The Closing Process

Post-Sale Tasks

- ASAP deliver earnest money and all paperwork to broker and coop company - ASAP notify administration person responsible for entering sale information into the MLS and update the appointment setting system if your listing - Install "Sold" sign if your listing - If your buyers, have them make arrangements to apply for a loan as soon as possible. (Have buyers prepared. See loan application checklist below.) If your listing, send to closer ASAP copies of: o Purchase agreement and all addenda o MLS sheet o Closing information sheet o Information on buyer form o Copy of earnest money check (if available) o Copy of underlying contract for deed, if any (NOTE: If you are missing any of the above, send what you have now, and the rest later.)

What Buyers Should Bring to Closing

- Certified or cashier's check for down payment, made out to themselves, and they should check with the lender to make sure the amount is correct - Checkbook for closing costs, interest adjustment and escrow - Homeowner's insurance binder and receipt for one year premium - Photo ID (e.g., driver's license)

Sale File Required Contents

- Complete Purchase Agreement forms with Seller's Disclosure - Listing Form - Compensation Disclosure to Buyer form - Buyer Rep Form - Agency Relationship Form - Buyer Data - Copy of earnest money check - Copy of inspection report(s) - Affiliated Business Disclosure (if applicable) - Sales Report - Signed Home Warranty Form (accepted or waived) - Lead Based Paint Addendum - Arbitration Disclosure and Agreement

Items Needed at Time of Loan Application

- Copy of purchase agreement and each addendum - Lead paint form - Certificate of Eligibility or DD Form 214 (VA only) - Copy of MLS sheet - Buyer should also bring: o Checkbook for appraisal and credit report fees (ask lender for amount) o Information on outstanding loans: monthly payments, loan balance, lender, loan number, approximate date of final payment o Current savings and checking accounts: bank, account numbers, balance. o Current liquid assets: stocks, bonds, credit union deposits, etc. o Value of other assets: household goods, autos, clothing, etc. (TIP: Most people tend to underestimate the value of their personal property) o Social Security numbers of all buyers o Addresses of residences for last two years o Places of employment for last two years o Information about any bankruptcies in last two years

What Sellers Should Bring to Closing

- House and garage keys, garage door openers - Addresses for the past 10 years (if out of state, just city and state) - Photo ID (e.g., driver's license)

What must be provided by the homeowner's insurance agent

- Paid receipt of insurance premium - Binder, effective at closing - One year policy naming the lender as additional insured

Items to Give Listing Agent

- Purchase agreement, addendums, and disclosures signed and initialed by buyers - Earnest money check (endorsed to listing company, if necessary) - Buyer Information form or pre-approval letter

Items Needed to Present an Offer

- Purchase agreement, addendums, and disclosures signed and initialed by buyers - MLS sheet copy (if your listing, bring file) - Earnest money check or note payable to listing company (make a copy, if possible) - Buyer Information form or pre-approval letter - Completed Seller's Net Sheet (if your listing)

Pre-Closing Checklist for Buyers

- Tell buyers when and where closing will be, and give directions; give them the title company phone number in case they get lost. - Make sure all parties have agreed to and understand the time of actual possession. - Make arrangement for the pre-closing inspection, preferably for the day before - Remind them to notify all utilities and the Post Office

Pre-Closing Checklist for Sellers

- Tell sellers when and where closing will be, and give directions; give them the title company phone number in case they get lost - Make sure all parties have agreed to and understand the time of actual possession - Remind them to notify all utilities and the Post Office

3 Phases of Closing

1. Before the closing 2. During the closing 3. After the closing

The three laws of nature in real estate transactions

1. If something can go wrong, it will go wrong. 2. When something goes wrong, it will go wrong at the worst possible time. 3. If everything seems to be going well, then something has been overlooked.

3 Types of Closers

1. The lender's closer 2. The title or escrow company's closer 3. The seller's closer

How many days does the author suggest allowing to process the mortgage loan and search for title problems?

30-45

Take note: How to get paid faster as a selling agent

A closer can draft a check directly to the selling company if the listing broker gives the closer written permission to do so, and with a day or two of advance notice. Some listing brokers will not allow this, but it doesn't hurt to ask the listing agent if you are a buyers' agent. The sooner your company receives its split of the commission, the sooner you will be paid.

Yield Spread Premium (YSP)

Also known as a service release premium (SRP), this fee is paid by the wholesale lender/investor to a mortgage broker for originating the loan, and the amount depends on the interest rate that the borrower has locked. The higher the interest rate above par (the interest rate at which there is no yield spread premium earned), the greater the YSP. This is sometimes referred to as the "premium" or earnings on the backside. Wholesale lenders show the YSP/SRP for various interest rates on daily rate sheets that are available to LOs by fax, email, the lender's website, and, most commonly, through web-based pricing engines that show loan originators' pricing structures from various lenders. This can be a little confusing at first, but we'll go through an example in a moment.

When does the closing process begin?

As soon as you have an accepted purchase agreement

Loan Underwriter

Determines if the buyers and the property meet the requirements for the loan. If the underwriter questions any particular documents, he or she will request further documents or verifications from the loan processor. These requests are commonly called conditions, or stipulations ("stips").

Title Insurance Examiner

Examines the property's chain of title and county records to make sure it is free from any liens, outstanding claims, or other problems (informally known as "clouds"). The title company then issues a commitment to insure the title, and sends it to the buyer and the closer.

Loan Processor

Files all documentation, and verifies information such as buyer's bank account balances and employment. The processor also orders the appraisal. When the verifications are returned and the appraisal report is completed, the processor sends the file to the underwriter.

Buyer's Agent

Helps the buyer find a lender, title insurance company, closer, home warranty company, and home inspector. The buyer's agent also works closely with the loan originator to make sure the mortgage process is completed.

The Seller's Closer

In the case of a purchase, will prepare the deed and bill of sale for personal property. This closer will usually be present at the title or escrow closing. There are times when the "title or escrow company closer" and the "seller's closer" can be the same person and/or company.

Who deposits the earnest money check into a trust account?

Listing broker

Mortgage bankers

Organizations (usually large) that lend money direct to borrowers. They usually obtain their funds by reselling the mortgages to secondary mortgage market institutions such as Fannie Mae and Freddie Mac. (More about them at the end of this chapter.)

Mortgage brokers

Organizations (usually small) or individuals who broker loans through the wholesale departments of lenders. The lender funds the loan at the closing, and then collects the borrower's monthly payments (called "servicing the loan").

Commercial banks

Organizations that obtain deposits in savings and checking accounts, then lend a portion of the money to borrowers. They might resell their loan notes on the secondary mortgage market for liquidity, or retain and service them—collect the payments themselves. The retained loans are known as "portfolio loans".

Credit unions

Organizations that offer mortgage loans to members. They usually operate with the same business model as a mortgage broker, but might keep loans in its asset portfolio, like a commercial bank.

Who solves title problems?

Solving a title problem is a collaborative task, involving the title examiner, seller, seller's closer, buyer's closer, and sometimes the listing agent. It all starts with the title examiner's announcement to the listing agent and buyer's agent that a title problem must be cured, that trigger's the following activities: The seller's closer will work with the seller to resolve title problems. Usually, the problem can be solved with the furnishing and filing of paperwork, but sometimes, though rarely, the seller will need to have a real estate attorney perform legal actions to cure title defects. The listing agent and buyer's agent should be informed of progress. The buyer's closer approves the way a defective title has been cured, and confirms to the lender and buyer that all required documentation has been received before the closing takes place. Homeowners insurance agent - Prepares a commitment, binder, and paid receipt for one year of insurance on the dwelling, and sends this to the closer. Buyer's home inspector - Inspects the home and reports any needed repairs to the buyer. Most inspectors will explain how serious the problem is, and give an idea of the expense of the repair. The purchase agreement will probably have an inspection addendum, which describes how these repairs may be negotiated between the buyer and seller. Home warranty company - For a fee, the company will warranty certain systems in the property for a period of time—usually one year. Warrantied systems usually include such things as appliances, furnace, water softener, and air-conditioner. The buyer's agent will help the buyer complete the application, fax or email it to the warranty company, and then send a copy to the closer so the fee can be charged at closing.

Loan Originator

Takes the buyer's loan application, advises the buyer of available loan programs, gathers all required documentation, works with loan processor and underwriter to get the loan approved and ready for closing. Also known as loan officer, mortgage advisor, or mortgage consultant. Primary duties: 1. Marketing and Sales 2. Pre-Qualify and Pre-Approve Borrowers 3. Help the Borrower Complete the Mortgage Loan Application 4. Help the borrowers identify which loan program(s) they qualify for and help them select the one that is best for their situation

Take note: Only brokers can receive commissions

The closer cannot draft a commission check directly to a real estate agent, because only brokers can be paid real estate commissions. The brokers, in turn, will pay their agents.

What happened to the earnest money?

The earnest money will remain in the listing broker's trust account, and after the closing the broker will deposit it into the company operating account as part of the commission owed. If the earnest money is in excess of the real estate commission, as a listing agent you should give the broker a few days' notice to draft a check that you can bring to closing for the difference. The check will be payable to the closing company.

Who is the earnest money check made payable to?

The listing company

Who usually prepares and executes the deed?

The seller's closer

Who usually prepares the bill of sale for any personal property at closing?

The seller's closer

Origination fee

This is typically a percentage of the loan amount, and is paid by the borrower. The origination fee is disclosed on the Loan Estimate. Sometimes LOs refer to this as the "upfront" fee. Origination fees are typically 1% of the loan amount, but can be negotiated for less, especially if the borrower is willing to accept a slightly higher interest rate.

The Title or Escrow Company's Closer

This person prepares a balance sheet form known as the Closing Disclosure, showing funds paid to and received by the buyers and sellers. He or she supervises and authenticates the signing of all paperwork and apportionment of funds. This closing is usually attended by the buyers and sellers, or their representatives. Real estate agents and loan officers often attend these closings as a goodwill gesture toward their clients, and to help resolve any last-minute misunderstandings or problems that might arise.

The Lender's Closer

This person prepares the promissory note and other loan documents and arranges for the funds to arrive at the closing of the loan. Sometimes this closer performs quality control audits of files just prior to closing to verify if the borrower is still employed or has not borrowed money since the application.

Pre-Approval

This usually means all the requirements for pre-qualifying are met, and that the borrower has furnished income and asset documentation. A pre-approval would require at least a credit report and verifications of income and assets.

Pre-Qualified

This usually means that the borrower has formally or informally stated his/her income and debts, and the loan originator has calculated their loan limit by using Debt-to-Income (DTI) ratios. The LO then runs a credit report, and based on their credit score and desired loan program, pre-qualifies them for a mortgage amount. The LO might also obtain approval through an automated underwriting process (sometimes referred to as DU [desktop underwriter] or LP [Loan Prospector] or DO [Desktop Originator]).

Appraiser

Verifies that the purchase price is at least market value, and prepares a standardized report for the underwriter, showing comparable sales.

Listing Agent

coordinates inspection appointments (i.e., home inspectors and appraiser) and prepares sellers for the closing (see checklist below).

Daisy Chain

it's sometimes called a daisy chain when one transaction depends on one or more other transactions to close. For example, the buyer of your listing has sold his house to another buyer, who has sold her house to another buyer — and all of those sales are contingent on the preceding one to close.