Buying or selling a home (or other piece of real property) usually involves the transfer of large sums of money. It is imperative that the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. For the protection of buyer, seller and lender, the closing process was developed.
As a buyer or seller, you want to be certain all conditions of sale have been met before property and money change hands. The technical definition of a “closing” is a transaction where one party engaged in the sale, transfer or lease of real or personal property with another person delivers a written instrument, money or other items of value to a neutral third person, called a title company. This third person, or title company, collects and disburses funds upon the happening of a specified event or the performance of a specified condition.
Simply stated, the title company impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon the successful completion of the sale.
Once you apply and are approved for a mortgage after having provided your lender with all related documents (paycheck stubs, checking and savings account statements, income tax returns, etc), the lender will then contact the title company, normally of the buyer’s choosing, and provide “instructions” to the title company. These instructions will include the terms of the sale, collection of items such as paid homeowner’s insurance policies and paid receipts, pro-rated taxes, commissions, seller-assisted closing costs and other items to be paid at the closing by the buyer or from the sellers’ proceeds. The title company then prepares a preliminary statement of all related collections and disbursements and provides to the buyer and the seller the day before closing to ensure all debits/credits are reflected correctly.
When all the instructions from the lender have been met, the closing can then take place. All outstanding funds are collected and fees (such as title insurance premiums, real estate commissions) are paid. Title to the property is then transferred under the terms of the closing instructions and appropriate title insurance is issued.
Payment of funds at the closing by the buyer’s should be in the form of a wire. Personal checks and/or ACH payments are not acceptable. Check with the title company regarding their policy.
