Real Estate Closing Procedures in SW Florida - Home buying steps from contract to closing
Real estate closing transactions vary across the United States. Below are some general steps from contract to closing in SW Florida, but some closing steps vary among the counties, consult a Real Estate expert to be on your side help you to avoid pitfalls and help facilitate the process!
Offer to Purchase Contract
The majority of residential sales contracts are presented to sellers by real estate agents who use the standard forms provided by the Fort Myers or Naples Board of Realtor Association.
These "fill in the blanks" forms were developed by attorneys and comply with state laws.
Make sure your Real Estate Agent explains you all the important paragraphs and contingencies.
Time is usually of the essence so watch the deadlines for inspection period and financing!
A copy of proof of funds or a pre- approval letter from the lender is required for submitting an offer.
Home Inspections, Contingencies
Home inspections normally take place after the contract is accepted by all parties. Inspections are typically paid for by the buyer.
Contingencies for basic home inspections and pest inspections are part of the main body of the contract. Dates are inserted to indicate when buyers will complete inspections and when requests for repairs, if any, will be sent to the seller.
Contract contingencies for some types of inspections, such as those for septic systems and radon levels, are added by including a special addendum with the offer. The same is true for many other contingencies, such as appraisal requirements, buyer possession before closing and seller financing.
Other standard contingencies include financing provisions, a description of items to remain in the home (or to be removed) and clarification of association dues.
Residential Property Disclosure
Florida law does not require a Sellers disclosure but it is highly recommended. It gives you information about the condition of the home.
Sometimes the Seller has a copy already. If you order a survey for the property it is a Buyers cost. For a regualar size lot in the range of $250 - $350. Most lenders require a survey and it will be paid in most cases at closing with your closing settlement. If you don’t know any survey company, either your Real Estate Agent has a Survey company recommendation or the Title Company can help.
Title Companies do title searches, acquire title insurance for Buyers & Sellers and handle the closing transaction. Usually one appointed Title Company handles the Closing.
Title Companies and real estate agents work with lenders to coordinate the closing, making sure everything is handled on time.
Title Companies prepare deeds for sellers.
Buyers and Sellers hire their Title Company of choice. In Lee County the Seller usually pays for all closing costs and therefore appoint the Title Company. In Collier County the Buyer usually pays for the Title Insurance and therefore appoint the Title Company.
Typical Homebuyer Expenses:
A share of yearly property taxes, property association dues and other similar fees prorated to the closing date.
Title Company / Attorney fees for a title preparations
Hazard insurance for a year, downpayment and lender fees, flood zone certification fees.
Cape Coral assessments will be in most cases transferred and become the Buyers responsiblilty
Typical Seller Expenses:
Title Company fee for deed preparation.
Fee to record the new deed
Title insurance (about 0.5% fo the purchase price)
Tax stamps, an excise tax based on sales price. (about 0.7% of the purchase price)
Prorated share of: property taxes, property association dues, other similar fees.
Real estate commissions for Selling & Buying Agents if involved.
Fees associated with loan payoff or transferring funds into a checking account.
Any costs seller agrees to share with the buyer.
Step-by-Step Path to Closing
Buyer makes offer.
Real estate agents facilitate any negotiations.
Seller accepts the offer.
Buyer's earnest money, also known as the good-faith deposit, is placed in the Title Companies escrow account.
Inspections are ordered after an acceptable appraisal is received.
Any repair requests are negotiated with the seller.
Lender orders appraisal.
Surveys are ordered after a successful appraisal and inspections -- buyers don't want to invest too much into the property until they are sure it's a go.
Buyer applies for hazard insurance
Nearing closing date, buyers arrange for the utilities to be switched over to their names
Closing takes place at the office of the Title Company or a mail away closing can be arranged by sending all closing documents by email. These closing documents will then have to be signed and mailed back to the Title Company together with a copy of the passport. Sellers have to notarize the documents along with two witnesses. Originals must be returned to the Title Company on or before closing!
Buyer wires closing funds to the Title Company. All funds will be held in Escrow.
Title Company records new deed at the courthouse and disperses funds due to all parties.
Real Estate in Your Area
Transactions in your state might differ a great deal. Talk to a local real estate agent to get your state's specifics. Tell me how real estate closings take place in your area.
Real Estate Closing
Real estate closing is the transfer of the real estate title from seller to buyer according to the sales contract—the buyer receives the title to the real estate and the seller receives the money. However, there are numerous requirements and costs associated with closing that make it more complex than buying something at a store. Both requirements and costs result from the sales contract itself, from tradition and local custom, and from local, state, and federal laws. Most real estate closings use the services of an escrow agent/Title Company, who serves as a third-party that both the buyer and the seller can trust and who coordinates the activities between buyer and seller according to the sale and purchase agreement. The duration of the steps necessary to close a real estate transaction is known as escrow.
Just before escrow is closed, both the buyer and the seller receive a closing statement from the escrow officer, which lists the purchase price and all of the expenses associated with buying the property and how those expenses will be allocated between the buyer and the seller.
Additionally, the final closing statement also has credits and debits, which are paid out of escrow on behalf of the party being debited. Naturally, what is a credit to the buyer is a debit to the seller, and vice versa. Items that are typically credited or debited include the selling price, loan principal and associated points or fees, prepaid interest, earnest money deposit and any down payment, unpaid bills associated with the property, such as utility charges and taxes, and prepaid expenses such as property taxes, insurance, assessments and other expenses; security deposits from any tenants; any remaining loan balance that the seller must pay, and the costs associated with property inspection and appraisal.
Right before the closing, the buyer will want to be sure that everything is in order. The buyer should inspect:
the title evidence;
the seller’s deed;
proof that encumbrances have been removed;
the survey showing the exact boundaries of the property;
the results of any inspections, repairs, or alterations;
and any leases that pertain to the property.
Most sales contracts allow the buyer to make a final inspection, or walk-through of the property right before closing, usually with the Agent, to ensure that the property has been maintained, that agreed-upon repairs were made, or that there were no other significant alterations of the realty that were not planned.
So that the buyer will know the exact boundaries of the property, a survey is usually done, which also shows the placement of buildings, driveways, fences, and other significant landmarks, and will also show any encroachments from or to adjoining property. Sometimes the buyer relies on old surveys of the property, but usually the lender or title company may require a new survey.
If the seller has a mortgage or other liens, then he will have to obtain a payoff statement for each lien that lists the exact amount of money needed to pay off the mortgage or lien on the property as of the date of the closing. The payoff statement will usually include not only the remaining principal and interest, but also any prepayment penalties and the fee for issuing a certificate of satisfaction (aka satisfaction piece). The seller will receive credit for any reserves in escrow to pay for future taxes and insurance.
The main purpose of preclosing procedures is to ensure that everything is in order: surveys, property insurance, title insurance, title certificate, and the mortgage. The lender may also require that the buyer deposit money in an escrow account to pay for insurance and taxes for the property, to protect its collateral.
To be sure that the buyer is receiving good title, the buyer and the lender require that the seller delivers either or a title commitment from a title insurance company or a current abstract of title, which will list most encumbrances.
Because it takes time to record new encumbrances, the seller is generally required to sign an affidavit of title, in which the seller swears, to the best of his knowledge, that nothing has occurred since the seller’s title search to cloud the title, and that there have been no events that would possibly call into question the seller’s ownership rights or that would give others an interest in the real estate, such as would occur for unpaid property improvements that could subject it to a mechanic’s lien.
If anything on the affidavit of title proves to be false, then the title insurance company or buyer can sue the seller for damages.
Closing is the actual settlement and transfer of the real estate title and the money. It can either be face to face, where all parties and their representatives meet in a room to exchange documents, or it can be done through an escrow agent, who, as a disinterested party, receives all of the documents and finalizes the settlement and transfer or by mail.
Most real estate closings must be reported to the Internal Revenue Service using Form 1099-S, Proceeds from Real Estate Transactions, listing the seller’s social security number, the sales price, and any reimbursements to the seller of prepaid property taxes. Typically, the closing agent reports to the IRS, or, in some cases, the lender.
If a business entity is involved in the sale of the property, the Title company or the Buyers lender require proof of authorization of signer.
Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act (RESPA) was designed to inform the buyer of real estate about closing costs and to prevent abusive practices that inflate the costs of closing for the buyer. This federal Act, administered by the Housing Urban and Development (HUD) agency, applies to any closing using first-lien federally related loans, which includes most mortgages, for residences, condominiums, and cooperatives consisting of 1 to 4 units. It requires that the lender disclose the costs of the closing to the borrower and prohibits the lender from demanding excessive deposits for escrow accounts, which are accounts required by most lenders to pay for future real estate taxes and insurance premiums.
RESPA also prohibits referral fees, such as kickbacks, for directing the buyer to other services, such as a specific lender.
Some brokerages have a controlled business arrangement (CBA) that allows it to offer several related home-buying services, such as for title insurance, home inspections, and even moving. These business relationships must be disclosed. The brokerage may also offer computerized loan origination (CLO) services that allow a potential buyer to easily shop for a loan. However, RESPA requires that the broker inform the buyer that she can shop for those services elsewhere, and is not restricted to using only the settlement services provided by the CBA or the CLO.
RESPA has the following specific requirements:
within 3 days of the loan application,
the borrower must receive a special HUD settlement cost information booklet that provides an explanation of closing and its costs;
the borrower must receive a good-faith estimate of the settlement costs;
determine whether the lender will require a specific escrow agent to close the transaction;
the buyer and the seller have a right to review a filled-in Uniform Settlement Statement (HUD-1 Form) at least 1 business day before closing.
The HUD-1 form itemizes all charges that are paid by either the buyer or the seller at closing. Items that were paid by either party outside of closing do not have to be listed. However, if the lender required that any charges be paid before closing, then these must be listed as paid outside of closing (POC).
The lender must issue a mortgage servicing disclosure statement that includes information that the borrower would need to resolve any current or future complaints against the lender. Lenders are required to state whether they are going to keep the loan on their books or transfer the loan to a mortgage servicing company, because that will be the company that the borrower will be dealing with in regard to payments and any customer service issues.
TILA-RESPA Integrated Disclosure (TRID) Regulation
Starting on Oct. 3, 2015, a new rule by the Consumer Financial Protection Bureau — aka TILA-RESPA Integrated Disclosure (TRID) regulation, “Know Before You Owe” rule — requires several documents be given to the homebuyer before closing. When a homebuyer applies for a new mortgage, the lender will give him a copy of the Your Home Loan Toolkit by the CFPB, outlining the steps in the mortgage application process. Additionally, the homebuyer should receive a Loan Estimate (LE) document from the lender containing information required by the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) that lists the terms of the loan, including the interest rate and all closing costs, and the amount of cash it will be required to close the transaction. The LE document will allow the homebuyer to shop around for a mortgage. The CFPB recommends that the borrower obtain LE documents from at least 3 different lenders. At least 3 business days before closing, the homebuyer must also receive a Closing Disclosure that will list all of the costs and expenses that the borrower must pay at closing. The Closing Disclosure has the same format and lists much of the same information as the LE document, so the borrower should compare the Closing Disclosure with the LE to see if the interest rate or any of the fees or other expenses have changed.
Any changes in the Closing Disclosure that differ from the LE document but was not previously agreed to by the home buyer will reset the 3-day disclosure period if there is an increase in fees or any additional fees or if the interest rate increases by more than 12.5 basis points for a fixed-rate loan or 25 basis points for a variable-rate loan. However, lower fees or a lower interest rate will not reset the disclosure period, since it benefits the buyer. The purpose of this change in rules is to prevent abuses by lenders, title companies, or real estate brokers from inserting new fees or increasing the fees or interest rate on closing day, when many documents have to be signed by the buyer to close the real estate transaction. Resetting the disclosure period allows the buyer to adequately consider any changes or to consult with a lawyer or housing counselor concerning the changes. Buyers will be able to undo the loan if the new disclosure rules are not followed.
f the title has defects, the escrow agent will deduct the amount necessary to remove the liens from the seller’s money. If the title cannot be cured, then the agent will return everything to the senders of the material, effectively cancelling the sale.
Closing Costs buyers mortgage:
Buyer usually, if applicable, pays for:
Service or Origination Fee
Doc stamps on note (0.35 of $100 or fraction thereof)
Intangible Tax (0.002 on new mortgage)
Recording of Mortgage
Loan Discount Points
Credit Report Fee
Escrows for Taxes & Insurance (as required by Lender)Loan costs
Lender's inspection fee
Mortgage insurance application fee
Mortgage insurance premiums
Hazard insurance premiums
Tax stamps are excise taxes assessed on the sale of the property. Property ad valorem taxes and homeowner association fees are prorated, paid proportionate to the time of ownership during the year.
The buyer should retain the closing statement, because it serves as the initial cost basis for the buyer, which will be needed to determine the capital gain or loss on the property when the property is sold.
Additionally, the closing statement will also have deductible expenses, such as property taxes, insurance, and loan points.
A large part of the closing is the proration of these expenses between buyer and seller according to how long each will have owned the property during the time period covered by each bill.
Most closings use prorations that are calculated through the day of closing, meaning that the seller is assumed to own the property on the day of closing. If the prorations are to be calculated up to the day of closing, then the buyer is assumed to own the property on the day of closing. Which method is chosen depends on the sales contract, the traditional approach for the locale, or state law.
Proration results in credits and debits for both buyer and seller. A credit for the seller increases the amount that he is entitled to receive whereas a credit for the buyer decreases the amount that she must pay. A debit for the seller decreases the amount that he is entitled to receive whereas a debit for the buyer increases the amount that she must pay. The major credit for the seller is the sales price of the property, which is also the major debit for the buyer. Credits and debits are netted to determine the amount of money that the buyer actually pays to the seller at closing.
Bills can be divided into prepaid items, which are expenses that have been paid by the seller at the beginning of the billing period, and accrued items, which are expenses that will be paid by the buyer at the end of the period. Prepaid items are credits to the seller and debits to the buyer; accrued items are debits to the seller and credits to the buyer. Hence, it is obvious that what is a credit to the seller is a debit to the buyer, and vice versa.
The proration of most expenses, including taxes, mortgage, interest, and insurance premiums, in most localities uses a 360-day year, called a banker's year (aka statutory year), which is divided into 12 30-day months. The actual proration is then determined by summing the monthly bills and daily bills according to the following formulas:
Real estate taxes in SW Florida are paid in arrears.
Some prorations, such as for the division of rents from the property, use a 365-day year (366 in a leap year). In this case, a daily bill is calculated, then multiplied by the number of pertinent days:
The rent deposit is transferred from seller to buyer, so the deposit is a debit to the seller and a credit to the buyer.
the money for the property is paid, the buyer signs the closing documents and releases the money;
the seller signs the deed legally transferring the property to the buyer;
the buyer receives title insurance guaranteeing the validity of the title on the property.
The seller usually signs the deed in front of a notary public, who verifies that the signature is by the person so designated. The buyer’s name is also be on the deed, but the buyer does not have to sign the document.
The final step in closing is recording the deed is generally a recorder of deeds in the county courthouse. In many parts of the country, the recording of documents and their retrieval is being performed electronically, greatly shortening the time for recording and retrieving deeds. After everything is signed, the deed will be recorded in the county recorder’s office, along with the mortgage or the deed of trust document.
Your lender will monitor your credit right up until closing. Therefore, before closing on your new home, never do anything that may increase your credit risk, such as changing jobs, taking out additional loans, or increasing your debt, such as using cash advances from credit cards to pay closing costs or the down payment. Otherwise, the lender may cancel the loan.