What Happens At Closing

Signing Document

Closing is the formal consummation of a contract to purchase and sell real estate. It is at closing when the buyer, or the buyer's lender, tenders the purchase price to the seller, and the seller signs and delivers a deed to convey the property to the buyer and (typically) tenders possession of the property to the buyer.

In Georgia, the closing agent (or escrow agent) for the purchase of real estate must be an attorney. It is the closing attorney that collects all funds necessary to close, then disburses the lender's loan funds, pays off the existing mortgages against the property, and disburses the funds to other parties in accordance with the contract. The closing agent also records the deeds necessary to transfer ownership of the property with the Clerk of Court and files any security deed that evidences a lender's secured interest in the property.

So, what do you need to know about closing? First, the closing attorney will cause a title search to be conducted on the property being purchased. The purpose of a title search is to: (1) verify the legal owners of the property; and (2) determine what liens or mortgages must be paid off by the seller in order for the purchaser to receive a clear title to the property. Once the search has been conducted, the closing agent will issue a commitment for title insurance (or title binder) to the lender and/or the buyer, setting forth the requirements at closing. Any problems with the title to the property should appear on the commitment, so it's always a good idea to request a copy.

All institutional lenders funding conventional mortgage loans require lender's title insurance to be purchased by the buyer, insuring the lender's investment if there is a title problem in the future. Buyers are also offered the opportunity to purchase an owner's title insurance policy that will protect their interest in the property. The closing attorney can explain the intricacies of title insurance and its benefits in more detail at or prior to closing, as they are generally agents of the title insurance company.

As closing approaches, the parties will be provided a draft of the Closing Disclosure (or "CD") by the closing agent. The CD is prepared by the closing agent prior to closing, so the parties will have an understanding of the charges at closing and the buyer will know the amount of money they need to tender to close the transaction, and the seller will know the amount of money they will receive at closing. Please note that Georgia law provides that for a closing attorney to fund a transaction, funds exceeding $5000 received from a buyer in a real estate closing must be sent via wire transfer, and funds exceeding $1000 but less than $5000 must be tendered via a certified bank check.

Buyers will want to examine the CD closely to obtain a good understanding of the fees and charges and compare them with the estimated fees provided by their lender prior to closing. Generally, the CD will contain fees associated with any loan obtained by the buyer to finance the purchase of the property, fees required to fund any escrow account for the buyer, title fees, and fees charged by the closing attorney, as well as fees charged by the county to record the relevant documents and funds required to be paid in advance, like home owner's insurance and interim interest. Generally, payments under a traditional mortgage note are not due until the second calendar month after closing (as interim interest is charged). So, if a closing occurs on January 10, for example, the first payment under a note generally wouldn't be due until March 1.

For sellers, the settlement charges are usually fewer in number than the buyer. The mortgage payoff, real estate commission, real estate ad valorem tax pro-ration and other amounts negotiated in the sales contract are deducted from the purchase price to determine the amount of funds the seller will net at closing. Of course, sometimes there could be other fees, but these are the noteworthy, customary fees. Many times, a seller's payoff is just a bit more that what they expected at closing. This is often the result of the "principal balance" on a mortgage statement not reflecting the interest for the month of closing. For example, if a loan is paid off on the 15th of the month, the principal balance on the mortgage statement would not reflect the interest that has accrued on the loan since the statement was generated. Also, generally, any funds held in an escrow account by a mortgage company that is being paid off are tendered back to the seller after closing and not deducted from the payoff.

As annual property tax bills are typically due near the end of the calendar year, the closing attorney will generally issue the buyer a credit and the seller a deduction for the amount of time for which the seller has occupied the property prior to closing (based on the prior year's tax bill), as the buyer is generally responsible for the entire tax bill after closing.

At closing, a seller will execute and deliver to buyer a deed to convey title to the property (generally a "Warranty Deed"), and a buyer will execute a promissory note, agreeing to pay the lender back any amount of money that has been borrowed on the terms agreed to by the parties. The buyer/borrower will also execute and deliver a deed to secure debt (sometimes commonly referred to as a mortgage) to the lender that provides the property is collateral for the repayment of the loan. The closing attorney will record the relevant documents upon the consummation of closing, and disburse the funds in the manner described on the CD.

Among other things, the deed to secure debt provides that if the payments are not made in accordance with the terms of the note that the lender can foreclose the property via the process of non-judicial foreclosure, where the property is sold on the courthouse steps to the highest bidder for cash after appropriate notices and advertisements.

At Coleman, Chambers, Rogers & Williams LLP, for more than twenty years, we have been providing quality residential and commercial closing services to our clients. We can typically turn around a file in just a few days, and we urge you to compare our prices with others.