After conducting thousands of real estate settlements, several suggested dos and don’ts support a smooth settlement in today’s fast-paced closing environment. While not exhaustive, this list addresses frequent issues arising before closing.
Surveys. A purchase contract only describes the property address and does not provide for the property’s physical description. Although lenders do not always require it, we recommend buyers consider purchasing a survey to understand the physical dimensions of the property to alleviate surprises later. Frequent issues uncovered relate to sheds, fences and driveway encroachments on the subject or adjacent property.
Legal Names. Ensure the contract matches the purchaser’s legal name according to their photo identification. If the loan applications and contract names do not match, last-minute corrections to documents can delay closing.
Walk-Throughs. A best practice is conducting a walk-through a day before closing. While not always possible, early walk-throughs give more time to deal with issues that might arise, especially for non-completed work or home inspection repair items.
Provide Invoices. Provide the title company with any invoices that should be paid on the settlement statement (Home Warranties, Work Invoices, etc.). In addition, if your commissions are being wired, provide your wiring instructions ahead of closing.
Post Occupancy Agreements. Discuss the terms of the post-occupancy agreement with your lender in advance of agreeing to the terms. For example, many loan products restrict the duration of the occupancy.
Back-to-Back Settlements. If your client is selling one property and buying another on the same day, you should ensure clarity about the settlement times and the need for the funds available for the latter settlement. This step is crucial when the transactions occur in different states with recording requirements prior to disbursement.
Homeowners Association, Front Foot Charges, and Solar Panels. Many sellers pay their own homeowner’s association fees and front foot charges once a year and forget the details; while the sellers are at the table, this is a great time to ask specific questions about due dates and reporting. Additionally, solar panels are often leased or have a power purchase agreement. A review of Uniform Commercial Code (UCC-1) filings will disclose the owner of the solar panels and the terms for repossession. If you see solar panels, it is good to dive into the details early to ensure your client complies with the document delivery terms in the contract.
Credit or Debit Payments. Don’t make payment suggestions to buyers or sellers about paying off any credit or debit. Instead, refer buyers to their loan officer and refer sellers to the title company. While paying off credit or debt is usually a good idea, it could have unintended consequences for the timing of settlement. For example, a buyer may need the cash to close instead of paying off a credit card; or a seller may close a line of credit but not get a release from the lien on the property recorded by the bank in time for closing. It is also critically important that borrowers do not enter new debt obligations during the lending process, such as buying a car, new credit cards or installment loans.
Name Changes. Once a loan application or contract has been made, it is not wise to modify your legal name through either the courts or the Social Security Administration. While it can be exciting to start the next chapter of your life, it can affect the underwriting of your transaction and cause potential delays.
Don’t guess. When an issue arises that is not agreed upon for the sale of the home, don’t guess whether the settlement will close. Instead, run at the problem, working toward a resolution for all parties as quickly as possible. The most common issues that arise suddenly are repairs that are not done by a licensed contractor, leaving personal items in the home without permission from the new buyers like pool tables, or leaving large, heavy furniture. Money or additional time often helps to solve the problem.
Utilities or Homeowners Insurance too soon. Sellers understandably want to be prepared for closing. However, proactive changes to utilities can cause problems. As a rule of thumb, it is better to wait for the conclusion of the sale to make any changes.
This article originally ran in the April 2022 Chesapeake Real Producers.