21.1 The Closing Event

The closing event is the culmination of the real estate transaction. At closing, the buyer pays the purchase
price and receives title to the property. At the same time, financing is completed and the buyer and seller pay
the required taxes, fees, and charges.

The setting (custom, time, location, and parties)

• Custom varies by state (for example, who pays title insurance may differ by location).
• Time: the sale contract sets the closing date, often within about 60 days of signing to allow contingencies to be removed (financing, inspections, repairs, etc.).
• If the contract says “time is of the essence,” the parties agree to meet deadlines exactly as stated (unless both consent to reschedule).
• Location: closings may occur at a title company, lender, escrow agent, attorney’s office, broker’s office, or county recorder—whatever the contract specifies.
• Parties: typically buyer, seller, and a closing agent/escrow officer. Others may attend (title officer, attorneys, brokers/agents, lender rep), but it’s not always required if documents are executed in advance.

The closing process (what happens)

The closing process is the final “checklist” where buyer and seller verify contract performance, the loan (if any) is closed,
expenses are apportioned and paid, funds and title are exchanged, final documents are signed, and recording is arranged.

Transfer of title (what the seller must provide)

• Seller must provide evidence of marketable title (often a title insurance commitment).
• A title search looks for liens, encumbrances, restrictions, easements, and other issues that “cloud” title.
• If liens/encumbrances damage title, the seller is expected to remove them by the contract deadline (an unpaid lien is a common title cloud).
• Seller may be asked to sign an affidavit of title stating no new defects have occurred since the title search.
• Buyer/lender/title company may require a survey (location/size; easements; encroachments; flood hazard).
• Buyer should do a final inspection (“walk-through”) as close to closing as possible.
• If seller’s mortgage will be satisfied at closing, the lender provides a payoff statement (also called an offset statement). For trust deeds, a similar document is a beneficiary statement.
• Seller produces and/or deposits the deed with the escrow agent to convey the property to the buyer.

Transfer of purchase funds + escrow procedures

• Buyer provides earnest money, loan funds/documents, and any additional cash needed to close.
• If the closing occurs in escrow, the escrow agent holds funds/documents and disburses/releases them when all escrow conditions are met.
• If the transaction can’t be completed, escrow instructions typically explain how to return funds and title so both parties return to their original status.

Lender closing requirements (protecting the collateral)

Lenders focus on protecting the property as collateral. Common requirements include a survey, inspection, hazard insurance,
title insurance, escrow reserves for taxes/insurance, and possibly private mortgage insurance. In some cases, a certificate of
occupancy may be required for new construction.

Broker’s role

The broker may help coordinate pre-closing activities (inspections, surveys, appraisals, repairs) and help keep the closing on track.
Depending on local practice, the broker may conduct proceedings at closing or have little role after the contract is signed. In many states,
brokers are responsible for accuracy and timely delivery of closing documents and may have IRS reporting responsibilities in certain situations.