Chapter 21

Preparing for
Settlement

B
uyers may dread the arrival of closing day
and the huge outlay of cash, yet still be
eager to get on with it so they can move
into their new home. Sellers look forward
to collecting their bounty, but their antici-
pation may be tinged with anxiety and sadness about
giving up their home for good.
The bulk of the work between contract signing
and closing falls on the buyer, who must arrange for a
home inspection, financing, and homeowners- and
title-insurance policies.
As the seller, you have relatively little to do at this
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point. If you agreed to have something repaired, do it

now. If a problem arises with the title, you could be-
come involved with paperwork, legal bills, and delicate
diplomacy (see Chapter 11). If a title problem is so com-
plicated it threatens to delay settlement, your buyer
may want to void the contract. Your lawyer may be able
to smooth things over for a time, but if the deal seems
headed for the rocks you’ll need to determine what
your rights and options are.

Keep Yourself Informed

K
eep abreast of progress on both sides. If your
buyer is having trouble getting a loan on the
terms specified in the contract, you should know
it; if she is turned down, it could jeopardize the whole
deal, and you could end up putting the house back on
the market. A day or so before closing, make sure all the
necessary papers and documents have been gathered
and are in the hands of the right players. The settle-

Buying and Selling a Home : Make the Right Choice in Any Market (8th Edition), edited by of Kiplinger’s Personal Finance Magazine Editors, Dearborn
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 Part II FOR SELLERS

IF YOU HOLD AN FHA LOAN

Federal Housing Administration
(FHA) rules permit mortgage lenders to
charge sellers a month’s worth of interest
no matter how early in the month settle-
ment occurs. A seller paying off an FHA
loan who agrees to settle on June 5 will
pay May interest on June 1, and then pay
nonprorated interest on June 5 for the
month of June. This practice is allowed
because these loans are pooled and sold
to investors in the secondary market.
Investors are promised an entire month
of interest income no matter when in the
month they buy Ginnie Mae mortgage
securities. A lender who waives the right
to charge sellers a full month’s interest
must pay the difference to investors out
of its own funds.

ment agent was probably selected by the buyer, but you

are free to bring your own lawyer to the closing.
Nothing is more tedious than sitting around a set-
tlement table while the escrow officer or settlement
lawyer telephones lenders, insurance companies, con-
tractors, and others for figures that should be at hand.
A process that should take an hour instead drags on
Copyright © 2005. Dearborn Trade, A Kaplan Professional Company. All rights reserved.

for half a day.

At this stage, there should be no arguing over who
pays what because everything should have been
spelled out in the contract. You don’t want any surprises,
either. Your agent should have kept you up-to-date
on what you should expect to net from the transac-
tion. You should have received an estimated-net sheet
when you signed the listing agreement, and another
along with each contract presentation. Prior to settle-
ment, the escrow officer or settlement lawyer should
have provided you with a copy of the settlement sheet
(see Chapter 12).
If you are handling your own settlement, you can
get an estimate at the time you arrange for closing, or
“open escrow,” whether it is with a title or abstract
company or an abstract lawyer.
Can things go wrong? Sure. Documents can be
misplaced, delayed, or lost. Some of the common
last-minute glitches can be avoided.

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 Chapter 21 PREPARING FOR SETTLEMENT

People who should be present at closing need to be kept At this stage,

informed of any change in the date, time, or place.
They should be reminded a week before closing, and there should
again the day before. If closing is being conducted by be no arguing
the buyer’s lawyer, and you want your lawyer to be
there, too, you should have cleared the initial date be-
over who pays
fore signing the contract. However, if closing is de- what because
layed or changed for any reason, you’ll need to clear
it with your lawyer again. Follow up with each indi-
everything
vidual on whom you are depending. should have
been spelled
Anyone named on the deed under which you hold title
must sign the new deed by which you grant title. In out in the
many jurisdictions, if you have married since acquir- contract.
ing title, your spouse also will have to sign the deed.
If a co-owner doesn’t live nearby, allow time to have
the deed signed and returned before settlement.

You should know when you will be paid. Don’t expect to

walk away from the settlement table with a check in
hand, but don’t leave the question of when and how you
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will be paid undetermined. Most settlement lawyers do

not disburse checks until all the necessary documents
have been recorded. If that’s the procedure, when will
the recording take place, and how often are checks
made up? Most likely, the buyer’s lender will want to re-
view settlement papers and wait for the deed to be
recorded before disbursing any funds.

If you are buying another property, consider having

both settlements at the same office, scheduled back-
to-back. That way, the timing of the disbursement is
not a problem. You sign a paper authorizing the title
company or lawyer to assign the funds from your sale
to your purchase.

The Papers You’ll Need

F
or more details on the settlement process, see
Chapter 12, “Get Ready for Settlement.” Here’s a
checklist of what will be needed for closing:

Buying and Selling a Home : Make the Right Choice in Any Market (8th Edition), edited by of Kiplinger’s Personal Finance Magazine Editors, Dearborn
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 Part II FOR SELLERS

■ A copy of the sales contract and documentation show-

ing that any contingencies have been removed or
satisfied.
■ All documents needed to complete the transfer of title.
These usually are handled by the title insurance or
abstract company and your lawyer or closing officer.
They may include: certificate of title, deed, correcting
affidavits, quitclaim deeds, survey, and title insur-
ance policy or binder. Be sure the closing officer has
the necessary papers showing that all judgments,
liens, and mortgages have been removed or satisfied.
■ Homeowners insurance policy. When the buyer plans
to take over the unused portion of your hazard insur-
ance, you’ll need to make arrangements in advance
so that all the paperwork will be completed on time.
■ Prorations for ongoing expenses such as insurance
premiums, property taxes, accrued interest on as-
sumed loans, and utilities (if not shut off between
owners). The proration date usually is determined
by local custom but can be different if the contract
so specifies.
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■ Receipts showing payment of the latest water, electric,

and gas bills. Escrow accounts are set up in some areas
to cover the final water bill. If the final bill is not
paid and the water service is provided by the com-
munity, a lien would be placed against the property.
■ A certificate from your lender indicating the mort-
gage balance and the date to which interest has been
prepaid. The closing officer usually obtains these fig-
ures calculated to the day of settlement.
■ Photo ID such as a driver’s license.

Buying and Selling a Home : Make the Right Choice in Any Market (8th Edition), edited by of Kiplinger’s Personal Finance Magazine Editors, Dearborn
358
Trade, A Kaplan Professional Company, 2005. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/inflibnet-ebooks/detail.action?docID=3016151.
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