should try to avoid.

At a typical closing, you, your Realtor, the nice folks at the title company, the Seller’s Agent, the Seller and possibly your banker or insurance agent will all sit down around a giant conference table and watch the papers go round. Each party takes turns — typically the Buyer goes first, then the Seller, so that there are no gaps in ownership.

You’ll be signing several documents, some that are very lengthy. Those include:

Your Settlement Statement. Your HUD-1 will show you exactly how much you need to bring to closing and where each dollar will be spent. Credits from the Seller will appear on the first page, so if you’re getting your closing costs paid on your behalf or a credit for new carpet, that’ll show up on Line 200. Sometimes your Seller may ask to have their side of the transaction kept private, in which case only the sections that are pertinent to you will be filled in on your copy of the HUD-1.

Your Mortgage Documents. Depending on the type of loan you’re getting, mortgage documents may feel like they go on and on forever. FHA, VA and USDA notes are especially bad about this — they don’t care to kill all the trees they can find. A Conventional loan is pretty simple, so there’s not much to sign. For those more complicated loans, the extra pages are usually made up of disclosures and rules that you must agree to before the lender will fund the loan. These might include things like agreeing to not rent your home or certifying that you understand that your gift funds will have to be repaid under certain extreme conditions.

Unless you’re getting a non-typical loan, don’t stress over these documents. They’re very standard and you absolutely should read them, but your banker will have already briefed you on the highlights before you agreed to your program. No one will change these documents at closing, so you’ll be faced with the option to accept what you read or walk away — don’t even think that complaining about a clause in your standard-type loan documents will change anything. If there is something that you simply can’t stomach in the loan paperwork, it can take weeks to change loan programs, so be prepared for that delay.

That being said, non-traditional lenders are not to be trusted, so if you’re getting an exotic mortgage, read each page carefully and be prepared to walk away if anything smells fishy. Trust me, you don’t need that house that badly. Make sure you understand when your ARM will adjust, how long your interest-only period lasts and so forth. Once you agree to the terms at closing, you don’t get to modify them later.

Your Title Insurance Policy. As we discussed in part five of this series, title insurance is a standard part of the closing process any time that a bank is involved. Just like with your new homeowner’s policy, you’ll have to sign the title insurance policy paperwork. It basically just tells you what you’re getting, including protection against valid claims against any part of your property. You want title insurance, it can save you thousands of dollars and ugly battles with the neighbors.

Additional Paperwork. There may be additional paperwork you’ll be asked to sign, including documentation for soft seconds or additional special paperwork for specific loans. Your Realtor may also bring some real estate contract pages with them to closing to get your signature. Missing signatures or initials are common problems with real estate contracts and although they won’t prevent you from closing since the other signatures on your contract will show your intention to purchase, they can save a lot of headaches later if you or the Seller were to litigate.

Believe it or not, Closing Day will (usually) be the easiest day of your entire real estate journey. After months of looking for the perfect home in your price range, negotiating everything from the closing date to the color of the curtains and signing more paperwork than you ever thought possible, it’s all over in about an hour. It’s one of those things in life that has a huge build-up, but not much of a finish — just a deep sense of relief that one giant weight has been lifted from your life.

When Do I Get My Deed?

Everybody wants to know when they’ll be the official owner of their very own little piece of paradise, and most are shocked to learn that they actually got a copy of their deed in their closing packet. I know, closing is like a paperwork tornado, so it’s not surprising that you missed it. But, since the copy you’ve got hasn’t been recorded yet, it’s not really official anyway, so no harm, no foul.

The original of that copy in your packet is what the title company records with the county. Recording a real estate deed is really important — it shows that you’re the official owner of the property, a huge pro when you’re looking to sell or getting a HELOC to update the bathroom. A properly recorded deed also shows that the Seller no longer has any ownership interest in the real estate you purchased, so anyone looking to file a lien can’t attach it to your new home, nor can the Seller successfully sell the property again to someone else (yes, this has happened).

Most closing companies are equipped to send your signed deed over to the Recorder of Deeds at your county offices electronically, significantly speeding up recording times. What used to take months can now happen in a week, depending on how backed up your county office is. We got ours back in about a week, but I’ve heard of areas that can take up to about six weeks to send you a copy of your recorded deed.

If it’s been a few weeks since closing and you’re worried your deed might have been missed, just give your title company a call. They can check the status of the process and give you an estimated timeline for recording. Chances are good you’re just in line for finalizing, but you never know.

The Bottom Line: Closing Isn’t the End, It’s Another Beginning

Now I know what you’re thinking — isn’t that a trite little header there? Well, it may be trite, but it’s also true. Closing feels like a giant exhalation, like all the stress falls away and it’s going to be smooth sailing from there on. But it’s not, not really. You just get to transition into a different kind of stress. At the closing table, you’re entering a world of mortgage payments, property repair and possessiveness you’ve never known before.

And that’s okay. There’s nothing wrong with having this kind of responsibility or being house-proud, all I’m saying is that you’re not done being under stress. A house is going to give you financial and emotional surprises, it’s going to be a place where you make memories. It’s also going to be a place that you sometimes wish you weren’t financially strapped to for 30 years. But at the end of the day, you’ll find that the benefits and security home ownership brings hugely outweigh the drawbacks.

Good luck with your new house and may your family help you turn it into a home. There’s nothing like the simple pleasure of being able to hang a picture on the wall or repaint a bedroom without having to ask someone else permission first.

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