The Settlement Process
A Step by Step Guide to Closing After the Contract is Signed
After you have a fully ratified sales contract, it is time to find a settlement company to handle your settlement and to insure that you will own your home free and clear from any liens or claims.
- You will meet a number of service providers such as settlement companies, lenders, insurance agents, inspectors, surveyors and appraisers to name a few. They may use terms which are new to you. For your education, in English and Spanish, a Glossary of Terms has been provided under the tab "Buyer/Seller Tools" on the left hand side of the home page of our website. Please use the glossary for any terms you do not understand. If the glossary does not answer your questions, please call us.
- After the seller accepts (ratifies) the contract you submitted on the house you are purchasing, you usually will be required to put down a deposit check to show you are a serious purchaser and you want to purchase the house. Sometimes the deposit is non-refundable and sometimes it is refundable if certain conditions to settlement do not occur in accordance with the contract. The deposit is usually held by either the buyer's real estate agent or the settlement company. If there is no real estate agent representing you or the seller it is wise to have the deposit held by a neutral party. A settlement agent is often an attorney, but is always a licensed agent in the state in which the house is located. Settlement agents are also sometimes referred to as closing agents, escrow officers or escrow agents. Settlement companies are often referred to as title companies or escrow companies. If the settlement agent is to hold the deposit, the settlement agent will deposit the check for the deposit into a special escrow account under the care of the settlement company for the purpose of conducting settlements.
- Upon receipt of the ratified contract, the settlement company will order the title work on the house. The title work or abstract will examine the ownership history of the house, including any loans secured by the house, and will also examine certain court or judgment records relating to the owners of the house. Each house has a series of documents recorded at the local courthouse that reflect prior owners, lenders and other parties who have or had an interest in the house you're buying. These documents are examined to identify all outstanding interests in the house, summarized and then sent to the settlement agent for review in the form of a title abstract.
- After receipt of the title abstract, the settlement company begins reviewing the abstract to determine if the house is owned by the seller and if there are any encumbrances (liens) against title which might impact your ownership of the house. Mortgage issues are addressed to determine if any loans secured by the house are outstanding in the Court records. If prior mortgages have to be paid to provide you with free and clear ownership of the house, or if a loan secured by the house is being assumed, the settlement agent will determine the amount of such loans and the procedure necessary to payoff or assume such loans. In addition, if you are obtaining a loan to help finance the purchase of the house, the settlement agent will work with your lender to verify dollar figures and other important details of the transaction and to provide insurance to the lender insuring the lender that you will own the house free and clear of unacceptable encumbrances.
- In most cases a survey of the property where the house is located will be required to show that the house is located within the property boundaries and that no part of the house, any fence or any other structure encroaches onto the property of the neighbors. Lenders will also require an inspection for termites to ensure that the house is structurally sound. It is a good idea to consider hiring a professional inspector to conduct a home inspection. The inspector should be able to find defects in the house or repairs that need to be made to avoid surprises after you move into your house. If possible, you want to have the contract to purchase the house contingent upon the receipt of a good inspection report which either requires the seller to fix problems uncovered at the house or allows you to terminate the contract and receive a return of the deposit in the event the seller does not repair any problems. You should also obtain homeowner's insurance for the house to protect against damage or destruction by disaster. If you are getting a loan to help pay for the house, lenders will require homeowner's insurance as a condition to making the loan.
- After the lender has provided the instructions for settlement and listing of the lender's fees and charges relating to your loan and you and the seller are ready to proceed to settlement, the settlement agent will prepare a settlement statement. This document will show all of the charges that will be paid at settlement. Any funds paid to or from the settlement agent or to or from the seller, you or the lender must be shown on the settlement statement. You should check with your settlement agent to confirm the amount you need to bring to the settlement at least one day prior to settlement since you should bring a certified check or other bank check acceptable to the settlement company to settlement for any amounts you need to bring to settlement to buy the house. Personal checks are usually not accepted by settlement agents.
- At settlement you should have two forms of picture identification, including a driver's license or a passport. Settlement will be conducted by a licensed settlement agent and will usually have the seller and you at the settlement table. Often the real estate agents and your lender will also attend settlement. During the settlement, you (and whoever else is buying the property with you) will sign a number of documents, each of which will be explained to you by the settlement agent. If you are buying the house with at least one other person you should discuss the type of ownership (tenancy) which best suits your needs. A deed conveying the ownership of the house to you by the seller will set forth the names of the buyer and the tenancy in which the house will be held. Tenants in Common are two or more people who own the house together; however, if one dies, the decedent's ownership interest is passed to the decedent's heirs, not the other house owners. Joint Tenants are two or more people who own the house where upon the death of one of the owners, the decedent's ownership interest passes to the other Joint Tenants, not necessarily to the heirs. Tenants by the Entirety are Joint Tenants who are married. After your settlement is complete, the house is yours.
- The settlement agent should review all of the documents to make sure everything is signed. The settlement agent will have the appropriate documents recorded in the land records of the applicable jurisdiction in which the house is located, and will disburse the funds collected for various fees and expenses to the appropriate parties. The settlement agent is responsible for satisfying all the title conditions, paying the seller and the previous lender, obtaining money from the buyer and new lender, obtaining recording fees and taxes for the government and filing the paperwork at the local courthouse or county recorder's office. If you have purchased a policy of title insurance insuring that you own the property (an owner's title policy) the settlement company will prepare and deliver to you an original of the owner's title policy shortly after settlement. If you are buying a house, it is very wise to get an owner's title policy to insure that you own the property and that your ownership is not subject to any claims or liens. Without purchasing an owner's title policy, you will have no protection against any claims from third parties relating to your ownership of the house. Please see our Understanding Title page for a summary of the reasons for a buyer to purchase title insurance.
- Now all that is left is to move into your new home.
