Avoiding Potential Pitfalls At The Closing Table

If you have ever been through the process of closing a real estate deal, you know it’s a long process. From agreeing on a purchase price with the seller to securing financing with your lender, there are a lot of moving parts to manage. So when you are ready to sign the final documents, you may feel like you’ve already been through the worst of it. However, don’t get too comfortable just yet, for there are several more potential pitfalls to address before you can close the deal. Here are some of the most common, and tips on how to successfully navigate them.

The Closing Statements

Since federally-mandated changes greatly improved the closing process in 2015, buyers can no longer claim they didn’t know the final closing numbers ahead of time. Today, all buyers receive an advance copy of the Closing Disclosure and the Loan Estimate forms several days before closing, so there are no surprises. Take the time to carefully review all this information so you know what is expected of you at closing. If you need to make changes, the sooner you know about them the better.

The Final Walk-Through

Before you sign the final documents, you must schedule a time to do one last check of the property. The only exception is if you intend to demolish the structure. The seller should have made any changes you requested as part of the purchase agreement, but you need to verify this is the case. Likewise, if you made specific requests that certain fixtures or appliances be left with the property, make sure they are still present prior to closing. If you wait until the last minute, you will have difficulties getting a resolution in time. As an investor, you are probably not expecting a house in perfect condition. However, you owe it to your investment to ensure the property is in the condition you expect, and that there are no new damages since you put in your offer. Give yourself a day or two between the walk-through and the closing so you have time to take action if needed.

Title Documents

When it comes to titles, we have two potential pitfalls to avoid. First, make sure the title search is completed prior to closing. You will need to know in advance if there are any liens against the property so you have time to address them. Many real estate attorneys do not initiate the title search until the deal is approved. This way, you don’t have to pay for a search on a deal that never happens. Work with your attorney to ensure the title is clear before you commit to the purchase.

Also, investors sometimes lack a clear understanding of how the property should be held. You may think you can close as an LLC or under a name other than what was on the loan application. This is not the case. You can change the title after the fact, but not during the closing process. Avoid issues with this by communicating with your lender and your attorney early on. This way, you won’t get so far into the process that it becomes too late to make changes.

Closing Funds

This one is pretty straightforward—if you don’t have the money, you can’t close the deal. If you have never bought a house before, you may not realize you must have a bank check at closing. A personal or company check will not work. Don’t find out too late that you don’t have the proper proof of funds. Since you will have the final figures several days before closing, you should have plenty of time to get the bank check and be ready for the closing date.

Additionally, you need to be aware of wire fraud, which is, unfortunately, an ongoing problem in today’s world. Do not wire funds to anyone without verifying those instructions came from a legitimate source. If you are about to wire money:

• Call the person who sent the instructions
• Verbally confirm where the money is going

If you are unable to speak directly with your contact, check that company’s website for posted instructions. Make sure those instructions match those given in the email. Many find out too late that the official-looking email they received with instructions to wire money to their escrow company was not legitimate. Hackers are smart. They know how to hack real estate personnel email accounts and monitor communications with buyers. Then they mimic those accounts to send fake instructions when the time is right. Wire transfers are not protected. Many people are unable to recover that money once it is sent. Be vigilant, so you do not find out too late that your hard-earned money went to the wrong people.

Communication

If there is one commonality between these potential pitfalls, it’s communication. Without it, you are asking for trouble, headaches, and a lot of unnecessary stress. Communicate with your team, which includes your lender, attorney, and real estate agent. Most closing issues are caused because someone missed a detail that could have been caught with better lines of communication. You likely have a lot on your plate. But make time to follow up, ask questions, and avoid the potential pitfalls to ensure a successful closing.