Questions and answers on real estate closings.

              Typically, you must pay a portion of the property
taxes, the cost of all inspections, and all costs associated
with the loan, title search and closing. These costs
include the appraisal fee, survey, pest inspection,
lender fees, fees to establish an escrow balance for
homeowner’s insurance, taxes and any required private
mortgage insurance, attorney fees, title insurance,
and recording fees. The seller normally pays the
balance due on any existing loans, his portion of the
taxes, commissions to real estate agents, fees for deed
preparation, cancellation of existing liens, and revenue
stamps payable to the state. In most transactions,
payment of these fees is negotiable between the parties.
However, if you are getting a VA or FHA loan, the
lender may require the seller to pay particular closing
costs, such as the pest inspection.
Q: I am being asked to put something on the
HUD- 1 that is different than what I agreed to. Is
that ok?
A: Probably not. The HUD- 1 should reflect the
agreement between the parties and match the terms set
out in the purchase contract. You may be committing
loan fraud if you make a false representation to
a lender on the HUD- 1, the loan application, or
elsewhere in order to obtain a larger loan amount or a
loan on more favorable terms than you are otherwise
qualified for under the lender’s guidelines. Loan fraud
is a federal crime punishable by up to 30 years in
MAKE ADJUSTMENTS FOR DOT GAIN.
Questions and Answers on:
REAL ESTATE
CLOSINGS
prison and $ 1 million in fines. If you are asked to
do any of the following, refuse and immediately contact
the North Carolina Real Estate Commission:
• create a false gift letter for down payment funds.
• make it appear you made a deposit when, in fact,
you did not.
• give the seller a secret or even false or “ forgivable”
second mortgage.
• make payments outside of closing which are not
disclosed on the HUD- 1, such as additional fees paid
to service providers, to the seller, or third parties.
• make a false statement that you will occupy the
property.
• give false personal information about yourself to the
lender.
Q: What is “ prorating”?
A: Certain items ( real estate taxes, some utility bills,
occasionally special assessments, etc.) are prorated at
closing. “ Prorating” occurs when you and the seller
are each responsible for a portion of an expense. For
example, property taxes are assessed as of January 1
but not normally payable until the end of the year. The
seller is responsible for his share of the property taxes
from January 1 through the closing date. You will be
responsible for the remainder of the year. Review the
contract carefully to be sure you know what items, if
any, will be prorated at closing.
Q: What are special assessments?
A: Local governmental units can assess property
owners for certain improvements to their property such
as sidewalks, sewer lines, street repairs, and drainage
systems. Since these assessments run with the property,
you should verify with the closing attorney before
closing that there are no existing special assessments
( either pending or confirmed).
The North Carolina Real Estate Commission
P. O. Box 17100
Raleigh, North Carolina 27619- 7100
919/ 875- 3700
Web Site: www. ncrec. state. nc. us
0,000 copies of this public document were printed
at a cost of $. 000 per copy.
REC 3.56 11/ 1/ 04
is representing. Others involved in the transaction
may recommend or offer you financial incentives
to hire a particular closing attorney, but you have
the final word. Prior to closing, the seller should
give the closing attorney a copy of the deed to the
property. Also, if there is an outstanding mortgage on
the property, the seller should give the attorney any
personal information needed to obtain a loan payoff
figure so any existing loan( s) can be paid off in full
at closing. As the buyer, you will need to give the
closing attorney a copy of your contract and contact
information about your lender, any inspectors, or other
persons who provided services in connection with the
transaction.
Since closing involves several complex phases
( examination of the title, completion and explanation
of legal documents, and resolution of any possible
title problems), you should carefully consider having
an attorney assist you throughout the process and
during the closing. Also, read each closing document
so you fully understand each step of your real estate
transaction.
If a non- attorney is handling your closing, that
person may render only administrative services related
to the transaction — not give you legal advice.
Q: What is a closing statement or “ HUD- 1”?
A: A closing statement is a document that
summarizes all funds received by you and the seller
at closing, and all funds paid by you and the seller
for various expenses of the transaction ( real estate
agent commissions, loan payoffs, fees for inspections,
property taxes, etc.). For all closings involving federally
insured loans, the Real Estate Settlement Procedures
Act ( RESPA) requires that this information be reported
on a form from the federal Department of Housing and
Urban Development ( HUD) — a HUD- 1 form.
Q: If I’m a seller, when should I get my proceeds
from the sale of my property?
A: The closing attorney may disburse funds
immediately after closing has been completed, the
title has been updated, and the documents have been
recorded. Often, time may not permit the closing
attorney to record the documents, update title, and
disburse funds, or the lender may not be able to wire
the loan proceeds, all in the same day. When this
happens, a “ dry closing” is sometimes held with the
funds being disbursed the next business day. If you are
a seller, you should discuss the timing of disbursements
with the closing attorney in advance so you can be
aware of any possible delays. If you are a buyer,
be aware that the seller may not be willing to give
you possession of the property until he receives his
proceeds from the sale.
Q: What if I can’t close by the time stated on the
contract?
A: If your purchase contract states that “ time is of the
essence” as to the closing date and you fail to close on
that date ( regardless of the reason), you will probably
be considered in breach of the contract. Consequently,
if your lender fails to provide the closing package in
time for closing, you may unintentionally lose your
chance to purchase the property. Likewise, if the seller
cannot complete a major required repair prior to the
stated closing date, the seller may lose the sale.
If the contract does not have a “ time is of the
essence” provision and the party who is having trouble
is making a good- faith effort to close, courts have
allowed the contract to remain viable for a reasonable
period of time after the designated closing date.
Consequently, buyers and sellers who are
considering including a “ time is of the essence”
provision in the purchase contract should consult with
their attorney to be sure they understand its full impact.
Related reading available from the Real Estate
Commission:
• Questions & Answers on : Earnest Money Deposits
• Questions & Answers on: Condos and Townhouses
• Questions & Answers on: Home Inspections
• Questions & Answers on: Residential Subdivisions
& Planned Communities
• Working with Real Estate Agents