If you are facing a residential real estate closing, you can understand what the attorney does to ensure it goes smoothly. Carol Simpson
From Contract To closing
Buyers’ Must Choose

  • If the Buyers are getting a loan to buy a residence, the lender must let them choose the closing attorney regardless of what the contract says.
  • If the lender does not allow the Buyers to choose, it can suffer any actual damages and be penalized from $1500 – $7500. The buyers have 3 years to file the complaint form found at www.scconsumer.gov.

Who Does the Lawyer Represent?

Attorneys have different opinions about who they represent.  Carol knows she represents the Buyers since the attorney preference law says the lawyer “is employed to represent the debtor in all matters of the transaction relating to the closing of the transaction . . .” However, Carol also represents the Sellers since she advised them and prepares documents for them to sign.  Carol does not represent the lender, but she is required to follow its closing instructions.

To ensure the title to the property is clear, a title search must be done that checks the public record for all of the following:  IDEA – make each of these the bullet type that if you click on it a bubble pops up with the explanation.

  • Chain of title – The abstractor starts with the Sellers’ deed and works backwards to make sure that the Sellers got the property from someone who owned it who got it from someone owned it and so forth for 40-60 years.
  • Deeds in the chain – Each deed in the chain is examined to ensure that they are in the proper form, that the legal description is correct, that they are properly signed, and contain no irregularities.
  • Mortgages – If any mortgage shows up as not being satisfied – even one from a previous owner – it must be paid off or a satisfied at closing. The mortgage may have been paid off, but a satisfaction was not recorded.  The mortgage can be cleared by recording a satisfaction or a lost mortgage satisfaction or, in some cases, the attorney who sent the payoff can record an attorney satisfaction.
  • Easements – An easement is the right of one person to use the property of another. Common easement are for utilities, sewer, and roads.  They normally don’t present any issues, but can if the Buyers has specific plans for the property.
  • Restrictions – The most common restrictions are those enacted by homeowner associations. However, some deeds also include restrictions on the use of the property.
  • Lis Pendens – A lis pendens is filed to let everyone know that a lawsuit has been filed affecting the title of the property.
  • State and federal tax liens – These liens are the result of unpaid taxes.
  • Judgments – This is an obligation to pay money that has attached to the real estate. It must be cleared by either paying the money due, by getting the property released from the judgment, or by waiting for it to expire.  A judgment expires 10 years from the date it was filed.
  • Mental Health Liens — There is a general lien on the property of anyone who is receiving or who has received care or treatment in a State mental health facility.
  • Mechanic’s Liens – Lien filed against the property by those who supply labor and materials to improve it when the owner refuses to pay them.
  • UCC’s – These are usually filed to establish a lien on fixtures attached to the property, i.e. dishwasher, built in stove, etc.
  • Probate issues – When the owner of the property dies, issues can arise from his estate. If her or she dies without a will, a minor child may own half the property with the surviving spouse.  If his or her will was never probated, there will not be a personal representative to sign the deed.  If the will doesn’t give the personal representative the right to sell the property, the probate court will have to give him or her power to sell.  Contrary to what many think, the property can be sold while the estate is still open.
  • Surveys and plats – Recorded surveys and plats may be sufficient if no new fences or buildings have been constructed. If multiple parcels have been purchased or sold, the buyers may want to get a new survey to identify the boundaries of the property they are buying.  Many Buyers don’t order a survey because the lender does not require it; but lenders don’t require a survey because title insurance covers the lender if any issues arise.  It does not give Buyers similar coverage without a current survey.
  • Real Estate Taxes – If taxes are due, they are a lien that must be paid at closing.
  • Miscellaneous Issues – Family court records are also searched to see if a buyer or seller has been ordered to pay someone’s attorney fees or other amounts that could be a lien against the property.
Just like car insurance covers the car, title insurance covers the title (ownership) of the property.  It covers human error such as an mistake in the title search and hidden dangers such as forgery, unknown heirs, Incompetence of seller

  • Types of Title Insurance
    • Lender title insurance covers lender for the balance of the loan until it is paid off.
    • Owner title insurance covers the owner for the face amount of the policy even after the owner sells the property Click Owners Title FAQ for “The Importance of an Owner’s Title Insurance Policy”
  • Why Buy Title Insurance?
    • Real estate is a huge investment
    • Premiums are much cheaper than paying a lawyer
    • Sellers may be long gone so Buyer cannot collect from them
    • Title insurance company has greater assets and will fight for you
    • Premiums paid can reduce cost of refinancing
  • Title Binders
    • Required by some lenders
    • Contract to write title insurance
    • Consists of . . .
      • Sch A — who is covered and for how much
      • Requirements – prerequisites for issuing policy
      • Exceptions – what is not covered
    • Most lenders only want “clean” binders so if issues arise in the title search, most closing attorneys will resolve them before they send the binder to the lender.
  • Ask for the Reissue Credit
    • Can receive a credit for 50% of premium paid for prior policy and reduce the charge for the title search
    • Must have prior lender or owner policy that is no more than 10 years old
    • Prior policy can be issued from any title insurance company licensed in SC
    • Different lawyers can close the transaction
    • The credit reduces the premium to the closing attorney so ask for it, if the attorney doesn’t offer it!
The closing attorney needs information from the Sellers, the Buyers, and the Realtors.  Supplying the information as early as possible makes for a smoother closing.  At a minimum, the Realtors should provide a fully executed contract, contact information for themselves and their clients, and the commissions to be paid at closing.

With that information, the closing attorney can contact the Seller to get a forwarding address, social security numbers for 1099s and to get payoffs, information about homeowner associations, and information on mortgages and/or liens.  The Buyer can provide the lender information and inspectors.

With good contract information for everyone involved, the closing attorney can ensure that communication is good and questions are answered.

Only a lawyer can prepare a deed for another to sign.  Translated, that means that the Seller (if not a lawyer) cannot prepare the deed for the Buyer to sign.

In a residential transaction, the Sellers usually give the Buyers a General Warranty Deed.  The six warranties are seisin, right to convey, quiet enjoyment, freedom from encumbrances, and further assurances.  Carol summarizes them at a closing by telling the Sellers that by signing the deed, they are saying that they own all the property, that they have a right to sign the deed, and there are no liens.

The explanation may be over-simplified.  Here are the real definitions.  Seisin means that the Seller owns all the property.  Right to convey means that the Seller has valid title and has not contracted to sell the property to anyone else.  Quiet enjoyment means that the Sellers will defend their title against anyone who says they own the property.  Freedom from encumbrances means that the only easements, covenants, and restrictions are disclosed in the record.  Further assurances means that the Sellers will take whatever actions necessary to cure any defects in the title.

The types on deeds vary depending on the warranties given.  A general warranty deeds gives all the warranties for all time and for all owners.  A special or limited warranty deeds gives all the warranties, but only for the time the Seller has owned the property.  A Quitclaim Deed gives no warranties and only conveys any interest the Seller has, if any.

The Buyers can take ownership as Tenants in Common or as Joint Tenants with Right of Survivorship.  Add language from Seller’s sheet

  • Most lenders prepare the Closing Disclosure and have the closing attorney review it
  • The Buyers must have 3 days before closing to review the Closing Disclosure (CD) (Sundays and holidays don’t count). Click 3 Day Table for Delivery Examples.
  • Some changes trigger re-disclsoure and an additional 3-day review:
    • Increasing the APR;
    • Changing the loan product, ie, fixed rate to variable rate; or
    • Adding a prepayment penalty.
  • Other changes do not trigger re-disclosure:
    • Finding unexpected discoveries on a walk-through;
    • Adjusting the real estate commissions; or
    • Changing tax prorations or escrows.
  • Closing Disclosure, page 1 shows the final loan terms that are of greatest importance to the Buyers – loan amount, interest rate, monthly payment, and amount needed to close.
  • Closing Disclosure, page 2 shows the final fees and charges. This page looks very similar to page 2 of the HUD except that the line numbers have been removed.
  • Closing Disclosure, page 3 has two parts. The top part compares the estimate of fees with the final fees so the Buyers can quickly see the differences.  The bottom part is very similar to the first page of the HUD.
  • Closing Disclosure, page 4 and 5 show additional information about the loan such as escrows, late payments, and APR. Page 5 also includes contact information for the lender, mortgage broker, real estate agents, and closing attorney.
Remember the golden rule – he that has the gold makes the rules.  The lender decides when the closing can happen, when the Closing Disclosure is approved, and when the funds can be disbursed.  The lender if anyone can use a power of attorney as well as approving all the numbers and all the wording on the Closing Disclosure.  Adding payments after the final Closing Disclosure has been approved may cause problems and last minute changes are difficult so if at all possible all invoices should be submitted as soon as they are received.

Besides needing prior approval to use a Power of Attorney, most lenders require specific language for the buyer such as “but not limited to signing all papers necessary or desirable to borrow money from Best Mortgage Co. in the amount of $87,950.00 (Loan # 9999999).”  The Seller may be able to avoid using a Power of Attorney by signing deed early and then signing faxed copy of the Closing Disclosure on the day of closing.

 

At closing, the Buyers will sign the package which consists of all the documents that the lender requires to be signed.  The documents are dated and must be signed and notarized on the day of closing.  Some of the more common documents are

  • Closing Instructions
  • Note
  • Mortgage
  • 1003 or Loan Application
  • Name Affidavit
  • Property Ins. Requirements
  • Loan Payment Info
  • Initial Escrow Account Disclosure Statement
  • Servicing Disclosure Statement
  • Affiliated Business Arrangement Disclosure
  • Compliance Agreement
  • 4506
  • W-9
  • Lenders restrictions on buyer’s funds
    • Minimum amount
    • Maximum amount
    • Specified bank
    • Not cash
  • Funds from the buyer and seller
    • Wires are great
    • Certified checks are okay
    • Regular checks or cash are sometimes okay
The closing attorney must return the package to the lender within 24 to 48 hours of the closing.  This is important because many lenders sell the loan shortly after closing and can be penalized if they receive it late.
The original deed and mortgage must be recorded at the Register of Deeds Office so everyone is on notice as to who owns the property and who financed the purchase.  Before that happens, the title search is updated to ensure no problems have arisen since original search.