Closing is the tieing up of all the loose ends of the contract negotiations which have taken place between all of the parties. The paperwork included at this step will be any papers that need to be completed to have the transaction go through. For this reason, the paperwork can be different from closing to closing. Another difference in the documents will be due to the regulations of the state in which the contract is taking place. The participating parties at this event will (or could) be the buyer, the seller, the Realtor, the lawyers, the title company representatives, anyone holding the power of attorney for someone else involved, the lender, and possibly any contractors who are expecting to be paid at this point.
There are five common sets of papers to be dealt with at this stage: mortgage documents; the sales contract; the tax certificate; the title insurance forms; and the earnest money agreement. I dealt with the mortgage paperwork in the last post of this series, so let us go over the basics of the other forms that you will be initialing and signing on this day.
When negotiating for the purchase of high dollar value goods like a home, the seller, as well as other parties to the deal, will want to know that you are serious about the purchase. To show your willingness to proceed with the negotiations, you will be asked to set up an escrow account with a third independent party to hold money in earnest. This escrow account is not the same as the one that the lender will establish for paying the taxes or (maybe) the insurance. It is just for this good faith money. The idea is that you could loose this money if you do not behave honestly in the negotiations. The independent party holding this account will be a title company. The document which states how much money is being held in earnest, and what could cause you to loose it, is called the “Earnest Money Agreement”. This money can either be returned to you or applied to an expense at closing. The only way that you could loose this money is if you act in a rash manner by not negotiating in good faith when pulling out of the contract.
The Tax Certificate is a simple form by the governmental authority overseeing the property taxes for that home. In most cases, taxes are paid to the county, who distributes it to the different agencies who will receive tax money from a property. This form will show the tax identification number for the property, who will be obtaining money from the tax, how much tax was paid in the last tax period, and if the tax was paid. There will also be a technical description of where the property is located. This will be a lot number, block number, subdivision name, and maybe some other code used to distinguish the property on a map.
The Title Insurance Form or maybe a Title Search Form will be presented to you. A title company oversees the transferring of the title from one owner to the the new owner. To accomplish this task without problems, they need to make sure that there is no one else laying claim to the home involved in the sale. They will also check that no firm has a lien placed against the property. A lien is a means for a lender to collect a debt when a house is sold. A title search goes through official records of the home to see what might be out there. Title insurance takes the protection a step further. Once the search has been done, and it has been found to be clear, title insurance will protect you from anyone showing up at a later time claiming that they own the land. In cases of divorce or inheritance, there may be records that are not filed with the county that may give another person claim to your home. With title insurance, your legal costs are covered. Title Insurance documents go over everything that was discovered during the search, and they will deal with information about the company that is providing the insurance.
The last set of papers that I want to discuss are the forms for the sales contract. These contracts will be worded and presented in such a way that they comply with the regulations of the state. You or your Realtor or your lawyer will have been negotiating with the seller or his representatives to what will be involved in the sale of the home. In theory and practice, you should already be aware of all of the terms of the contract when it comes to the day of closing. If negotiations are still taking place at the time that you are signing these papers, something is terribly wrong. I mention this fact because closings can be contentious, and arguments can erupt at this point, but this is not the standard, and it is not the way to do business. When I am closing on a deal, any deal, and I find myself facing this situation, I walk away, for I know that something can come up later. The sales contract will list of the points dealing with the sale. There will be forms stating the terms that you have agreed upon, and about the price and financing of the home. If there are any special considerations to the deal, there will be a form covering what those considerations are. They could be that the refrigerator stays in the house, or the seller agrees to purchase a home warranty plan. There will be statements about the lawyers or Realtors role in these negotiations. The property being sold will be detailed. There should be no surprises in this contract.
What forms should you take the time to read during this process? Under normal circumstances, you will not be doing a complete reading of any of the documents at this time, and you probably do not need to read them. I would suggest taking the time to glance over them to check that this is what you thought you were agreeing to buy. Whoever is handing you the forms, and whoever is assisting you, will be giving an explanation of the paper that you are being asked to sign. No one should be rushing you through forms. If they are, then you should stop to see what it is they do not want you to examine. You can expect closing to take as much as four hours. They will be making copies of everything that you have signed, as well as any cashier checks that you provided to make payments.
In the next post in this series, to be done on Friday, I will go over insurance forms. The final article of this series will be about what to do with the paperwork after everything has been done, which will come out next Monday.