Chapter 22Closing the Real Estate Transaction

Some closings are face-to-face, and some are conducted through escrow. But in all cases, once again, it’s a people-related business.

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22 Closing the Real Estate Transaction

• Learning objectives– Identify the issues of particular interest to the buyer and

the seller as a real estate transaction closes– Describe the steps involved in preparing a closing

statement– Explain the general rules for prorating– Distinguish the procedures involved in face-to-face

closings from those in escrow closings

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Preclosing ProceduresBuyer’s Issues

• Title evidence• Seller’s deed• Removal of liens and

encumbrances• Survey• Inspection results• Leases• Final Property Inspection

Seller’s Issues• Receive Payment• Buyer financing• Compliance with

buyer’s requirements• Inspect closing

statement

22 Closing the Real Estate Transaction

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22 Closing the Real Estate Transaction

• Title Items and Procedures– Abstract of title and attorney’s opinion– Payoff statement– Mortgage reduction certificate– Affidavit of title

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22 Closing the Real Estate Transaction

• The closing– Face-to-face closing

• Closing agent or officer – must be an attorney in Georgia• The exchange and recording process

– Closing in escrow• Buyer and seller deposit all pertinent documents• Buyer deposits …• Seller deposits …

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22 Closing the Real Estate Transaction

• IRS reporting requirements– Form 1099-S for sales or exchanges of

• Land, including air space• Permanent structure• Condominium unit• Stock in a cooperative housing corporation

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22 Closing the Real Estate Transaction

Lender’ Interest in the Closing

•Property as security

•Title insurance

•Property casualty, hazard and liability insurance

•Escrow account for property tax and insurance

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22 Closing the Real Estate Transaction

Mortgage Disclosure Improvement Act

•3 days to provide Truth in Lending statement (TIF) and Good Faith Estimate (GFE)

•7 days before closing borrower gets final TIF and GFE

•3 days to wait for closing if APR has changed by more than 0.125 percent

•Rationale for MDIA

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22 Closing the Real Estate Transaction

RESPA Law requirements• Requires disclosure of security deeds an settlement• Applies to first lien residential loans of 1 to 4 unit structures for

residency or investment• Applies to second loans for home equity loans by federal mortgages• Prohibits kickbacks and fee-splitting – Section 8• Prohibits seller requiring the buyer to buy title insurance from a specific

company – Section 9• Prohibits excessive escrow deposits

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22 Closing the Real Estate Transaction

• RESPA Law requirements– Controlled business arrangements – Disclosure requirements

• Information Booklet• Good-faith estimate of settlement costs• Settlement Statement (HUD-1)

– Prohibition on kickbacks and referral fees

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22 Closing the Real Estate Transaction

• Debits and credits• Broker’s commission• Attorney’s fees• Recording expenses• Transfer tax

• Title expenses • Loan fees• Tax and insurance

reserves• Appraisal fees• Survey fees• Other fees

Closing Statement

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22 Closing the Real Estate Transaction

• Prorations– Accrued items– Prepaid items– Rules for prorating

• Ownership on closing day• Calendar for calculating prorations• Real Property Taxes• Assessments• Interest• Rents• Security deposits