What can I expect when closing my real estate transaction?

Closing (also referred to as completion or settlement) is the final step in executing a real estate transaction.

The closing date is set during the negotiation phase, and is usually several weeks after the offer is formally accepted. On the closing date, the ownership of the property is transferred to the Buyer. In Illinois, ownership is officially transferred when a deed from the Seller is delivered to the Buyer, and subsequently recorded. Lenders providing a mortgage loan will often require title service, including title search and title insurance, appraisal, land survey, and attorneys to be involved.

What happens at the closing table?

The Buyer delivers proceeds (generally a cashier’s check or wire transfer) for the balance owed on the purchase price.

The Seller signs the deed over and tenders it to the Buyer. A recorder’s office, which would record the deed, commonly requires the Seller’s signature to be notarized. If applicable, a mortgage will also be recorded.

Commonly, the Seller delivers possession to the Buyer, typically by giving the Buyer keys for the premises. Unless otherwise specified in the real estate contract, delivery of possession should be at the closing.

What sort of official proof exists of the sale?

A title company typically registers the new deed with the local land registry office or recorder’s office. A declaration or statement by the Buyer or Seller regarding the purchase price may have to be filed with the government. Conveyancing taxes and recorder’s fee will typically have to be paid, which are part of the closing costs.

How is the money handled at closing?

The Seller receives the proceeds of the sale, less closing costs and mortgage payouts.
From the funds allotted for closing costs, prepayments for real estate taxes and insurance may be required, and fees charged by other parties may be paid, such as real estate brokers/agents, title companies, lawyers, etc.

How long does a closing take to complete?

It is common for a transaction to close in one day but possession of the property may occur at a later date, if stipulated by the parties. If this occurs, the buyer rents the house back to the Seller during the interim period.

What is the job of a title company during my transaction?

A title company or other trusted party holds the money and the signed deed, and arranges for the transfer. This is primarily so that the Seller can give up ownership of the property, and the Buyer can hand over the payment, without both parties having to be present at the closing at the same time. Escrow ensures an orderly transaction, or if something goes wrong, an orderly termination of the agreement.

In other cases, a process called settlement takes place on a specified date and time during which all parties (usually including the agents involved) meet at a settlement company, and which is presided over or supervised by a lawyer or settlement agent. At that time, the settlement agent disburses all funds listed on the settlement statement (in form of certified or wired funds) and the property conveyance takes place, and the deed is then recorded by the settlement company.

What is Title Insurance?

Title insurance is a form of indemnity insurance which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans, typically disclosed in a Title Commitment. Title insurance will defend against a lawsuit attacking the title or reimburse the insured for the actual monetary loss incurred up to the dollar amount of insurance provided by the policy.

There are two types of policies – owner and lender. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate.

When is my closing complete?

A reference to completion is in effect the same as closing and takes its name from the contract to convey property having been completed once the balance owed on the purchase price has been paid to the Seller and title transferred to the Buyer.

5 Day Review Period

The Illinois’ escrow process involves your real estate attorney who is used to complete your transaction and prepare all the required closing documents. There is likely to be a customary 5 day “attorney review” period  in order to afford the parties the opportunity to incorporate any changes to the contract which might best serve their respective interests.
Traditionally in Illinois, both buyer and seller will complete the transaction at the same closing (or ‘settlement’) table, usually at a title company.

Offer and Acceptance

Once an offer is accepted by the seller and the contract is fully executed, the attorney review process begins. During the attorney review period, generally 5 days, either buyer or seller can terminate the transaction without consequences as their attorneys negotiate the final contract.

Earnest Money Deposit

A deposit, or earnest money, is paid to the one of the attorneys involved, the title company, or real estate broker, to be held on the Buyer’s behalf in escrow.

Disclosures

The Buyer reviews and signs the required disclosures, which will vary based on the type of property being purchased, and which will generally include disclosures for known defects on the property, prior repairs or other improvements, and potential environmental hazards. A Residential Property Disclosure Report is provided to the Buyer on or before the day the contract is signed. The disclosure process generally benefits both Seller and Buyer, as it allows for all pre-disclosed facts to be factored into the contract price.

Professional Inspections

If the Buyer chooses to perform a professional inspection on the property, the inspection must be completed by a certain date, known as the professional inspection contingency date which is typically 5 days from the Date of Acceptance. In Illinois, a licensed professional home inspector generally inspects the property and tenders a report to the Buyer and/or their attorney. Other inspections and tests covering the possibility of lead paint, asbestos, mold, etc. can be ordered if determined to be necessary after the initial inspection.

Repairs and Credits

Based on the outcome of inspections, Buyer may elect to ask the Seller for repair work, closing cost credits, or a reduction in the sale price due to flaws that were discovered during the inspection. Seller can either (1) agree to all Buyers’s requests, (2) offer a compromise on Buyer’s requests, or (3) decline tall Buyer’s requests. Buyer and Seller can then continue to negotiate terms on repairs and defects, or alternatively, terminate the transaction and agree to a return of the earnest money.

Home Warranties

Buyer may also negotiate for a home warranty designed to cover major appliances from operational failure extended over a fixed period of time as per the policy purchased. One year polices are fairly common.

If Buyer does not perform an inspection and does not tender a Professional Inspection report to Seller within the stipulated time frame, all repairs and/or credits are waived.

Loan Approval Process

For Buyers not purchasing the property in cash at closing, loan financing is the most typical method of obtaining the required funds to close in the form of a bank loan. There are various options available to Buyers, and a loan broker or officer can assist substantially with this part of the process.

Loan Application

A Buyer wil typically submit a Uniform Residential Loan Application to their lender, either directly or through a mortgage broker. Within 3 days, the lender sends a “Good Faith Estimate,” or GFE, to the Buyer which present a summary of estimated closing costs to expect at closing. The Good Faith Estimate is an “estimate” of closing costs, and will be followed by a Closing Disclosure days prior to closing which will have a more accurate bottom line cash to close amount due from Buyer.

Pre-Approval Letter

Prior to making an offer to purchase real estate, it is a good practice for Buyer to obtain a pre-approval with a lender. To accomplish this, Buyer will provide personal financial disclosures to the bank, which may include bank statements, statements for any outstanding loans, lines of credit, or other financial debts and liabilities. Additionally, Buyers will provide pay stubs, proof of income, and tax returns, authorized by the Buyer using a standard IRS form. Occasionally, lenders may request copies of marriage licenses, divorce settlements, child support, liens, bankruptcies, or judgments. It is important for all Buyers to respond promptly to requests for documentation from the lender, in order to expedite the loan approval process.

Conditional Loan Commitment Letter

Once the loan is conditionally approved, the lender will issue a loan commitment letter, indicating its intent to fund the mortgage contingent upon various conditions being met. Typical conditions will include an appraisal substantiating the value of the property.

Mortgage Contingency Deadline

The contract will stipulate the date on which the Buyer should have their loan approved, in order to provide a general timeline for closing. It is fairly common for both Buyer and Seller to agree on an extension of time to allow for the Buyer to get the loan approved, and cleared to close, if it is not cleared by the date originally stipulated. This request for and extension of time must be in writing, and the Seller must respond within a fixed period of time stipulated in the contract.

Property Appraisal

An appraisal is usually ordered by the lender or mortgage broker. The appraisal is designed to substantiate the ouches price of a property. If an appraisal comes in at a value less than the purchase price, the lender will decline to approve the borrower for financing unless the parties can agree to a reduction in the purchase price.

Homeowners’ Insurance

Homeowners’ insurance is required by most lenders before financing is approved, and proof of a policy is submitted to the lender during the reparation to close. The lender will also typically require title insurance.

Closing

The closing generally takes place at one settlement location (either at the office of an attorney or title company), and the Buyer will review all loan documents with their attorney before signing. A Seller’s attorney will have all required documents drafted in advance, and cleared by the title examiner at the title company before recording. Once all documents are fully executed and all payments and credits are exchanged, Buyers will take possession of the keys unless a separate agreement has been effectuated allowing the Seller to remain in the property for a previously agreed period after the closing.

Title Search

A title search is performed just prior to closing to determine if there are any liens, encumbrances, or other infractions that may affect title. If title is deemed clear of the impediments, the closing proceeds.

Plat of Survey

A plat of survey is a cadastral map, drawn to scale, showing the divisions of a piece of land, its borders, boundaries, and lot lines. The plat of survey is generally a Seller responsibility in Illinois, and will typically be provided to a Buyer at closing. The survey is useful to identify any possible encroachments on the land, and helps to identify the location of fences, and other structures close to the boundary lines of the property.

Closing Date

A Seller’s attorney begins preparing the paperwork for changing the title and deed, and will file an application for title insurance if the lender requires it. A final closing date will be scheduled on or around the date indicated in the contract, or as stipulated between the parties.

Bottom Line Cash to Close

A final cash figure for what a buyer needs to bring to the closing in the form of a cashier’s check is calculated, and a Closing Disclosure is provided to the Buyer. A Master Statement will then be prepared which includes all costs associated with the closing for both Buyer and Seller.

Final Walkthrough

An optional final walkthrough is often performed the day of or the day before closing to confirm the property is in the same condition it was when the contact was executed, or to verify that certain repairs were made if agreed to.

Closing Disclosure and Master Statement

At the closing, Buyer and Seller will sign all closing documents, including the Closing Disclosure and Master Statement, and the Buyer will sign the final loan documents generally comprised of the Mortgage, the Note, and other supplemental title company, state, federal, and municipal forms.

Final Payments

The Buyer pays the remaining required funds in their downpayment to an attorney or a representative of the title company via cashier’s check or wire transfer.

Recordation

A representative from the title company or your attorney will then record the transaction and deed with the appropriate municipality.

Possession

The Buyer receives the keys and, unless indicated differently in the contract, officially takes possession of the property.