Editor’s Note: The Edge is serializing an as yet unpublished book by Great Barrington attorney David M. Lazan. Here is the fifth of eight installments: The Closing. Previous installments were Introduction and Chapter One: Real Estate Agents and Lawyers; The Purchase and Sales Agreement, Title,Title Insurance, Plot Plans and Surveys and Financing Real Estate. Future installments will cover Condominiums; Buying Land and Building a Home; The Massachusetts Homestead Act; Nominee Trusts; and Short Sales.
Chapter Five: The Closing
In Berkshire County, the real estate closing normally takes place at the office of the Buyer’s lawyer.
A. Attendance at Closing by Buyer and Seller
Often, especially in the case of second home owners, the Sellers, Buyers or both are not present at a closing for a variety of reasons. If the negotiations leading up to the closing have been particularly rough, to avoid any confrontation, the lawyers may have clients sign documents in advance and not attend. Where the Seller has moved or can’t be present due to other commitments, a lawyer will have his client sign documents in advance.
Where a Buyer cannot be present, a lawyer may act on the Buyer’s behalf. If the Buyer must sign documents, including mortgage documents, a lawyer may obtain a power of attorney from the Buyer and execute documents on the Buyer’s behalf. In order to use a power of attorney to execute a mortgage on behalf of a borrower, the lender’s consent must first be obtained.
B. The Settlement Statement (HUD-1)
Prior to a closing, each of the attorneys or their assistants will have gathered together all of the financial information necessary to make financial adjustments between the parties regarding prepaid or unpaid real estate taxes, sewer and water bills, association fees, recording costs, fuel that will be transferred to the Buyer and any other adjustments agreed to between the parties. This financial information is set forth in a settlement statement (usually the HUD-1 form required by the US Department of Housing and Urban Development) which will be executed by the parties and settlement agent as part of the closing documents.
C. Providing Funds for the Closing
Prior to the day of the closing, the Buyer’s attorney will advise the Buyer of the total amount of monies necessary to complete the purchase of the property, as well as a breakdown of what that amount represents. This total will equal all of the monies necessary to pay the Seller for the cost of the property (less the deposit and any monies being provided by a lender), plus all of Buyer’s costs, including bank charges, title insurance, abstracting costs and attorney’s fees.
The Buyer is usually provided by his or her attorney wire instructions for transferring closing funds to the attorney’s trust account. It is essential that these funds are actually in the Buyer’s attorney’s trust account prior to the closing. It is for this reason that bank checks are not generally acceptable because the Buyer’s attorney is unable to draw on those funds at closing until they are actually collected and in the attorney’s trust account.
D. People Present at a Closing
The parties who may be present at the closing are the Buyer and Seller, their respective attorneys and the real estate agents who have been involved in the transaction. Occasionally, a lender’s representative may appear, although it is the custom in Berkshire County for the Buyer’s lawyer to also represent the lender. Additionally, the only title agent present is the Buyer’s lawyer because almost all real estate attorneys in Massachusetts are title agents.
Buyers and Sellers should also be aware that they will need a driver’s license or suitable identification (with photo) at the closing.
E. Timing of the Closing
Because our Registries close at 4:00pm, most closings begin not later than 2:00pm, unless the Registry where the deed is to be recorded is in a district other than the one in which the closing is taking place. In that case, the closing must take place earlier, as we like to record documents on the day of the closing.
Buyers are generally asked to arrive at the closing between a half-hour and an hour before the Seller and the Seller’s lawyer. This enables the Buyer to execute mortgage documents as well as certain other documents that may be required by the Buyer’s lawyer. Additionally, this allows the Buyer time to ask any questions prior to the arrival of the Seller and his or her counsel, and to review title information which may be of interest to a Buyer. Also, the extra time enables the Buyer to review the settlement statement, which can be complex, with his or her lawyer.
F. What Happens at the Closing
The first thing that happens, as I’ve stated above, is that the Buyer will be asked to sign all of the Buyer’s closing documents, including mortgage documents. Then, the Seller and his or her counsel will arrive along with the sales agents. The Sellers will then sign the deed conveying the property to the Buyer, as well as certain other documents required by the Buyer or customary in such transactions. The Seller’s lawyer will deliver these documents to the Buyer’s lawyer for review and, if satisfactory, the Buyer’s lawyer will distribute checks to the Seller’s lawyer for the purchase price, pay the real estate agents and distribute the balance of the funds he or she is holding as “settlement agent” pursuant to the settlement statement. Also, the Seller will deliver the keys to the premises to the Seller’s lawyer.
G. After the Closing
At the time of the closing, we have no way of determining whether the property being purchased is still free from liens and owned by the Seller. It is possible that a document may have been recorded between the last time the Buyer’s lawyer looked at the Seller’s title and the closing.
In many states, title insurance companies issue insurance called “gap coverage” to protect a Buyer in the event a lien or conveyance occurs between the last examination by Buyer’s attorney and the recording of a deed to Buyer. That is not the case in Berkshire County. Here, the prudent Buyer’s lawyer will require the Seller’s lawyer to hold the proceeds of the closing and keys to the property in trust until the title documents such as the deed and mortgage are recorded and the Buyer’s attorney reports to the Seller’s attorney that title is clear.
With no “gap insurance”, as soon as the closing is complete, the Buyer’s lawyer heads for the Registry to record the sale. Once the deed and mortgage are of record, the Seller’s lawyer will be advised of that fact and the Buyer’s lawyer will determine that title is as represented. Then, the proceeds of the sale will be delivered to the Seller and the keys to the property will be delivered to the Buyer. Additionally, the parties will be advised that the transaction has been completed.
Finally, once the transaction is closed, all documents recorded, and monies disbursed, the lawyers should provide their clients with a complete package of all documents that may be needed for future reference.