What to Expect at Your Closing...
Dependent upon numerous factors (type of loan,
number of borrowers, involvement of powers of attorney, demeanor of the parties,
etc.) a closing will last 30 minutes to one hour. For example,
purchasers/borrowers who are familiar with the process generally will require
less time than a first time home buyer who may have more questions.
Virtually all closings will have the same
general documentation. The most important of which are the HUD-1
Settlement Statement, Promissory Note, Security Deed and Warranty Deed.
These documents are described below in greater detail. Generally speaking,
loan documents are not negotiable at the closing table.
At a closing involving a loan, the law firm
conducting the closing represents the lender. Answers to questions or
other information provided at closing is given with the understanding that we
are not representing the borrower/purchaser, but rather, we represent the
interests of the financial institution loaning the money. No party to the
transaction is discouraged from providing their own separate legal
representation.
HUD-1 Settlement Statement
This document is promulgated by the U.S. Department
of Housing and Urban Development and is widely used throughout the country.
It is the final financial summary of the closing. It contains the sales
price, closing costs, prepaid items, pro-rata shares of property taxes, real
estate commissions, homeowner association dues, and other ancillary items.
The closing attorney will explain these line items. Prior to closing, your
loan officer should have provided a Good Faith Estimate, which contains an
estimation of the final Settlement Statement. Normally, the Good Faith
Estimate and the Settlement Statement will closely match (although there will
often be slight differences). It is a good idea to bring your estimate to
closing, as in the event there is a significant difference in the numbers, it
will be easier to understand the disparity.
Promissory Note
Simply stated, the Note is the promise to repay the
money borrowed. Highlights of this document include the loam amount and
interest rate, term of the loan, first payment due date, late payment and
pre-payment penalties, in any. The closing attorney will cover these Note
terms which should serve to reiterate and reinforce what you and your loan
officer have already discussed.
Security Deed
In the State of Georgia, a Security Deed will be
signed at closing. Other states have similar documents known as a
"Mortgage" or a "Deed of Trust." The basic objective is the same - that
is, to secure the lender's collateral rights in the property for which the money
is being borrowed. Should a purchaser default on the loan (that is, fail
to make the payments on the loan) the lender may commence foreclosure
proceedings whereby the borrower may lose the property. The lender must
follow a procedure set out by statue. However, this is a non-judicial
process in Georgia, meaning the borrower does not possess an automatic right to
a court hearing during the foreclosure process.
Though this notion can be alarming, generally
speaking, a lender would prefer not to foreclose on your home as foreclosure is
usually a losing proposition for the lender as well as the purchaser.
Borrowers having difficulty making timely mortgage payments should communicate
the same to their lender early on. Often, a lender will reasonable work
with purchasers suffering from temporary financial hardship.
Warranty Deed
This is the instrument which conveys (transfers) the
title to the property from one party to another. The seller warrants to the
purchaser that it possesses good and clear title to the property when conveying
its ownership interest in the property. The deed will possess a legal
description of the property. After the closing, the deed will be recorded in
the records of the county where the property lies, then sent to the new owner.
Other Documents
There will be numerous ancillary documents to sigh
at closing. These documents are standard documents required to close the
loan and will be explained by the closing attorney.
Title Insurance (Lender's Policy / Owner's Policy)
Lenders
will require their security interest in the property to be protected by
title insurance. The insurance premium is considered part of the closing
costs. Which party incurs this cost normally will have been negotiated in
the sales contract. Unlike most states, in Georgia, owner's title insurance
is optional. This means a purchaser is not required to obtain a policy
providing protection from title defects. However, it is highly recommended
a purchaser obtain the protection afforded by an owner’s title insurance
policy.
Prior to
your closing a title examination will have been performed on the property. This
examination will identify the correct description of the property, the existence
of mortgages or other encumbrances on the property, the existence of protective
covenants impacting the property, the existence of any easements impacting the
property, etc. Prior to closing, all known title problems will have been
addressed. However, numerous hazards may not be disclosed by a thorough title
examination. Examples include deed forgeries, past or present survey errors,
mis-recording or mis-indexing of documents, claims by heirs of predecessors in
title, and even claims by American Indians identifying the property as an
ancient tribal burial ground or other sacred site (this has been a recent and
common problem within the Atlanta area).
Owner’s
title insurance is a protective mechanism shielding your investment. In the
event of a successful adverse claim against your ownership, you could lose
all your equity in the property. Owner's title insurance provides a two-fold
protection: First, any claim made against the title to the insured's
property is properly defended. This is important as even a claim having no
merit will have to be defended, whereby the legal fees will in all
likelihood greatly exceed the one time cost of the insurance policy.
Second, any loss actually incurred by the insured via a successful claim
would be paid by the title insurance company. The cost of the insurance
will be on the Settlement Statement and discussed during the closing.
Policies provide coverage for the entire life of your ownership and the
premium is payable only once. Premiums will vary dependent upon the
property’s value, but will normally range from $175 to $450 for most
transactions. The importance of this is obvious - our firm is an agent for
three of the largest, best-managed title insurance companies in the country.
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