Closing A Real
Estate Deal

What is Closing

The mortgage loan closing (or settlement) is when the County Recorder records the Grant Deed and the Trust Deed. Actual possession of the property varies according the terms of the contract. In the San Diego area, possession is usually given to the buyer on the day of closing. In some cases and in some other areas, this occurs a day or two after the recording.

At closing, the buyer requires that the seller prove the title (ownership) is complete and free of anyone else's claims. Technically, two separate closings occur at this time: the closing of your loan and the closing of the sale.

The closing meeting is typically attended by the buyer and seller, their attorneys, both real estate sales professionals, a representative of the lender, and the closing agent. Fortunatly, in California, we do not have a closing meeting.  We use an Escrow Co.  All the work is done prior to the recording with the help of the Escrow Co and the other participants in the transaction. In addition to a number of other activities.

What Takes Place Before Closing

The final days and weeks before closing can be a stressful period for both buyer and seller. For example, you may worry that something will happen prior closing to prevent the sale. The following activities must be performed in the final weeks before closing:

• Title Search
  You need to make sure that a title search on the property has been made and that you have obtained title insurance before the closing meeting. A title search is required to prevent fraudulent sales. Lenders want to be sure the seller is indeed the owner of the property. The title search also attempts to uncover any liens (legal claims against a property on the title). Any claims against the property must be paid before (or often at) closing.

• Title Insurance
  Title insurance is required as further assurance that the seller is giving a "marketable title." A lender's policy protects the lender in the event a flaw in the title is detected after the property has been bought. The owner's policy protects the buyer. You may also get a price break if the title company that previously insured the title will give you a "reissue" policy provided you had it insured or reinsured within the title companies time frames(3-5 years). Many competing companies will match that rate if you ask.

• Order a Property Survey
  The lender may require a survey, or plot plan, of the property. This is done to confirm that the property's boundaries are as described in the sales contract. Usually the buyer pays for the survey and the lender orders it. You may be able to save some money by requesting an "update" from a surveyor who has surveyed the property previously.

• Order a Termite Inspection
  In many locations, homes must be inspected for termites before they can be sold. You need a certificate from a termite inspection firm that states that the property is free of both visible termite infestation and termite damage. Usually the seller pays for this and the seller's real estate sales professional orders the termite inspection. But you will want to make sure that the original certificate is delivered to your lender at least three days before closing.

• Obtain Well and Septic Certifications
  If your property is not served by public utilities, you will need local government certification of the private water source and sanitary sewer facility before closing. Usually the county government performs the certification.

• Go on the Final Walk-Through Inspection
  Your sales contract has included a clause allowing the buyer to examine the property within 5 days before closing. This is their opportunity to make sure the seller has vacated the house and left behind whatever property was agreed upon. They will also want to make sure that all conditions of the sales contract have been met. If they observe major problems, they have the right to delay the closing until they are corrected, or they could ask that the monies be placed in an escrow account at closing to cover major repairs to be completed.

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Meeting to sign documents

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Closing Costs

Closing costs vary widely depending a variety of factors, including price, commission and location. Overall, you can expect your closing costs to amount to between 7% and 9% of the sales price for houses and condos.  See "Who Pays What".

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Closing Documents You Receive

You will receive a number of important documents through escrow. Review the list below to prepare for the documents that you'll receive.

• HUD-1 Settlement Statement: The settlement sheet itemizes the services provided and lists the charges to the buyer and the seller. It is filled out by your escrow agent and must be signed by both buyer and the seller. You should have been allowed to review this form on the business day before your closing meeting so that you will know your closing costs in advance.
• Affidavits: You will be asked to sign a FIRPTA AND CAL-FIRPTA in which you declare your US and CA residency status.  If you are not a resident, the government wants their possoble tax bite up front.
• Deed: Only the seller signs the deed at closing. It is the document that transfers ownership from the seller to the buyer. At the closing, the buyer will receive a copy of the deed.

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Closing-Related Tax Tips for Buyers and Sellers

There are certain tax benefits for buyers related to closing. They are:

• Some of the buyers costs at the time of closing can be taken as deductions on that year's income tax return. They include any prepaid mortgage interest and property taxes (consult your closing statement).
• Points paid at the time of closing represent additional mortgage interest, and the buyer is entitled to take as a deduction not only points the buyers pay, but also any paid by the seller.
• Many of the buyers other closing costs are simply added to your cost basis for the house. When you sell, they'll reduce your capital gain. If laws stay the same, you probably wouldn't owe any tax at that point, due to the generous federal exclusion of gain from a home seller's income.
• Make sure to keep all your records, including those for permanent improvements, which are also added to your cost basis. You never know when Congress will change the rules in the future.
• On each year's income tax return, you may deduct all property taxes paid on any real estate you own.
• You are also entitled to claim as deductions all mortgage interest paid on a first and second home. Your deduction is limited to interest on up to a million dollars borrowed to buy or improve your property, and interest on an additional hundred thousand dollars in equity loans or second mortgages. If your borrowing exceeds that amount, consult an accountant and an estate planner.