For the buyer, if it hasn’t already, the thrilling reality of buying a home will definitely hit you at closing. Along with the excitement, the deed and the shiny new keys also comes a rather large stack of paperwork. For the buyer and seller, it’s important to understand the events leading up to the real estate closing.
The most essential step for either party to take is hiring a real estate lawyer as early as possible. Ideally, this should be done before an Offer to Purchase is submitted. Because a home is usually the single largest investment that anyone makes, for the most complete protection, you cannot cut corners by trying to represent yourself, relying on non-legal professionals or shop around for the lowest priced professionals you can find. If you do, you might simply end up with a lawsuit, instead of your dream home, and there is a high risk that you could end up spending far more money in the future, to correct problems that could have been easily avoided.
The Purchase and Sale Agreement
Normally, as the first step, an Offer to Purchase is made by the home buyer to the seller. Once accepted, a real estate contract called the Purchase and Sale Agreement (or “P&S”) is signed shortly thereafter. Despite what anyone might tell you, an Offer to Purchase is a binding contract (even if you never actually sign a Purchase and Sale Agreement). This means that if either party attempts to walk away before signing the Purchase and Sale Agreement, the other party can ask a court of law to compel the other side to close (through an equitable court action referred to as Specific Performance). It is also important to note that there is nothing standard about the so-called Massachusetts Standard Form Purchase and Sale Agreement and it must be specifically tailored to each transaction. In order to draft this document properly, you need to know which disclosures the seller must make. Hiring a real estate lawyer as soon as possible will help you avoid costly mistakes and also help you understand the full legal consequences of the transaction.
The Home Inspection
In most cases, a professional home inspector will conduct an inspection after the offer has been accepted, but before the purchase and sale agreement has been signed. The buyer may also want to have both a mold inspection to determine whether toxic mold exists, and a radon inspection to make sure that such levels are within the EPA standards. A professional home inspection is critical from the Buyer’s perspective (although it is sometimes waived to make an offer more attractive to the seller which can be very risky). It is worth noting that the buyer should also keep in mind who is recommending the home inspector. Does that person want the home inspected thoroughly or are they simply interested in the completing the sale? A lawyer who represents you and is looking out for your interests can refer you to a reputable, professional home inspector. In Massachusetts, the recommendation can never come from the seller’s real estate agent but is permissible if it comes from the buyer’s real estate agent.
Title Examination
After signing the P&S, the buyer’s lender’s attorney places a request for a title exam (an examination of the home’s ownership history), tax information, and then begins preparing any necessary closing paperwork. This attorney is commonly referred to as the “Closing Attorney.” Each home has a series of documents recorded at the local Registry of Deeds that reflect prior owners, liens, encumbrances, mortgages and other parties who have or have had an ownership interest in the house or condominium. These documents are examined to identify all outstanding interests and to determine if any title defects exist that must be resolved before closing. Title defects are rather common but typically can be before closing (especially if the seller was savvy enough to have purchased and Owners Title Insurance Policy at closing).
Mortgage Issues are Addressed
The closing attorney works with the buyer’s lender to verify closing cost figures, taxes (through the “municipal lien certificate” or “MLC” which is issued by the relevant city or town), home owner’s insurance (through an “insurance binder”), and other important details of the transaction. In addition, if prior mortgages have to be paid, the closing attorney closing the loan will also arrange to payoff those loans with the seller.
The Settlement Statement is Prepared
The closing attorney prepares the Closing Disclosure (“CD” and formerly known as the HUD Settlement Statement) which is a large spreadsheet showing all the costs that will be paid at closing by the buyer and the seller. If we are representing the buyer and the buyer’s lender (which is very common practice in Massachusetts), we will discuss these charges with you ahead of time (otherwise, the first time you see these charges might be at your closing). The buyer should check with the mortgage lender’s attorney a day or two before closing to confirm the amount you will need to bring to closing as certified funds. The check should be made payable directly to the home buyer which will then be endorsed to the closing attorney at closing.
The Real Estate Closing ("Passing Papers")
Both buyer and seller should bring the following items to the closing (1) a valid drivers license or passport, (2) a certified check to cover any closing costs, and (3) a personal checkbook for any last minute adjustments. During the real estate closing, the buyer will sign a number of documents, each of which will be explained by the closing attorney. The buyer will also need to decide whether or not to purchase an Owners Title Insurance Policy from the closing attorney (which we always recommend). After the closing, the documents are recorded at the Registry of Deeds and the transaction is considered complete. The seller receives the proceeds check, and the buyer can move in.
From the seller’s perspective, the day of closing will no doubt be chaotic as the seller scrambles to pack, move out, and move into his or her new residence. Complicating this even more can be commitments at work and family obligations. It is, therefore, often wise for the seller’s real estate lawyer to draft a “power of attorney” for the seller’s signature and appear at the closing in the seller’s place. The seller’s attorney will be familiar with, and able to handle, all the documents that will need to be signed.
