Everybody has heard the horror stories about home closings that didn't close, the sales transactions that fell apart at the last minute.
Buyers complain about having to come up with more money than they expected at the last minute. Or they arrive at the closing with a 40-foot moving van in the parking lot, loaded with all the possessions they expect to move into their new home. And the deal falls apart.
"That's not the way to go to a closing," said Kevin Hussey, president of Stewart Title in St. Petersburg. Most closings come off without a hitch, but it's still a complicated process to legally transfer a piece of real estate from one owner to another: There are lots of papers to sign and checks to pass, and sometimes buyers or sellers really aren't sure what they're doing.
Typically, closings are handled by title agents. It's their job to prepare the paperwork and make sure that all the i's are dotted and t's are crossed, and everything is legal.
"There's a new rule or regulation every day," Hussey said, and the title company's challenge is to be up to date on them and make sure that the paperwork is filed accurately and appropriately.
Sellers choose the title company to handle their closing. Hussey recommends asking several companies for a written quote, seeking recommendations from friends and inquiring how long a company has been in business.
"The industry is very, very busy" in these days of historically low mortgage interest rates. "There's a lot of business going on and room for people to come in who have no experience and no idea what they're doing," he said.
Title agents are regulated by the state Department of Business and Professional Regulation. (To view the status of an agent's real estate license and check for complaints, visit www.state.fl.us/dbpr/re/pwelcome.shtml.)
It is legal for a real estate agent to refer clients to an in-house title company or lender from whom the agent receives compensation, but that relationship must be disclosed.
Here's advice from the experts on how to avoid disasters at the closing table.
+ Buyers and sellers must take a government-issued photo ID to the closing as proof that they are who they say they are. That means a driver's license or passport. Your work ID won't do. Sellers' names will be run through public-records information as part of a search for liens and judgments against the property.
+ Resolve issues and conflicts before you get to the closing. Is the rug in the living room being sold with the house? What about the chandelier in the dining room? Those concerns should have been settled at contract time. The more unresolved issues that surface at the closing, the greater the likelihood of problems.
+ Do the final walk-through at least a day in advance so there's time for last-minute repairs to be made and for everyone to sign off on them.
+ Sellers who are not U.S. citizens are sometimes shocked to learn that the Foreign Investment Real Property Tax Act requires them to pay the IRS a tax of 10 percent of the sale price. On a $200,000 sale, that's $20,000. But suppose the net proceeds are $5,000? The sellers must come up with the difference out of pocket.
+ If you plan to give someone power of attorney to sign the documents for you because you can't attend your closing, make sure the title company and the lender know this in advance. "Both the lender and the title company must approve, and not all lenders will accept power of attorney under any circumstances," said Cathy Anderson of Fidelity National Title in Tampa.
+ If the closing is what title companies call a "mailaway" _ the seller isn't present but mails in the documents _ the title company should receive those documents well in advance of the closing date.
Anderson recalled a recent mailaway closing in which the seller arbitrarily cut the real estate agent's commission in half. She wrote in the changes she wanted, contrary to the terms of the contract, and initialed them, increasing her proceeds by $4,000. Those documents arrived the day of the closing. "Now the contract has expired, we have to negotiate an extension, and it's ugly," Anderson said.
+ Line up your insurance well in advance. It can be hard to find hazard and flood insurance in Florida these days. Now that hurricane season is here, buyers need to remember that when a hurricane or tropical storm is in a wide zone of the Gulf of Mexico and the Caribbean known as "the box," insurance companies won't write new policies in the Tampa Bay area. No insurance, no mortgage; hence, no closing.
+ Don't expect to write a personal check for more than a few hundred dollars in incidental closing expenses. "Be prepared with a cashier's check, or wire the funds in advance of the transaction," Anderson said. "People think they can write a check for $20,000 or use their stock account or their money market account. They can't. The funds must clear in advance. We cannot disburse anything but negotiated, cleared funds."
+ Buyers should get a copy of the HUD-1 form a few days in advance of the closing showing all the transaction costs. Read this, ask questions, know what you're paying for and why. "No question is too big or too small," Hussey said. "If you have a question, ask."
+ If you're involved in a serial transaction _ several sales, each one predicated on the next _ it's good for this to be disclosed up front. Your real estate agent and closer may have done everything perfectly and may be primed and ready to start passing papers, but someone two transactions up the food chain may have a problem that affects you.
+ As soon as the contract is signed and the sellers choose a title company, they should provide the closer with the name, address and phone number of their mortgage servicer and the loan number. Mortgages are often sold repeatedly. Look at your coupon book. It should provide your loan number and tell you where to send your payment every month.
Lenders may charge a penalty if sellers don't provide adequate notice that they intend to pay off a mortgage (the Federal Housing Administration requires 30 days, for example). Sellers should notify the lender in writing and request a payoff _ a statement of exactly how much is required to pay off the mortgage _ and provide that to the title company, along with a copy of the contract.
Sellers should also provide the closer with a copy of their title insurance, which may entitle them to a discounted rate on the title insurance policy they provide to their buyers, or may speed up the title search process for the sale.
+ Do you have a home equity loan on the house you're selling? This is a lien against the title of your home that must be satisfied at the time of closing. Either pay up front with cash or take it out of the sale proceeds. That can mean a big, unexpected bite out of the money that sellers expect to walk away with (and may be intending to use for the purchase of their new home).
It gets even more complicated. The title company will order an estoppel on the equity line. This means that it determines how much money you've borrowed on that line, so it knows how much you need to pay off at the closing, and it will stop the account from issuing you further credit. But some homeowners plan to write checks on that equity line to finance their move, or to pay deposits on the apartment they're moving to, and they're dismayed when that source of funds is cut off.
"Communication is the key to the whole process," Anderson said. "If we don't get the right information up front, it becomes a fire drill at the end."