Closing Process
Let’s start at the very beginning — what does “closing,” “settlement,” or “closing escrow” on your house mean?
Closing – or settlement as it is known in some parts of the country — is a term used for the point in time at which the title to the property is transferred to the buyer and, generally, a mortgage (or “deed of trust”) is given by the buyer/borrower to the lender.
Buying a house is an exciting time and the more you know about the process, the more relaxed you’ll be going through it. Keep reading, and we’ll walk you through what the closing process really means.
Some information about the costs associated with closing on your home should be provided to you before you put a contract on a house. If you are obtaining a loan to purchase the property, your lender has three days from the time of the loan application to provide you with a Good Faith Estimate of your loan costs so there are no surprises about costs. Within those three days you should also receive a copy of the booklet, “Buying Your Home,” which outlines the settlement process. If these two things do not occur, talk to your lender.
Once the seller accepts your sales contract, the countdown to closing begins. Timing is essential to make sure all the ingredients for a successful closing are in place for your arrival. You can shop around to select a settlement agent to prepare the documents for your closing, or you can rely on a recommendation from your real estate agent or lender. In some parts of the country, the settlement agent is an attorney, title company, or escrow company. Once a settlement agent has been selected, he or she will handle the closing process from there. If you have given the seller an earnest money deposit, the escrow agent, settlement agent, or real estate broker (this varies based on where you live), will see that it is promptly deposited into an escrow account where the funds are held until the time of closing.
Next, the settlement agent will request preliminary title work. A title professional will search and examine the public records for information related to your home’s title. This provides warnings of title flaws that must be dealt with before the property can change hands. For instance, the previous owner may have failed to pay local or state taxes. Or there may be an outstanding mortgage or judgement on the property. Title professionals work hard to see that such obligations are dealt with and resolve any issues they find well before you go to closing, if possible. If the sales contract calls for a prior mortgage to be paid off, the settlement agent will order payoff figures from the existing lender. If the buyer is assuming the loan, the settlement agent handles that as well. He/she, if directed to do so, also may order property inspections and termite reports. If it is customary in your area, the settlement agent may order a survey.
Finally the settlement agent is ready to prepare the CD Settlement Statement. The CD, as it is referred to, outlines all of the costs for both the buyer and seller associated with the closing..
On closing day, the property will be transferred from the seller to the buyer. In most parts of the country, you will sign a number of documents that will be explained by your settlement agent. Check with your settlement agent for more details on how the closing is conducted in your area. Once all of the signing is done, the house is yours! Congratulations on achieving the American Dream!
You should be generally aware that the behind-the-scenes process continues after the closing. The settlement agent still must forward payment to any prior lender, pay all the other parties who performed services in connection with your closing, pay out any net funds to the seller, and order a final search of the title to your new home before finally recording all the documents needed legally to complete your purchase. But you don’t have to be involved in any of this. Your settlement agent takes care of these post-closing details!
What Is ALTA?
The American Land Title Association (ALTA), founded in 1907, is the national trade association and voice of the abstract* and title insurance industry. ALTA members search, review and insure land titles to protect home buyers and mortgage lenders who invest in real estate. ALTA is headquartered in Washington, DC.
Members of the association are in business in most counties across the nation. Nearly all title insurance companies hold ALTA membership, in addition to abstracters* and title agents. Nearly 2,000 title agents, abstracters, and title insurance companies are Active members, ranging from small, one-county operations, to large national title insurers. Associate members of ALTA may include attorneys, builders, developers, lenders, real estate brokers, surveyors, consultants, educational institutions, computer services firms, and related national trade associations.
Protecting Homebuyers
ALTA members advocate safe and efficient transfer of real estate and insist on high standards when searching land title records and preparing insurance documents. The industry seeks to eliminate risk before insuring, which provides the insured with the best possible chance of avoiding land title problems. But, title difficulties can and do occur, and members offer both Owner’s and Lender’s title insurance policies as effective safeguards.
Professionals in the real estate market, as well as the homebuying public, benefit considerably from the commitment to excellence that is routine in the work of ALTA members. Involvement by a title company is often thought of as the catalyst that allows a real estate closing to proceed smoothly until completed.
LEGAL BULLETIN-NEW JERSEY
NJ-2015-1-LB
TO: All New Jersey Policy Issuing Agents
From: Legal Department
DATE; February 25, 2015
RE: REVISED RATE MANUAL and SETTLEMENT CHARGES
The New Jersey Land and Title Insurance Rating Bureau recently obtained approval from the New Jersey Department of Banking and Insurance to revise certain provisions of the Manual of Rates and Changes. Below is a synopsis of the changes approved. The changes apply to all orders received on or after April 1, 2015. Accordingly, the provisions of the February 15, 2015 Rate Manual still govern received prior to April 1, 2015.
Section 3.1.5- Right to impose special Charges
The existing Rate Manual, in Article 3, Section 3.15(c), authorizes an insurer or its agent to impose an additional charge commensurate with the time and effort involved in conduction an extraordinary settlement. The recently approved amendment to the Section sets forth that the right to impose a special charge arises if the settlement is:1) unusually long or complex: 2) involves the performance of the extensive pre-or post-closing or settlement-related functions: or 3) requires an unusually large number of disbursement checks, wire transfer, or documents to be recorded.
Section 6.1- Settlements with Disbursements
Section 6.1 has been revised to explicitly state the $300.00 settlement fee applies to a settlement that does not exceed 60 minutes in length. Settlements that exceed this time are subject to an additional charge under Section 6.2.3 (see below)
Section 6.2.3- Settlements with Disbursements- Greater than Normal Length
Section 6.2.3. Has been amended to reiterate that a normal or usual settlement is 60 minutes in length as also set forth in Section 6.1. For settlements that exceed this length of time, an additional charge of $100.00 per hour (or fraction thereof) is to be added.
Section 6.3- Settlements without Disbursements
As with Section 6.1, Section 6.3 has been revised to explicitly state that the $150.00 settlement fee (attendance without disbursements) applies to a settlement that does not exceed 60 minutes in length. Settlements that exceed this time are subject to an additional charge under Section 6.4.3 (see below)
Section 6.4.3- Settlements Without Disbursements- Greater than Normal Length
As with Section 6.2.3, Section 6.4.3 has been amended to reiterate that a normal or usual settlement without disbursements is 60 minutes in length as set also forth in Section 6.3. For settlements that exceed this length of time, an additional charge of $50.00 per hour (or Fraction thereof) is to be added.
Section 6.4.4- Settlements of Greater Than Normal Length; Itemization of Charges
This is a new section, which provides that if the insurer or agent conducts a settlement of greater than normal length, the insurer or agent shall provide the applicant, upon request with an itemized list of the time expended by the insurer or agent in connection with the settlement. Specifically setting forth the settlement-related functions performed before and after the occurrence of the settlement itself.
An Illustration: Settlements of Greater Than Normal Length
In Conduction a settlement with disbursements in the agent’s office during regular business hours, an agent spends one hour at the settlement table, which is preceded buy one hour spent settlement-related functions. The total settlement charge is $400.00, computed as follows: $300.00 for the time spent at the settlement table ( in accordance with Section 6.1) AND $100.00 for the settlement-related functions before the occurrence of the settlement ( in accordance with Section 6.2.3.)
Bear in mind that the baseline charges for settlements remain the same. These revisions solely affect the definition and calculation of settlements of greater than normal length.
LEGAL BULLETIN-NEW JERSEY
NJ-2015-3-LB
TO: All New Jersey Policy Agents
From: Legal Department
Date: March 27, 2015
RE: REMINDER & CLARIFICATION—REVISED SETTLEMENT CHARGES
This Bulletin serves as a reminder and clarification concerning the revised Settlement Charges that go into effect on April1, 2015. The synopses of these changes were the subject of Bulletins NJ-2015-1-LB and NJ-2015-2-LB previously distributed to you.
Since issuing out previous Bulletins on this topic, two questions regarding the amended rates have been asked frequently. The substance of these questions is discussed below.
Q1: Is the Consent to Special Rate from (NJRB6-013) required to be completed when the only additional charge that is being imposed is the Additional $100.00 per hour charge specified in Rate Manual Sections 6.2.3 or 6.4.3?
A1: No. The Consent to Special Rate form (NJRB 6-03) is only required when s Special Charge under Rate Manual Section 3.1.5 is to be charged, i.e. charges that are not specifically identified by other Rate Manual sections. If you encounter a situation where a Special Charge under Rate Manual 3.1.5 may be warranted, the Consent to Special Rate form (NJRB 6-03) must be completed and executed by the applicant. Additionally, if the Special Charge arises under Rate Manual Section 3.1.5(a), please contact the New Jersey office for approval.
Q2: If the Consent to Special Rate form (NJRB 6-03) do3s not apply because the only additional charge is the $100.00 per hour charge specified in rate Manual Sections 6.2.3 or 6.4.3, is there any consent form that must be obtained?
A2: Possibly. An itemization of the time expended on settlement-related functions (and specifically identifying the settlement-related functions performed before and after the settlement itself) must be provided to the applicant upon request of the applicant. See Rate Manual Section 6.4.4. While this rate Manual Section only requires provision of the itemization upon request of the applicant, Westcor requires its agents to keep accurate records in each file documenting the settlement-related functions performed and time expended on each function ( whether or not the applicant requested the itemization) whenever a charge under Rate Manual Sections 6.2.3 or 6.4.3 is made. Additionally, even though not required by the Rate Manual, if the applicant does request the itemization, Westcor recommends that the agent have the applicant acknowledge agreement with the itemization and retain it in the agent’s file.