The Devil is in the Details when Closing Escrow

by Dena Kouremetis

Time to explore the fruits of your labors after purchasing your new home. Now that you're getting close to calling this house a home at last, let's look at how the loose ends get tied up.

Your lender will have been in touch, asking for any missing documentation to be provided at this point. Once your final loan approval has been issued, the lender will send you a commitment letter – the formal loan offer. You’ll be given a time limit to accept the offer and close the loan. You should read this document very carefully before signing it, since by signing, you agree to all of its terms and conditions.

The closing participants include the buyer, seller (builder), and the lender the settlement or closing agent (usually an escrow or title person). If a real estate agent registered and introduced you to the builder on your first visit to the builder’s homes, he or she may also be present. All of these players have responsibilities before and during the closing.

Prior to the closing, any contingencies outlined in the purchase agreement with the builder must be satisfied, along with contingencies associated with obtaining financing after you’ve signed the commitment letter.

You are responsible for obtaining homeowner’s insurance and producing your paperwork to prove that it is in place prior to closing the loan and purchasing the home. And it’s up to you to procure a cashier’s check or have your bank wire the remaining funds to close. Your original earnest money, any stepped-up deposits, design center deposits and any applicable builder incentives will show up as credits on your escrow paperwork.

You have a legal right to review the “HUD Settlement Statement” 24 hours before closing, which is a good idea, since the excitement of getting keys and your imminent move can divert your focus when you are signing paperwork at escrow.

The avenue by which title passes from the seller (in this case the builder) to the buyer varies all over the country. In some states, attorneys represent the interests of buyers and sellers at closing and all parties gather around a table to sign documents. In these cases, closing can take place when the keys are handed over to the buyer.

In most states, however, neutral third-party companies called escrow companies, regulated by strict guidelines through the state’s Department of Insurance, handle contractual issues and paperwork after the original purchase agreement has been signed.

Title companies are combined or housed with escrow companies in some parts of the U.S. and are separate in others. The title company is responsible for making sure that the title to the property is clear and that the seller – or builder – is passing an unclouded and marketable title (no outstanding liens or debts) for which a title insurance policy is issued. The paperwork generated will include:

• the promissory note (an agreement to repay the loan, which states the principal balance, the interest rate and the term)

• the mortgage or deed of trust, pledging the property to the lender in case of a buyer default (failure to meet the conditions of the loan, such as making timely payments)

• the HUD -1 Settlement Statement, which summarizes all the proceeds, expenses and responsible parties associated with the closing

• the deed, which transfers the builder’s property to you

• the survey that is prepared to verify the property boundaries, the legal description and any encroachments or peculiarities

• and the final disclosures, which will include the Truth in Lending Statement and rights of recision (if any)

Closing is usually accomplished after escrow has sent a demand for funds from your lender, and those funds are wired to the builder. Once verification of funding has taken place, someone from the title company takes stacks of paperwork with properties due to change title that day to the county recorder’s office and stands in line to present them. This does not vary much around the country and this is still done the old fashioned way – in person.

This entire process can take a little as two or three days or as long as a week or so, depending on how timely things have been accomplished and which day of the week both funding and/or closing take place. For the optimum timing, call your escrow representative or attorney if you live in a state where attorneys handle this process. And keep this time frame in mind so that you allow plenty of “cushion” time between your estimated close date and your moving date.

Your appointment to sign all the escrow paperwork and hand over your check can take up to two hours of explanations, initials and signatures. If you are closing on a new home long distance and cannot be there for this process locally, your title company must be notified in plenty of time to make arrangements with another cooperating title and escrow office in your area. If health matters preclude your being there, an escrow officer may be able to come to your house to get you through the process.

The process of closing, then, has the following steps:

• The review and signing of all documents

• The exchange of the signed documents

• The disbursement of funds

• The recording of the deed

In most areas, you cannot receive keys and garage door openers until a magical phone call is generated by the title company for the purpose of informing you that you are now “on record” for your new home. Just as an FYI – it’s not a good idea to try to strong-arm the builder into permitting you to get the keys early in order to begin moving items into the house. The builder would become liable for any damage to the property before it becomes legally yours. And if something goes haywire and your escrow fails to close, they run the risk of having to evict you – not a task builders relish.

Although not often done, “garage rentals” are permitted by some homebuilders. This agreement allows you to move items into the garage, before which they will lock the inner door to the house itself and ask you to sign a “hold harmless” agreement with a specified daily rental amount until escrow closes.