1285448634 409719

Chapter 14

Real Estate Closings

Objectives

• After reading this chapter, you should be able to– Review a real estate contract and prepare a

closing checklist for both the purchaser and the seller.

– Review a mortgage loan commitment and prepare a closing checklist for the borrower.

Objectives

• After reading this chapter, you should be able to– Understand the legal procedures required for the

closing of a sale of real property.– Understand the legal procedures required for the

closing of a mortgage loan.

Introduction

• Sale closing– Consummation of a real estate transaction

• Loan closing– Consummation of a loan secured by a mortgage

• Escrow agent– Usually a title insurance company– Safeguards the interests of all parties

The Environment

• Closing on a residential home can be a long process– Involves a great stress for both the buyer and the

seller• Residential loan closings are not a high-fee

item for law firms– Can only be profitable in a high volume

The Environment

• Commercial transactions are easier– People involved are not strangers to business

transactions– Substantially more money, risks, and negotiations

involved

Anatomy of a Real Estate Closing

• File creation– Usually referred to a firm as a “transmittal

package” from a loan officer– Initial closing package• Sales contract• Lender's loan commitment

– Law firm opens the file and checks for conflicts of interest


• Information gathering– Starting point is the closing package

• Reviewing the real estate contract– Main document that sets forth the obligations of

the purchaser and the seller– Determines the true date of closing– Legal description of the property


• Reviewing the real estate contract– Documents required by the seller and the

purchaser at the time of closing• Affidavits• Corporate resolution• Warranty deed• Bill of sale for personal property


• Reviewing the real estate contract– Documents required by the seller and the

purchaser at the time of closing• Assignment of all warranties• Foreign person affidavit• Form 1099-B


• Reviewing the real estate contract– Seller may also be required to provide• Termite clearance letters• Keys• Warranties• Assignment of leases and security deposits• Assignment of service contracts• Estoppel letters from prior lenders and tenants

Checklist: Closing Documents

• Title examination• Title commitment/policy• Survey• Hazard insurance• Foreign person affidavit• Form 1099-B• Title affidavit

Checklist: Closing Documents

• Hazardous waste affidavit• Warranty deed• Bill of sale• Assignment of warranties• Broker indemnity• Settlement statement

Contact with Seller, Purchaser, and Broker by the Paralegal

• If the seller or the buyer is a business entity, the paralegal should require copies of chartering documents

• Ordering the title examination– Examiner needs• Name of the current owner• Legal description of the real property• Any title information or surveys available


• Ordering the survey– Surveyor needs• Legal description of the property• Any previous surveys• Correct names of the purchasers• Correct name of the lending institution• Any special lender requirements for a survey


• Ordering hazard and fire insurance– Requirements• Name of the purchaser• Correct address of the property• Amount of the loan• Name and address of the lender

– Mortgagee endorsement


• Obtaining the termite clearance letter or bond– Should be obtained before the closing date

• Reviewing the title examination• Satisfaction of loans and liens

A Paralegal's Review of the Mortgage Loan Commitment

• Indicates the mortgage lender's approval of the borrower's loan application and the lender's commitment to the loan amount requested

• Parties• Loan amount• Interest rate


• Term of loan• Repayment terms• Prepayment terms• Security• Appraisal• Insurance– Mortgagee loss payable clause


• Escrow for taxes and insurance• Title insurance• Survey• Compliance with law• Financial documents• Documents• Defaults and late charges


• Commitment fee• Loan expenses• Closing and commitment expiration date• Disbursement of loan proceeds• Acceptance of a loan commitment• Assignability

Checklist: Loan Commitment for a Residential Loan

• Title commitment/insurance• Survey• Hazard insurance• Truth-in-lending statement

Checklist: Loan Commitment fora Residential Loan

• Borrower's affidavit• Note• Mortgage• Settlement statement

Checklist: Loan Commitment fora Commercial Loan

• Title examination and title commitment• Survey and surveyor's inspection report• Fire insurance• Borrower's attorney's opinion• Copy of personal property list• Copies of all leases• Tenant estoppel letters for all leases


• Subordination and nondisturbance attornment agreement for all leases

• Certificate of occupancy for all leases• Certified articles of incorporation and bylaws– Acme, Inc.

• Certificate of good standing– Acme, Inc.


• Corporate resolution– Acme, Inc.

• Environmental audit• Photographs of improvements• Federal tax ID number• Zoning letter• Utility letters


• Letter from regional office of Environmental Protection Agency

• Borrower's affidavit• Promissory note• Deed to secure debt• Assignment of rents and leases


• Security agreement• UCC financing statement• Rental achievement escrow• Loan closing statement

Special Provisions in a Construction Loan Commitment

• Lender wants the right to– Review and approve all preliminary and final plans

or specifications– Be consulted on and approve any and all changes

in such plans or specifications– Establish minimum standards for construction


• Lender wants the right to:– Establish a time schedule for various stages of

construction from commencement to completion– Receive periodic progress reports– Undertake periodic inspections of construction– Be supplied with a certificate of the architect as to

the satisfactory completion of the work


• Lender wants the right to– Be supplied with a certificate of the borrower as

to the total construction costs for the project– Be supplied with a certificate of the borrower

stating that all utility lines are completed, connected, and adequate

– Be supplied with pictures of the project as construction progresses


• Lender may require the following – Copy of the construction contract– Copies of all major subcontracts– Copy of the building permit– Utility letters– Final plans and specifications– Architect's contract


• Lender may require the following– Engineer's contract– Cost breakdown– Use of a construction supervisor

• Hazardous waste• Leasehold loans

The Closing and Aftermath

• All parties are notified of the date, time, and place of the closing

• Closing proceeds are disbursed through an escrow agent

• Closing statement– “Item of prime interest”


• Sequence of events– Handle the sale aspects first• Seller signs all transfer documents

– Loan transaction• Purchaser signs all loan documents


• Closing finished after– All documents are signed, witnessed, and

notarized– Good funds have been verified from the purchaser

and the lender– All checks are cut and disbursements are made to

the parties present at closing


• Disbursing, recording, and transmitting final documents– Generally, all closing documents should be

recorded as soon as possible after closing• Including assignments, UCC statements, liens, etc.


• Final closeout by the paralegal– Original recorded documents are sent to the

parties– Purchaser receives the warranty deed– Lender is entitled to receive the recorded

mortgage, assignment of rents, UCC financing statements, etc.

– Title policy should follow the commitment exactly

Checklist: Real Estate Closing Tasks

• File creation– Open file• Client name• Client number• Billing information• Cross-reference and conflict check


• Information gathering– Review real estate contract• Name of seller• Name of purchaser• Name of broker• Description of real property• Date of closing• Requirements of seller• Requirements of purchaser


• Information gathering– Prepare closing checklist from review of real

estate contract– Review loan commitment• Name of lender• Name of borrower• Amount of loan• Commitment expiration date• Loan closing requirements


• Information gathering– Prepare a loan closing checklist– Order title examination and title policy• Description of real property• Date when examination is required• Name of title company• Name of insured• Insured amount


• Information gathering– Order survey• Legal description of property• Information regarding previous survey• Name of purchaser and other names to appear on

survey• Name of lending institution to appear on survey• Flood hazard certification


• Information gathering– Order survey• Other special requirements for survey• Date of completion for survey

– Order hazard and fire insurance• Name of insured• Proper address of property• Amount of insurance


• Information gathering– Order hazard and fire insurance• Proof insurance premium has been paid one year in

advance• Name of lender for mortgagee clause• Date for delivery of insurance policy


• Preclosing procedures– Review title examination and title policy– Obtain copies of all title exceptions– Request satisfaction amounts from any

mortgages, liens, or encumbrances to be paid at closing


• Preclosing procedures– Review survey– Verify that all sale obligations have been met by

both purchaser and seller– Verify that all mortgage loan commitment

requirements have been satisfied


• Document preparation– Preparation of all purchase and sale documents– Preparation of all loan documents

• Closing– Inform all parties of the date, time, and place of

closing– Inform purchaser of proper amount of proceeds

needed for closing • Instruct purchaser to bring good funds


• Closing– Verify that lender has deposited loan proceeds

with firm– Reserve conference room– Prepare closing packet of documents for

purchaser and seller


• Disbursing, recording, and transmittal of final documents– Transmit deed, mortgage, and other documents

to courthouse for recording– Transmit money necessary to pay prior liens,

mortgages, and encumbrances– Prepare final package for purchaser and seller– Prepare final loan package for lender


• Final closeout– Obtain all recorded deeds, mortgages, and other

documents from courthouse– Obtain all satisfactions and cancellations for prior

mortgages, liens, and encumbrances– Order final title examination• Verify proper recording and indexing of deed,

mortgage, and other recorded documents


• Final closeout– Obtain and review title insurance policy– Transmit recorded deed and title insurance policy

to purchaser– Transmit recorded mortgage and other loan

documents and title insurance policy to lender– Do final review of file to verify that all closing

procedures have been completed– Close file and send to storage


• Closing and short sale– In a short sale purchase, the price for the property

is not adequate to pay the mortgage indebtedness on the property and the closing costs


• Short sale letter– Lender approves the sale and sets forth conditions

for satisfaction of its mortgage– May require receipt of all net sales proceeds• May require minimum net sales proceeds

– Will contain a list of items that can be paid or deducted from gross sale proceeds to arrive at net sales proceeds


• New methods of closing– Virtual closing• E-mail

– Home visit

Use of E-Mail

• Determine whether e-mail is an appropriate method of delivery– Be careful of what is said in an e-mail• Due to discovery rules

– Be aware of the tone of an e-mail– Consider the proper audience for an e-mail

Use of E-Mail

• Paralegal should always keep in mind attorney–client privilege– Use “PRIVILEGED and CONFIDENTIAL” notation at

the bottom of an e-mail

Technology for Document Production

• Paralegals must be proficient in computer skills

• Current automated document preparation systems include– Fill-in-the-blank– Search-for-the-code document systems– Intelligent document assembly systems


• Residential closings use standard Fannie Mae (FNMA) forms and an automated database

• Document assembly software enables lawyers and paralegals to develop their own set of standard forms


• Hardware– Scanner

• Online real estate closings– Enable parties to communicate with one another– Helpful when numerous parties from various

geographical areas are involved in the closing

Ethics: Conflicts of Interest

• Attorneys cannot represent a client where an attorney's own interest might impair his or her independent professional judgment– Cannot represent a client in which the attorney

has a financial interest or represent two clients in the same transaction

• Early disclosure helps resolve conflicts of interest problems

Summary

• Real estate closing– Main fee-generating transaction for most real

estate attorneys• Timeline– File creation– Information gathering– Document preparation

Summary

• Timeline– Closing– Disbursement, recording, and transmittal of

closing package– Final closeout

1285448634 409719

Education