Pre-closing Procedures Buyer’s Issues Seller delivering good title Property is in promised condition: –Title evidence –Seller’s Deed –Any docs showing removal of liens & encumbrances –Survey –Result of property inspection –Any leases Final Inspection * Seller’s Issues Buyer has obtained financing Buyer has sufficient funds to complete sale
Buyer’s Issues: Final Inspection * Buyer’s Final “Walk-through” Necessary repairs made Property well-maintained Fixtures in place No unauthorized removals or alterations
Lender’s issues To protect its security interest in the property –Title insurance –Fire &hazard insurance –Survey –Termite inspection –Certificate of occupancy for new builds –Escrow accounts for taxes & insurance –May have an attorney at closing to represent interests Broker’s interest Collecting the commission and/or conducting the proceedings
Lender’s issues RESPA requirements on a 1-4 family residential federally related new first mortgage loan HUD booklet to all applicants (“Closing costs & You”) Provide good-faith estimate of all settlement costs within 3 days of loan application Provide form HUD-1 (uniform settlement statement) available for inspection at or before settlement.
Title Procedures 2 title searches: 1. preliminary title report as of the contract date 2. “bring-down endorsement” – final title search for the date the deed is recorded
Title Reports Schedule A Names of insured, owners, lenders, legal description, estate & tenancy Schedule B (“pre-existing conditions”) General exceptions Special exceptions
Conducting the Closing Two types: 1. face-to-face Attended by buyers, sellers, attorneys At title insurance company, lending institution, broker’s office, attorney’s office 2.Closing in Escrow Disinterested 3 rd party is in a position of trust
Escrow Terms Escrow agent = company Escrow officer = person presiding Escrowor = buyer and seller Escrowee = title company
Escrow Procedure Must contain a valid contract in order for escrow to exist The contract supersedes escrow
Escrow Procedure Broker deposits buyer’s earnest money with escrow agent, once contract is signed Before closing, seller gives escrow agent: –Deed conveying property to buyer –Title evidence –Existing hazard insurance policies –Payoff statement and/or letter from lender –Any docs necessary to clear title Before closing, buyer deposits balance of cash or loan documents, proof of insurance, and any other docs needed.
Escrow agent responsibilities Determines if title is marketable and all other conditions met If title has liens, they are paid off first IRS reporting requirements – Form 1099-S must be filed by the closing agent If the sale cannot be completed, parties are restored to their former status
Preparation of Closing Statement Debit = a charge, an expense Credit = entered in a person’s favor Buyer’s debits & credits totaled = cash buyer must bring to closing Seller’s debits & credits totaled = amount seller will receive at closing
Expenses Broker’s commission Attorney’s fees Recording expenses Transfer tax Title expenses Loan fees Tax & insurance reserves
Prorations Accrued items = buyer credit Prepaid items = seller credit Examples taxes and interest usually paid in arrears: credit buyer, debit seller Insurance usually prepaid: credit seller, debit buyer Rents usually prepaid: debit seller, credit buyer Note: security deposits belong to tenants and must be transferred intact from seller to buyer.
Prorations Always use 360 day year, 30 day month unless specified to use 365 day year In AZ Day of Closing belongs to BUYER
AZ - specific Final step in closing escrow, when deed gets recorded (but is not necessary in AZ) Final step in transferring title is document delivery (not recordation) Death of either party will not terminate escrow. (Estate is obligated either way)