This chapter discusses the process of real estate closings. It provides objectives for understanding legal procedures for closing a real estate sale and mortgage loan. It describes key parts of the closing process including file creation, gathering information by reviewing contracts and commitments, preparing documents, conducting the closing, and finalizing the transaction. It also provides checklists of typical documents and tasks involved in residential and commercial real estate and loan closings.

1. Chapter 14
Real Estate Closings

2. Objectives
• After reading this chapter, you should be able
to
– Review a real estate contract and prepare a
closing checklist for both the purchaser and the
seller.
– Review a mortgage loan commitment and prepare
a closing checklist for the borrower.

3. Objectives
• After reading this chapter, you should be able
to
– Understand the legal procedures required for the
closing of a sale of real property.
– Understand the legal procedures required for the
closing of a mortgage loan.

4. Introduction
• Sale closing
– Consummation of a real estate transaction
• Loan closing
– Consummation of a loan secured by a mortgage
• Escrow agent
– Usually a title insurance company
– Safeguards the interests of all parties

5. The Environment
• Closing on a residential home can be a long
process
– Involves a great stress for both the buyer and the
seller
• Residential loan closings are not a high-fee
item for law firms
– Can only be profitable in a high volume

6. The Environment
• Commercial transactions are easier
– People involved are not strangers to business
transactions
– Substantially more money, risks, and negotiations
involved

7. Anatomy of a Real Estate Closing
• File creation
– Usually referred to a firm as a “transmittal
package” from a loan officer
– Initial closing package
• Sales contract
• Lender's loan commitment
– Law firm opens the file and checks for conflicts of
interest

8. Anatomy of a Real Estate Closing
• Information gathering
– Starting point is the closing package
• Reviewing the real estate contract
– Main document that sets forth the obligations of
the purchaser and the seller
– Determines the true date of closing
– Legal description of the property

9. Anatomy of a Real Estate Closing
• Reviewing the real estate contract
– Documents required by the seller and the
purchaser at the time of closing
• Affidavits
• Corporate resolution
• Warranty deed
• Bill of sale for personal property

10. Anatomy of a Real Estate Closing
• Reviewing the real estate contract
– Documents required by the seller and the
purchaser at the time of closing
• Assignment of all warranties
• Foreign person affidavit
• Form 1099-B

11. Anatomy of a Real Estate Closing
• Reviewing the real estate contract
– Seller may also be required to provide
• Termite clearance letters
• Keys
• Warranties
• Assignment of leases and security deposits
• Assignment of service contracts
• Estoppel letters from prior lenders and tenants

12. Checklist: Closing Documents
• Title examination
• Title commitment/policy
• Survey
• Hazard insurance
• Foreign person affidavit
• Form 1099-B
• Title affidavit

13. Checklist: Closing Documents
• Hazardous waste affidavit
• Warranty deed
• Bill of sale
• Assignment of warranties
• Broker indemnity
• Settlement statement

14. Contact with Seller, Purchaser, and
Broker by the Paralegal
• If the seller or the buyer is a business entity,
the paralegal should require copies of
chartering documents
• Ordering the title examination
– Examiner needs
• Name of the current owner
• Legal description of the real property
• Any title information or surveys available

15. Contact with Seller, Purchaser, and
Broker by the Paralegal
• Ordering the survey
– Surveyor needs
• Legal description of the property
• Any previous surveys
• Correct names of the purchasers
• Correct name of the lending institution
• Any special lender requirements for a survey

16. Contact with Seller, Purchaser, and
Broker by the Paralegal
• Ordering hazard and fire insurance
– Requirements
• Name of the purchaser
• Correct address of the property
• Amount of the loan
• Name and address of the lender
– Mortgagee endorsement

17. Contact with Seller, Purchaser, and
Broker by the Paralegal
• Obtaining the termite clearance letter or bond
– Should be obtained before the closing date
• Reviewing the title examination
• Satisfaction of loans and liens

18. A Paralegal's Review of the
Mortgage Loan Commitment
• Indicates the mortgage lender's approval of
the borrower's loan application and the
lender's commitment to the loan amount
requested
• Parties
• Loan amount
• Interest rate

19. A Paralegal's Review of the
Mortgage Loan Commitment
• Term of loan
• Repayment terms
• Prepayment terms
• Security
• Appraisal
• Insurance
– Mortgagee loss payable clause

20. A Paralegal's Review of the
Mortgage Loan Commitment
• Escrow for taxes and insurance
• Title insurance
• Survey
• Compliance with law
• Financial documents
• Documents
• Defaults and late charges

21. A Paralegal's Review of the
Mortgage Loan Commitment
• Commitment fee
• Loan expenses
• Closing and commitment expiration date
• Disbursement of loan proceeds
• Acceptance of a loan commitment
• Assignability

22. Checklist: Loan Commitment for
a Residential Loan
• Title commitment/insurance
• Survey
• Hazard insurance
• Truth-in-lending statement

23. Checklist: Loan Commitment for
a Residential Loan
• Borrower's affidavit
• Note
• Mortgage
• Settlement statement

24. Checklist: Loan Commitment for
a Commercial Loan
• Title examination and title commitment
• Survey and surveyor's inspection report
• Fire insurance
• Borrower's attorney's opinion
• Copy of personal property list
• Copies of all leases
• Tenant estoppel letters for all leases

25. Checklist: Loan Commitment for
a Commercial Loan
• Subordination and nondisturbance
attornment agreement for all leases
• Certificate of occupancy for all leases
• Certified articles of incorporation and bylaws
– Acme, Inc.
• Certificate of good standing
– Acme, Inc.

26. Checklist: Loan Commitment for
a Commercial Loan
• Corporate resolution
– Acme, Inc.
• Environmental audit
• Photographs of improvements
• Federal tax ID number
• Zoning letter
• Utility letters

27. Checklist: Loan Commitment for
a Commercial Loan
• Letter from regional office of Environmental
Protection Agency
• Borrower's affidavit
• Promissory note
• Deed to secure debt
• Assignment of rents and leases

28. Checklist: Loan Commitment for
a Commercial Loan
• Security agreement
• UCC financing statement
• Rental achievement escrow
• Loan closing statement

29. Special Provisions in a Construction
Loan Commitment
• Lender wants the right to
– Review and approve all preliminary and final plans
or specifications
– Be consulted on and approve any and all changes
in such plans or specifications
– Establish minimum standards for construction

30. Special Provisions in a Construction
Loan Commitment
• Lender wants the right to:
– Establish a time schedule for various stages of
construction from commencement to completion
– Receive periodic progress reports
– Undertake periodic inspections of construction
– Be supplied with a certificate of the architect as to
the satisfactory completion of the work

31. Special Provisions in a Construction
Loan Commitment
• Lender wants the right to
– Be supplied with a certificate of the borrower as
to the total construction costs for the project
– Be supplied with a certificate of the borrower
stating that all utility lines are completed,
connected, and adequate
– Be supplied with pictures of the project as
construction progresses

32. Special Provisions in a Construction
Loan Commitment
• Lender may require the following
– Copy of the construction contract
– Copies of all major subcontracts
– Copy of the building permit
– Utility letters
– Final plans and specifications
– Architect's contract

33. Special Provisions in a Construction
Loan Commitment
• Lender may require the following
– Engineer's contract
– Cost breakdown
– Use of a construction supervisor
• Hazardous waste
• Leasehold loans

34. The Closing and Aftermath
• All parties are notified of the date, time, and
place of the closing
• Closing proceeds are disbursed through an
escrow agent
• Closing statement
– “Item of prime interest”

35. The Closing and Aftermath
• Sequence of events
– Handle the sale aspects first
• Seller signs all transfer documents
– Loan transaction
• Purchaser signs all loan documents

36. The Closing and Aftermath
• Closing finished after
– All documents are signed, witnessed, and
notarized
– Good funds have been verified from the purchaser
and the lender
– All checks are cut and disbursements are made to
the parties present at closing

37. The Closing and Aftermath
• Disbursing, recording, and transmitting final
documents
– Generally, all closing documents should be
recorded as soon as possible after closing
• Including assignments, UCC statements, liens, etc.

38. The Closing and Aftermath
• Final closeout by the paralegal
– Original recorded documents are sent to the
parties
– Purchaser receives the warranty deed
– Lender is entitled to receive the recorded
mortgage, assignment of rents, UCC financing
statements, etc.
– Title policy should follow the commitment exactly

39. Checklist: Real Estate Closing Tasks
• File creation
– Open file
• Client name
• Client number
• Billing information
• Cross-reference and conflict check

40. Checklist: Real Estate Closing Tasks
• Information gathering
– Review real estate contract
• Name of seller
• Name of purchaser
• Name of broker
• Description of real property
• Date of closing
• Requirements of seller
• Requirements of purchaser

41. Checklist: Real Estate Closing Tasks
• Information gathering
– Prepare closing checklist from review of real
estate contract
– Review loan commitment
• Name of lender
• Name of borrower
• Amount of loan
• Commitment expiration date
• Loan closing requirements

42. Checklist: Real Estate Closing Tasks
• Information gathering
– Prepare a loan closing checklist
– Order title examination and title policy
• Description of real property
• Date when examination is required
• Name of title company
• Name of insured
• Insured amount

43. Checklist: Real Estate Closing Tasks
• Information gathering
– Order survey
• Legal description of property
• Information regarding previous survey
• Name of purchaser and other names to appear on
survey
• Name of lending institution to appear on survey
• Flood hazard certification

44. Checklist: Real Estate Closing Tasks
• Information gathering
– Order survey
• Other special requirements for survey
• Date of completion for survey
– Order hazard and fire insurance
• Name of insured
• Proper address of property
• Amount of insurance

45. Checklist: Real Estate Closing Tasks
• Information gathering
– Order hazard and fire insurance
• Proof insurance premium has been paid one year in
advance
• Name of lender for mortgagee clause
• Date for delivery of insurance policy

46. Checklist: Real Estate Closing Tasks
• Preclosing procedures
– Review title examination and title policy
– Obtain copies of all title exceptions
– Request satisfaction amounts from any
mortgages, liens, or encumbrances to be paid at
closing

47. Checklist: Real Estate Closing Tasks
• Preclosing procedures
– Review survey
– Verify that all sale obligations have been met by
both purchaser and seller
– Verify that all mortgage loan commitment
requirements have been satisfied

48. Checklist: Real Estate Closing Tasks
• Document preparation
– Preparation of all purchase and sale documents
– Preparation of all loan documents
• Closing
– Inform all parties of the date, time, and place of
closing
– Inform purchaser of proper amount of proceeds
needed for closing
• Instruct purchaser to bring good funds

49. Checklist: Real Estate Closing Tasks
• Closing
– Verify that lender has deposited loan proceeds
with firm
– Reserve conference room
– Prepare closing packet of documents for
purchaser and seller

50. Checklist: Real Estate Closing Tasks
• Disbursing, recording, and transmittal of final
documents
– Transmit deed, mortgage, and other documents
to courthouse for recording
– Transmit money necessary to pay prior liens,
mortgages, and encumbrances
– Prepare final package for purchaser and seller
– Prepare final loan package for lender

51. Checklist: Real Estate Closing Tasks
• Final closeout
– Obtain all recorded deeds, mortgages, and other
documents from courthouse
– Obtain all satisfactions and cancellations for prior
mortgages, liens, and encumbrances
– Order final title examination
• Verify proper recording and indexing of deed,
mortgage, and other recorded documents

52. Checklist: Real Estate Closing Tasks
• Final closeout
– Obtain and review title insurance policy
– Transmit recorded deed and title insurance policy
to purchaser
– Transmit recorded mortgage and other loan
documents and title insurance policy to lender
– Do final review of file to verify that all closing
procedures have been completed
– Close file and send to storage

53. The Closing and Aftermath
• Closing and short sale
– In a short sale purchase, the price for the property
is not adequate to pay the mortgage indebtedness
on the property and the closing costs

54. The Closing and Aftermath
• Short sale letter
– Lender approves the sale and sets forth conditions
for satisfaction of its mortgage
– May require receipt of all net sales proceeds
• May require minimum net sales proceeds
– Will contain a list of items that can be paid or
deducted from gross sale proceeds to arrive at net
sales proceeds

55. The Closing and Aftermath
• New methods of closing
– Virtual closing
• E-mail
– Home visit

56. Use of E-Mail
• Determine whether e-mail is an appropriate
method of delivery
– Be careful of what is said in an e-mail
• Due to discovery rules
– Be aware of the tone of an e-mail
– Consider the proper audience for an e-mail

57. Use of E-Mail
• Paralegal should always keep in mind
attorney–client privilege
– Use “PRIVILEGED and CONFIDENTIAL” notation at
the bottom of an e-mail

58. Technology for Document
Production
• Paralegals must be proficient in computer
skills
• Current automated document preparation
systems include
– Fill-in-the-blank
– Search-for-the-code document systems
– Intelligent document assembly systems

59. Technology for Document
Production
• Residential closings use standard Fannie Mae
(FNMA) forms and an automated database
• Document assembly software enables lawyers
and paralegals to develop their own set of
standard forms

60. Technology for Document
Production
• Hardware
– Scanner
• Online real estate closings
– Enable parties to communicate with one another
– Helpful when numerous parties from various
geographical areas are involved in the closing

61. Ethics: Conflicts of Interest
• Attorneys cannot represent a client where an
attorney's own interest might impair his or
her independent professional judgment
– Cannot represent a client in which the attorney
has a financial interest or represent two clients in
the same transaction
• Early disclosure helps resolve conflicts of
interest problems

62. Summary
• Real estate closing
– Main fee-generating transaction for most real
estate attorneys
• Timeline
– File creation
– Information gathering
– Document preparation

63. Summary
• Timeline
– Closing
– Disbursement, recording, and transmittal of
closing package
– Final closeout